Why the Timing Is Right for Private Credit Secondaries

For LPs looking for liquidity, private credit could be an attractive option to offload.

Illustration by II

Illustration by II

Tapping into secondaries as a way to find liquidity has become a mainstream option for private market investors. The now-robust market is no longer just a space for sellers to offload distressed assets at a steep discount — and it’s now having knock-on effects for private credit.

The timing is right: Increasing institutional investor interest in private credit is dovetailing with a predicted need for liquidity. And private credit secondaries managers are ready to heed the call.

According to Pierpaolo Casamento, head of private debt secondaries at Tikehau Capital, the expectations of sellers and buyers in the debt secondaries market have finally aligned.

“Since the summer, we’ve seen expectations adjust for sellers,” he said by phone. “Top-tier general partners have started to adjust valuations of their portfolios and assets. That helps reset expectations in some way.”

Long active in the private credit markets, French-headquartered Tikehau Capital expanded into the private credit secondaries market in 2019, hoping to compete stateside by offering a strategy few others do.

“The growth of the market has far exceeded our initial expectations,” Casamento said. “Our thesis, which is very simple, is private debt primaries have grown significantly over the past 20 years. Once the primary market gets to that level of maturity, there needs to be a secondary outlet for limited partners that need liquidity for whatever reason.”

It’s still a niche market, according to Casamento, who estimates that the space sees between $15 billion and $20 billion in annual deal volume. But the market is growing. Pantheon Ventures and Coller Capital each raised private debt secondaries funds in 2022, while JPMorgan staffed up a team covering the asset class (and poached Tikehau veteran, Andrew Carter, in the process).

Allocators have started taking note, too: The Ventura County Employees’ Retirement Association invested $40 million in the Pantheon private credit secondaries fund earlier this year, for instance.

“The environment changed,” Casamento said. “In the past three years a lot of things have happened, so something may not be as attractive today. It’s good to be able to reprice.”

With private credit, there are two types of secondaries transactions: LP-led deals and GP-led deals. Unlike private equity secondaries, private credit deals are never single assets — they’re always a portfolio of loans with 15 or more underlying borrowers at a minimum, Casamento said.

He said that Tikehau only considers portfolios that are “quite deployed” — those with 60 percent or more capital already invested.

Tikehau is primarily active in the LP market, looking to allocators as sources of strong portfolios of assets. According to Casamento, portfolios of senior debt assets with slightly older vintages will likely fetch more attractive prices.

“That’s where naturally they would probably look to get a price that’s closer to par,” Casamento said. “My sense is that it’s what they will look to sell first.”