Evening Brief – 05.12.23

Using secondaries as a source of liquidity for investors in the private market has become standard procedure. The market is no longer just a platform for sellers to offload problematic assets at a steep discount and is now having an impact on private lending.

The moment appears perfect: There is a predicted need for liquidity at the same time that institutional investors’ interest in private loans is rising. Private credit secondary managers are available to take your call. The expectations of buyers and sellers in the debt secondary market are now in agreement.

In private credit, secondaries transactions fall into two categories: LP-led deals and GP-led deals. Contrary to private equity secondaries, private credit arrangements rarely involve a single asset; instead, they typically involve a portfolio of loans with at least 15 underlying debtors.

GP-led agreements have seen a significant change since they were first employed to handle “zombie” finances. They are becoming more frequently utilized in complex restructurings that emphasize high-quality assets.

Private debt primaries have substantially expanded during the last 20 years. Limited partners who require liquidity for any reason must have access to a secondary market once the primary market achieves that degree of development.

Others regard GP-led projects as a buyout or co-investment opportunity, while some LPs view them as a source of alpha and have a single broad secondaries bucket. There are also LPs looking for opportunistic investments to take advantage of the current market, which is seeing good pricing due to demand from both GPs and LPs.

It is still a specialized market with an estimated $15 billion to $20 billion in yearly deal volume. Despite this, the market is growing.