At a Glance
- Sizeable Primary Market: The private debt market has expanded meaningfully to $1.7 trillion in AUM1, establishing a scaled base for an active secondary market to exist
- Seller Pressures Driving Market Activity: A growing subset of investors are utilizing the secondary market to address a broad range of liquidity and portfolio management needs
- Significant Market Growth Potential: The credit secondaries asset class remains underpenetrated compared to more established secondary markets, presenting an attractive future growth opportunity
The private credit market has experienced remarkable growth over the past two decades, with a 16% compounded annual growth rate ("CAGR") to reach $1.7 trillion in assets under management ("AUM")1. What's more, it's expected to exceed $3 trillion by 2028, providing a scaled inventory base for a fruitful secondary market to develop.
Private Credit AUM Growth1
While the growth in the primary market has been underpinned by attractive returns and increasing institutional adoption, a growing segment of investors have sought to address their liquidity needs via the credit secondaries market.
This trend has been amplified by recent macroeconomic volatility and geopolitical uncertainty, which has supported the broader secondaries market volume to reach record highs in 2024 in excess of $160 billion2, spurred by increased liquidity needs, narrowing bid-ask spreads, robust investor demand for diversified portfolios, and capital availability.
A key metric in assessing the activity of any secondaries market is the turnover ratio – the annual volume of secondary transactions as a percentage of total primary AUM. For private credit, this ratio is estimated less than 1% compared to 2–3% for more established markets like private equity secondaries, suggesting significant room for future expansion.
What Pressures Are Sellers Facing?
Sellers in the credit secondaries market are typically motivated by a range of portfolio management requirements, similar to those in more mature markets such as private equity secondaries, which include liquidity constraints, regulatory pressures, lack of distributions, and strategic shifts or changes in investment leadership.
“Recently, we are seeing sellers utilizing the credit secondaries market to access liquidity in order to prudently manage downside risk against an uncertain market backdrop,” said Dave Schwartz, Partner and Head of Credit Secondaries at Ares.
Another persistent theme across private markets has been the slower-than-expected return of capital, leading to lower Distributions to Paid-In Capital (“DPI”).
Private Credit DPI Multiple by Vintage2
Lower distribution activity in recent years has propelled secondary market volumes across both traditional LP-led sales, where limited partners sell their fund interests to secondary buyers who become the new LP of record, typically at a discount to NAV, as well as in the growing market of GP-led continuation vehicle (“CV”) transactions, where GPs transfer existing assets or loans into a new vehicle to provide liquidity to existing investors and extend the investment horizon in order to maximize value.
In 2024, credit secondaries transacted volume totaled $15 billion, representing a 5x increase from 2019, as greater awareness and education on the asset class paired with greater dedicated capital formation have driven an increasing number of sellers to transact. Looking ahead, we anticipate the market to continue to grow meaningfully, with advisors projecting transacted volumes of $28 billion by 2026 and in excess of $50 billion by 2030.