Private credit firms are increasingly relying on continuation vehicles to return capital to investors, as sluggish deal flow, volatile market conditions, and a prolonged fundraising slowdown challenge traditional exit routes, according to a report by Bloomberg.
These transactions, once primarily used by private equity sponsors, allow managers to roll existing loan portfolios into newly formed funds backed by fresh capital. Legacy investors are offered the option to exit without waiting for repayment or refinancing events, while new investors step into seasoned positions.
The trend is gaining momentum as refinancing activity slows in the wake of US trade policy uncertainty and the muted pace of private equity asset sales. The sharp decline in M&A activity and elevated interest rates have further limited conventional monetisation paths for private credit portfolios.
One notable recent deal involved Ares Management and Antares Capital, in which Ares assumed control of over $1.2bn in private credit through a continuation vehicle. Antares will continue to manage the assets, which are being transferred into a new fund alongside new capital commitments – marking a rare secondary transaction between two direct lenders.
Historically, most credit secondary transactions were driven by limited partners exiting fund interests. Increasingly, however, direct lenders themselves are initiating and structuring such transactions. Recent examples include $1bn-plus deals launched by Benefit Street Partners and TPG Twin Brook Capital Partners.
According to Jefferies Financial Group, general partner-led deals made up less than one-third of the private credit secondary market as of January but are projected to surpass 50% of deal volume this year. Unlike traditional private equity continuation funds, which typically house one to three assets, private credit vehicles often encompass portfolios of over 100 loans, offering greater diversification.
Credit secondary deal volume has surged since 2020, reaching a record $10.9bn last year, per data from Evercore. The increase has been particularly notable since early April, following renewed trade-related policy announcements by the US government.
With fewer exits available and a growing share of underperforming credits stuck in older funds, continuation vehicles are emerging as a pragmatic solution. These structures can isolate higher-quality assets while giving managers time and flexibility to work out more complex exposures.
The presence of more seasoned assets does pose challenges, according to John Cocke, the Deputy Chief Investment Officer of Corbin Capital Partners. Buyers must be cautious, particularly with portfolios containing loans on watchlists or at greater risk of default. Pricing discipline remains essential to ensure appropriate risk-adjusted returns.
Meanwhile, the evolution of continuation vehicles has created a secondary fundraising avenue. Firms are increasingly using these deals not just to recycle capital but also to deploy proceeds into new lending opportunities. In the case of TPG Twin Brook’s recent continuation fund, approximately 25% of raised capital is earmarked for new originations.
Market participants note that deepening liquidity in the private credit secondaries space – driven by significant capital raises from buyers like Pantheon Ventures, Coller Capital, and HarbourVest Partners – is contributing to more competitive pricing.
According to Jefferies, average pricing for LP-led private credit secondaries rose to 91% of NAV in January, up from 77% the prior year.
