As market volatility, exacerbated by US President Donald Trump’s trade ‘policies’, intensifies, investors are increasingly seeking liquidity by offloading their private credit assets, with fund managers and industry insiders noting that secondary market activity for private credit holdings could see a significant uptick, according to a report by Reuters.
The private credit sector, a $1.5tn industry that includes specialised lenders like Apollo Global Management, Ares Management, and KKR, has long been a popular asset class for institutional investors, including pension funds.
While secondary sales of private equity fund stakes have surged in the wake of a slowdown in dealmaking, private credit assets have traditionally seen limited movement in the secondary market. However, the market’s recent volatility, triggered by shifting trade policies and fluctuating public market valuations, may change that.
Pantheon, a New York-based investment firm, recently announced the successful raise of $5.2bn for a fund targeting private credit stakes in the secondary market. Rakesh Jain, Pantheon’s Global Head of Private Credit, emphasised that the opportunities for secondary transactions are “among the most robust” they’ve encountered.
Similarly, Coller Capital, another secondary manager, reported the acquisition of a $1.6bn senior direct lending portfolio from US insurer American National.
Despite the increased interest, secondary market transactions remain time-intensive and are typically not the first option for investors seeking liquidity. However, the swift pace of recent market sell-offs has led some hedge funds to rapidly liquidate private debt positions to meet margin calls.
Symon Drake-Brockman, Co-Founder of Pemberton, a European private credit manager, highlighted that one investment bank was forced to liquidate a hedge fund’s US debt position this week to meet a capital call. This move reflected a less extreme environment than the Covid-driven sell-offs of 2020, with debt offered at around 95 cents on the dollar – a far cry from the deep discounts of 65-70 cents seen during the height of the pandemic.
The secondary market for private equity assets reached a record $160bn in 2024, fuelled by asset sales from leveraged buyout funds unable to exit investments via M&A or IPOs amid market volatility. In contrast, private credit transactions account for a smaller portion, with estimates indicating that less than 1% of private credit assets are traded in the secondary market, compared to 2-3% for private equity.
One key factor influencing these dynamics is the “denominator effect,” which occurs when falling public market values disproportionately increase the share of private assets in an investor’s portfolio.
As private assets are typically valued less frequently and are shielded from market volatility, they can become a greater portion of a portfolio during periods of public market downturns, pushing investors to seek liquidity through secondary sales.
Although discounts for private credit assets are still relatively modest – around 5-10% below par – market participants caution that the situation remains fluid.
Analysts predict that President Trump’s ongoing trade-related actions could further dampen economic sentiment and investor confidence, reinforcing the likelihood of an extended period of volatility.
