Investors in private credit have been increasingly selling their shares in funds to get some cash in their coffers, with the lower discounts on offer making them more attractive for sellers than private equity secondaries.
The private credit secondaries market has grown significantly in the last few years, making up around 30 per cent of the overall secondaries market now, according to Coller Capital’s Martins Marnauza.
Marnauza, who is a partner within the firm’s credit investment team, said the top quality, best in class portfolios are trading at around high-single-digit discounts.
“A few years ago, senior credit would have been the last thing to be sold as there was no constructive bid,” he said. “Now with a more appropriate cost of capital we see sellers coming out first with private credit portfolios, looking to generate liquidity first through credit.
“As a seller you can generate liquidity at a sensible price and that’s important.”
According to one investment banker, in mid to late 2022 the discounts were in the range of five to 10 per cent of net asset value (NAV). But those have since narrowed and in more recent transactions there has been no discount to NAV at all.
Asset managers have sought to take advantage of the growing market, raising large funds dedicated to the opportunity. This includes Apollo Global Management, which is targeting $2bn (£1.6bn) for its next credit secondaries fund, Pantheon attracting $3bn in capital for its latest dedicated programme, and Ares Management which launched its first credit secondaries commingled fund last year.
JP Morgan expects more than $30bn of private credit to change hands this year in the secondary market, according to a Bloomberg report.
“Given this new dedicated capital, sellers of private debt on the secondary market no longer need to accept big discounts,” said Daniel Roddick, founder of advisory firm Ely Place Partners.
He also expects to start seeing more GP-led secondary deals.
“Private debt GPs can now use the secondary market to accelerate liquidity for LPs, free up reinvestment capital, exit tail end assets, as well as renew their LP base,” he added.