GP-led credit secondaries long way off

As the private debt market grows, there is an increasing opportunity for secondary players, but it appears that limited partner (LP)-led secondaries will continue to dominate the market.

In private equity, general partner (GP)-led secondaries have grown in popularity. These are where the fund manager typically moves an asset or a group of assets into a continuation vehicle, giving existing LPs the option to either roll over or exit the investments. These have taken off to the extent that GP-led secondaries account for nearly half of the market, according to some estimates.

Read more: GCM Grosvenor to launch private debt secondaries fund

However, it appears unlikely that GP-led secondaries will have similar success in the world of private credit.

“The general feeling is that the vast majority of credit secondaries are still being led by investors who are looking to rebalance their portfolios,” said Christopher Good, partner at law firm Macfarlanes.

“It’s very obvious in private equity, why the manager might need more time and more capital to invest into an asset, because that’s the nature of these illiquid investments. Whereas with a loan portfolio, it should in most circumstances be self-realising.

Read more: Private credit secondaries set to hit $30bn this year

“I think that’s why there have been limited circumstances of GPs repackaging portfolios of loans and moving them into a continuation fund. “On the other hand, I can see why, if you’re a very big investor and you’ve got a large exposure to credit funds, you might take a moment to parcel some of that up and sell it as a block.”

He thinks that GP-led transactions in private credit will remain rare and will be due to a duration mismatch, an investor’s request for exposure to a specific portfolio, or when debt funds need to take over ailing businesses.

Read more: Goldman Sachs raises record $3.4bn for real estate secondaries fund