Published in London & New York
10 Queen Street Place, London
1345 Avenue of the Americas, New York
Creditflux is an
company
© Creditflux Ltd 2024. All rights reserved. Available by subscription only.
News
GP-led transactions set to fuel private credit secondaries in 2025 as deal sizes increase
by Lisa Fu
Private credit secondaries volume has skyrocketed over the past year, and industry participants believe the momentum will continue into 2025 thanks to an environment ripe for GP-led transactions.
In past years, GP-led transactions — also known as continuation vehicles — accounted for around 20% of the private credit secondaries market, said Tony Colarusso, managing partner at credit secondaries specialist FoxPath Capital Partners. Now, GP-led transactions are becoming a larger part of the market as older vintage funds seek liquidity solutions while the primary private credit market scales and more credit secondaries investors enter the market.
As a result, the market expects more GP-led transactions and larger deals going forward. “The market has capacity for these larger continuation vehicles,” said Dave Schwartz, head of credit secondaries at Ares.
Overall private credit secondaries volume has grown around 50% year-over-year from USD 8bn to USD 12bn in 2024, according to market intelligence projections from PJT Partners. GP-led transactions are also growing to comprise a larger portion of the total private credit secondaries volume. Last year GP-led deals accounted for USD 2bn, around a quarter of the volume. In 2025, PJT estimates GP-led deals will increase their share to a third of the base.
Older vintage funds are seeking liquidity solutions
Tony Colarusso
Partner
FoxPath Capital Partners
GP-led secondaries are seen as a solution to a lot of funds raised 10 or 11 years ago that are reaching maturity but still have assets in the portfolio, said Jeffrey Griffiths, global head of private credit at Campbell Lutyens. Private equity-backed companies have been delaying exits and refinancing, choosing to instead extend loan maturities. But when these are pushed out, it creates a mismatch in maturity timing for the asset versus the private credit fund.
“The direct lender doesn’t control the exit, the private equity sponsor does,” Griffiths said. “The extension of the average hold period for private equity deals has a direct impact on private credit exposure.”
Like private equity sponsors, private credit managers lending on the same deals are seeking ways to return capital to LPs, said Michael Wieczorek, a managing director at DC Advisory. Some of these portfolio companies have established private credit facilities that have not been refinanced or exited as the fund life approaches its end.
When private credit GPs pursue secondaries transactions, the motivation is typically to create liquidity for their LPs or free up capital to redeploy into new credit investments, Colarusso said. Unlike private equity secondaries, these private debt portfolios are self-liquidating so the continuation fund does not extend the maturity of the underlying assets.
“Our team has structured deals with private credit managers where they wanted to create liquidity for LPs in older funds, so they can redeploy into the new fund they are raising,” he said. Colarusso has also seen banks or asset managers use a secondaries transaction to clean up disparate legacy funds and seed a more established or cohesive credit strategy.
The recent jump in GP-led activity is also a by-product of the growing private credit primary market.
Private credit secondaries have historically been driven by LP-led transactions, but that is changing, agreed Ed Goldstein, a partner and CIO of Coller Credit Secondaries. In general, there has been more education about secondaries, allowing new GPs that may not have come to market two to three years ago to participate. “I think that’s part of the natural evolution, in the same way that private equity started out as an LP-only market,” Goldstein said.
There is always a lag to the secondaries market, and most current opportunities are coming from pre-2021 vintages, Colarusso said. As the primary market continues to grow, there will be more volume from seasoned vintages that will feed the secondaries market.
