The private credit industry, valued at over $3 trillion, is experiencing a surge in redemption requests, forcing managers to limit withdrawals from semi-liquid funds. This trend is driven by concerns over rising defaults, particularly in loans vulnerable to AI disruption, and broader market jitters. Examples include Cliffwater, which curbed redemptions in its Corporate Lending Fund after requests hit 14%, and Morgan Stanley, which limited withdrawals from its $7.6 billion Northaven Private Income Fund as requests reached 11% in Q1. This stress on liquidity is pushing investors towards the secondaries market as a crucial exit mechanism.
The private credit secondaries market is growing rapidly, with a 46% CAGR between 2020 and 2024, outperforming private equity secondaries. This growth is fueled by an increase in private credit assets under management (AUM), which grew by approximately one-third from 2020 to 2024, reaching over $1.87 trillion and forecast to hit $2.46 trillion by 2028. While credit secondaries currently account for less than 1% of total private credit AUM, compared to 2-3% for private equity secondaries, this suggests considerable room for expansion. The slow pace of cash realization from private credit funds, due to factors like loan maturity extensions and reduced M&A activity, is further enhancing the appeal of secondaries for managing liquidity and duration risk.
Secondary buyers in this market benefit from attractive risk-return profiles, often receiving discounts off current net asset value, and gaining diversified exposure across various funds, managers, and sectors. This allows for an immediate uplift in returns and increased transparency into underlying assets, mitigating blind pool risk. The market is also seeing increased activity from general partners (GPs) who use secondaries to enhance distributions to paid-in capital (DPI) and manage fund lifecycles, with GP-led transactions significantly contributing to market growth in 2024 and 2025. While the secondaries market is currently seen as a vital lifeline, experts like Sunaina Sinha Haldea of Raymond James acknowledge that it may not be large enough to absorb a full-scale contagion if market conditions worsen dramatically.
