Insights from Credit Fund Secondaries Symposium: Exploring the growing market and changing dynamics

Simon Saitowitz and I wanted to share insights from a credit fund secondaries symposium we recently hosted with Coller Capital. Our panelists – Edward Goldstein (Coller Capital), Michael Schad (Coller Capital), Fred Han (Campbell Lutyens), Catherine Saunders (Benefit Street Partners),  Timothy Nest (Aksia), and Matthew Miller (Bayview) – noted how recent growth in the credit fund secondaries market has mirrored the progression followed in the PE secondaries market previously.

Shifting focus: From distressed assets to portfolio purchases and GP-leds

In particular, while the focus historically was around distressed assets (involving restructuring and/or notable discounts), we are now seeing many more portfolio purchases and sales as well as GP-leds in the credit space and top tier GPs are open to pursing a GP-led. 

From the perspectives of both LPs and GPs, the consensus was that the primary question is no longer whether there’s a stigma to pursuing a GP-led transaction, but rather whether the discount and terms are appropriate.

Capital constraints and the rise of dedicated buy-side capital

Notably, the breadth of the credit secondaries market has grown with rise of dedicated buy-side capital, however, capital constraints remain a real issue. In recent years we have seen a number of traditional secondary buyers raise funds dedicated to credit secondaries. 

Increasing competition and pricing pressure in the credit secondaries market

We’ve also seen a number of credit managers add credit fund secondaries to their investment programs, attempting to leverage their existing expertise. However, those funds are much smaller and fewer than the flagship PE secondaries funds. In particular, larger capital sources for multi-billion dollar deals aren’t as readily available for GP-leds in the credit space as in private equity.

Potential buyer universe bifurcation in credit secondaries

A key point made is that as interest in credit secondaries has grown, so has competition for deals, and the growth in buy-side interest has put pressure on pricing (and accordingly secondary buyers’ profit margins), as has the rise in interest rates. One question that remains to be answered is whether the buyer universe for credit secondaries will bifurcate, with individual buyers focusing on discrete sub-strategies within credit secondaries.

Election cycles and interest rates: Potential influences on deal activity

Finally, questions were raised about whether the 2024 election cycle, both in the US and globally, and/or current rate environment might influence deal activity, but the consensus amongst our panelists was that they don’t expect meaningful shifts in deal activity for either reason. 

Many thanks to each of our panelists for making this a very engaging and insightful discussion on the current state of the credit fund secondaries market.

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