Private credit secondaries are emerging as a compelling area of interest for ultra-high-net-worth (UHNW) investors seeking enhanced yield potential, diversification, and downside protection with potential upside. While still less mature than the private equity secondaries market, we believe credit secondaries are evolving into a scalable solution within alternative credit. This article outlines the fundamentals of credit secondaries, market growth trends, and the strategic relevance for ultra-high-net-worth investors. 

What Are Private Credit Secondaries? 

Private credit secondaries involve purchasing existing investments in private credit funds, typically through limited partner (LP)-led or general partner (GP)-led transactions. Unlike primary credit funds, secondary transactions may provide investors with several distinct, potential advantages: 

• Enhanced transparency into historical performance, portfolio composition, and credit metrics. 

• Enter at discounts to net asset value (NAV), potentially improving returns and downside protection. 

• Accelerated capital deployment and early distributions, as capital is already invested and cash flows are often underway. 

• Broader diversification across lenders, borrowers, sectors, vintages, and credit structures, reducing concentration risk.¹ ² 

We believe these characteristics are particularly relevant for UHNW investors who may prioritize efficiency, visibility, and strategic rebalancing across illiquid credit holdings. 

Private credit broadly refers to non-bank lending to companies, typically structured as senior secured, second-lien, or mezzanine debt. The global private credit market has grown from approximately $1 trillion in 2020 to $1.8 trillion in assets under management as of 2024.² 

Why Interest in Credit Secondaries Is Accelerating 

Several macro and structural forces are driving investor interest in credit secondaries: 

• Liquidity Constraints in Private Credit. As more capital flows into closed-end private credit funds following rapid growth, secondary transactions are increasingly being used to manage duration, rebalance allocations, or exit maturing vintages.¹ 

• Rising GP-Led Deal Flow. General partners are using secondary structures to facilitate fund recapitalizations or early liquidity options for existing investors, providing liquidity to deploy new capital in the current market environment.¹ 

• Limited Buyer Pool for Small and Mid-Sized Transactions. Most large advisory firms focus on transactions over $50 million, leaving many smaller blocks overlooked. This inefficiency creates opportunity for specialized managers to source off-the-run deals at potentially more attractive pricing.¹ 

We believe these dynamics are contributing to a favorable environment for disciplined, niche participants in the space, particularly those with differentiated sourcing capabilities and deep connectivity with LPs, GPs, and intermediaries. 

Characteristics of Specialized Credit Secondaries Managers 

Through our research and recent discussions with industry participants, we believe specialized credit secondaries managers can share several common strengths: 

• Granular Portfolio Construction. Unlike primary direct lending funds, which may be concentrated across 20–40 positions, secondary portfolios can include exposure to hundreds or even thousands of individual borrowers, offering broader diversification.¹ 

• Direct Origination of Smaller Transactions. Niche managers often access smaller, less competitive opportunities, both directly sourced and through specialized intermediaries, that are typically too small or overlooked by larger, more established platforms.¹ 

• Active Portfolio Management. Rather than passively holding secondary stakes, many managers actively reprice assets, sell tail positions, rotate exposures, and employ targeted hedging to capture arbitrage and inefficiencies.¹ 

• Independent Platform Design. Independence from large multi-strategy platforms may enable cleaner access to secondary transactions without competitive conflicts.¹ 

Specialized managers in this space often emphasize the importance of staying nimble and maintaining discretion when sourcing opportunities in less competitive segments of the market. While IEQ does not endorse or promote specific managers, we believe that understanding these sourcing and execution dynamics enhances our broader perspective on differentiated strategies within private credit. 

Potential Strategic Benefits for UHNW Investors 

For UHNW investors building multi-asset portfolios, we believe credit secondaries can offer several strategic advantages when compared to traditional credit allocations: 

Secondary portfolios are often composed of seasoned assets that are already generating distributions, allowing investors to realize cash flow earlier in the fund lifecycle.¹ 

1. Accelerated Return of Capital: Secondary portfolios are often composed of seasoned assets that are already generating distributions, allowing investors to realize cash flow earlier in the fund lifecycle.¹ 

2. Discounted Entry Points: By purchasing at a discount to NAV, investors may benefit from a lower cost basis and improved downside protection, while also creating the potential for outsized gains compared to primary fund commitments.¹ ² 

3. Broader Diversification: Through exposure to hundreds or thousands of underlying borrowers and multiple credit types (e.g., senior, second-lien, mezzanine), across multiple lenders and vintage years, secondary strategies may reduce concentration risk and enhance portfolio resilience.¹ 

4. Relative Value Flexibility: Specialized managers can shift between traditional direct lending and opportunistic credit based on prevailing spreads, underlying borrower quality, and market dislocations, allowing them to capture value across changing credit conditions.¹ 

While these benefits are compelling, credit secondaries remain a niche and complex area. Illiquidity, valuation opacity, and execution risk remain present, and strategies should be evaluated carefully within the broader context of a portfolio. 

Risks for Consideration 

• Illiquidity: Credit secondaries is an illiquid strategy which may require an extended lock-up of capital.  

• Valuation Opacity: Given the illiquid nature of the asset class, investors must rely on the secondary manager’s ability to determine fair value for the asset.  

• Default Risk: Underlying companies may default, which would negatively impact returns.  

• Execution Risk: Secondary managers must have extensive relationships to source attractive opportunities.  

Market Outlook 

We believe the credit secondaries market is still in the early stages of institutional adoption. As private credit continues to grow, and as more investors seek liquidity options across their alternative portfolios, secondaries are expected to play a critical role in enhancing flexibility, transparency, and capital efficiency across the alternative investment landscape. 

Recent market data suggest there is approximately $1.2–$1.3 trillion in unrealized NAV across private credit vintages, with only a fraction of that actively trading in the secondary market.¹ This suggests meaningful runway for long-term growth in both deal volume and strategy innovation alongside growth of the overall market. 

Conclusion 

Private credit secondaries are emerging as a distinct and potentially valuable tool for UHNW investors seeking flexibility, visibility, and attractive risk-adjusted returns in the credit space. While still nascent compared to private equity secondaries, we believe this strategy is gaining meaningful relevance as liquidity demands rise and the private credit ecosystem continues to mature. 

We invite you to speak with our investment team to explore how credit secondaries strategies may align with your portfolio objectives. 

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1. FoxPath Credit Secondaries Call Notes, June 30, 2025. 

2. Preqin Global Private Debt Report 2024. 

• Secondaries
  • Concentration Risk: Strategies pursuing GP-led deals may have more concentration risk than a traditional secondaries fund.  
  • Concentration Risk: Strategies pursuing GP-led deals may have more concentration risk than a traditional secondaries fund.  
  • Liquidity Risk: Exit strategies are typically contingent on capital markets and prevailing appetite for risk, which may ebb and flow with the cycle.  
  • Macro Risk: Macro factors including interest rates, inflation, or economic growth may lead to materially different return outcomes for the sector, particularly if there is a material impact to earnings outlooks.  
  • Mark to Market Risk: Portfolios may contain liquid securities which are typically more volatile than private investments. 
• Corporate Lending 
  • Credit Risk: Private companies are usually unrated or below investment grade and may be more susceptible to default. 
  • Competitive Risk: Direct Lending is a crowded space with lenders competing on price and weaker covenants. 
  • Liquidity Risk: There is no guarantee that a fund’s liquidity mechanisms will be reliable, and the managers are under no obligation to provide liquidity. In a downturn where investor outflows increase materially, investors are likely to experience periods of gating and potentially will be unable to redeem fully. 
  • Mark to Market Risk: Certain portfolios may own liquid loans or mark to liquid markets, resulting in fund volatility. 
  • Tax Risk: Lending is generally tax-inefficient and post-tax returns may be materially lower than pre-tax returns. 

This material is as of the date indicated, not complete, and subject to change. Additional information is available upon request.  No representation is made with respect to the accuracy, completeness, or timeliness of information, and IEQ assumes no obligation to update or revise such information. The information set forth herein has been developed internally and/or obtained or derived from sources believed by IEQ Capital, LLC (“IEQ Capital”) to be reliable. However, IEQ Capital does not make any representation or warranty, express or implied, as to the information’s accuracy or completeness, nor does IEQ Capital recommend that the attached information serve as the basis of any investment decision. This document has been provided to you solely for information purposes and does not constitute an offer or solicitation of an offer, or any advice or recommendation, to purchase any securities or other financial instruments, and may not be construed as such.  It is not intended to be, nor should it be construed or used as investment, tax, accounting, legal or financial advice. IEQ provides no assurance or guarantee that any investment will be successful or that any returns will be achieved. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.