Private Chat — Unlocking liquidity through private credit secondaries

Hi, I'm Josie and I'm the head of Private Credit at 9 Chin. Today we are doing a podcast on private credit secondaries. This continues to be a booming market with the growth of GP-led secondaries in particular, fueling that rise. So today I'm sitting down with Daniel Roddick and Francois Brion of Ely Place Partners, a secondaries market advisory. To talk about how investors can best position themselves to take advantage of everything that is offered by this market. So welcome Daniel, welcome Francois. Thank you. Maybe to open Francois can just give us a tiny bit of context for those that are not aware of the growth of this market. Sure. Secondary is really a far-legged piece, a way to get liquidity and for private assets liquidity is key. So we've seen the growth of the secondary volumes in the last whatever, 20 years. But this market now represents a 220 billion to 250 billion for the full year 2025 as the latest estimate. And what's the driver of this still a low MNA activity and IPO market. So LPs are looking for liquidity and more distribution. So both through LP-led and GP-led transactions. So in addition to this secondary market on the private equity side, the growth of the private credit secondary has been meaningful. And so we see this strategy as being the second largest activity after private equity. And now we see 17 to 20 billion for the full year 2025, which is a growth of 50% to 100%. As there are various estimates. And that's a massive growth and probably the fastest growing strategy among all in private markets. We see that it still represents only 10% of the overall secondary markets. But we have a number of investors coming into this market and being more active. And we see a number of private equity secondary investors launching this strategy of private credit secondary and building the dedicated team and the dedicated fund to really tackle this opportunity. Thank you. Maybe Daniel, you could zoom us right down into private credit secondaries. And particularly the many GP-led private secondaries, private credit secondaries transactions that have occurred in the past year. Yeah, of course. Well, the growth in private credit secondaries, as Francois said, is partly just driven by liquidity. So there's been a shortage of liquidity across all asset classes, including private credit. And where there's a need for liquidity, there's an opportunity there and the private credit secondary buyers have stepped in. But it's also just a function of the size of the growth of the credit market overall. And it's 17 to 20 billion. It's still only around 1% of credit AUM that trades there. But on the GP-led side, with this growth, I think it's given GP's really the confidence to utilize the market to proactively drive liquidity to their LPs, to use it as an opportunity to manage their LP base and indeed to raise capital. Thanks. And for those that may be less familiar with GP-led secondaries, maybe you could just outline the difference between a continuation vehicle, which would be your classic GP-led secondaries transaction. And a private credit continuation vehicle, Francois. Well, private equity secondary is generally one assets are really a handful of assets. And that's generally a lot more concentrated than credit secondaries, credit secondaries tend to be on portfolios. And the investors that invest in these opportunities look for a different portfolio construction, different portfolio diversification and different cash flow profile when they look for these opportunities. So beyond the return target, it's mostly a capital gain exercise on the private equity side. And on the credit side, that's just getting a nice yielding product and with a kind of a good protection and accelerated liquidity stream. So that's that's really a different opportunity profile for for the GP-led part, but also on the LP side, I would say that's generally also a different different cash flow profile. And the counter part is on the credit side is is also much more important than the equity upside. So the approach is fundamentally different. And for GPs looking to approach this this market in the sense of taking on a GP-led private credit secondaries transaction, what kind of advice as a secondaries markets advisor would you would you give them for positioning themselves to the best advantage. So maybe think to begin with really is just to engage with this relatively new secondary community. This has been so much capital raised over a pretty short period of time. There are a dozen plus buyers with dedicated pools of capital for this. There each somewhat nuanced in their approach. So I think there's an onus on GPs to really understand what what this universe is to understand what their options are to communicate this to LPs. And indeed what we're saying to GPs is well ahead of your LPAC meetings, etc. Get a sense of how your portfolios would be perceived by the secondary buyer universe. Price it and communicate this back to LPs and allow them plenty of time to engage in discussions and guide GPs as to what they would like them to do. As this market grows it's no longer what it might have been which would have been for senior loans. It's segmenting we have opportunistic secondaries junior. Can you tell me a little bit more about how it's evolving. So the majority of the capital that's been raised so far has targeted diversified portfolios of senior loans with blue chip high quality GPs that that's what is perceived as most attractive in a strategy that's clearly focused on managing downside risk. And that is those sort of strategies that are most competitive in the market but having said that that's clearly not the entirety of the credit universe and there's a need to provide liquidity across various strategies sub segments opportunistic strategies etc. There are pools of capital for this but it's a subset we would certainly welcome more capital flowing into these sub segments as advisors and otherwise it's a function of price there is a buyer for everything but it's a question of whether the GP and the end LP would accept that price. Thank you. I mean we've discussed a lot about the development of GP led secondaries and I think it's important not to ignore the ongoing role of LP led secondaries what sort of role does this kind of transaction play in the market for us. And LP led secondaries are still very much used to rebalance portfolios and make make the necessary adjustment into a private credit program and it's actually the swift or way to do it. So the ability for the LP to really select the lines that are not relevant anymore or where where it really is willing to look for a counterparty to buy it out at the best possible price and for a buyer it's it's also some some an opportunity which is a lot more diversified than then GP led by nature just it's really what what secondary buyers look for as well and so for them to secure LP led portfolio it's an easier underwriting and a swift or process overall why GP led can be a longer process and more time consuming the tablion legal. So I think it's complimentary to to the GP led to provide liquidity to help is looking to just a divest private credit lines. I can see that there's a need for a certain degree of sophistication in LPs to be able to navigate this market properly and that would require a certain scale of fund to be able to have the necessary expertise. If you're a smaller LP or slightly less sophisticated, what are the ways of accessing this market as a buyer? We speak to LPs regularly who are intrigued by the market and are trying to figure out whether and how to access it. It's through indeed most active buyers, sophisticated teams that can do both credit and a writing and have the secondary skill set and it's clearly not something that your average LP can set up overnight. But nonetheless, there's such a need still or capital to flow into the market given the liquidity need today. So there is still a tendency of options or less sophisticated LPs. You could argue that buying LPs takes, as opposed to leading a GP-led deal is requires somewhat less sophistication, especially if you're an existing investor in that fund or familiar with the GP and you may be comfortable with pricing it. But I think there's also potential to co-invest alongside the more sophisticated deals, especially as these transactions are getting larger and larger and as just a need for additional capital to fund them. Going back to GP-led secondaries, a lot of the dialogue around this is around liquidity, but there are many other reasons that GPs would look to raise the capital and show you can give us some insight into this. Yeah, so your classic GP-led transaction is a continuation vehicle where the asset is sold from one front to the other, but there are plenty of variations of GP-led deals as well. Whereas usually there's a need for liquidity there, it's also, as I mentioned previously, a means for the GP to engage with this new LP base, manage its current investor base, maybe sort of quote unquote, "braid out legacy investors that are no longer backing its funds and bring in new investors that are supportive of the growth." So indirectly it means for the GP to raise AUM as well, but there are also transactions that are purely done upon raising reasons. If the GP has a balance sheet or instance, it can re-up capital on its own balance sheet, it can recycle that capital to seed new funds and indeed raise new capital alongside the assets it sells into an SPV and so it can be a means for a GP to rapidly grow AUM in a market that's otherwise very difficult on the fundraising side. And I imagine even for that reason alone, we will keep seeing more of these kinds of deals. But for now, I just want to thank you both for setting aside your time to talk to me and thank you to anyone listening for your time. That was me, Josie Shilato, head of private credit at 9th in and that was Daniel Roddick and Francois Ruyon of Ely Place Partners. Thank you. [BLANK_AUDIO]