As private credit markets expand and portfolio allocations grow, liquidity and diversification assume heightened importance. Private credit secondaries can address both fronts, yet questions abound regarding the asset class and its potential role in portfolio construction.
The following Q&A with Maëlle Reichenbach, Senior Principal, Montana Capital Partners, and Alex Stuart, Managing Director, PGIM Public & Private Fixed Income, provides insight on several key aspects of private credit secondaries, including:
- the expectation for higher returns vs. primary private credit;
- the differences from private equity secondaries;
- how credit secondaries can complement private credit allocations;
- and PGIM’s investment and underwriting strategy.
What are credit secondaries?
Credit secondaries comprise an investment strategy focused on acquiring interests in existing private credit assets. The strategy typically takes the form of purchasing fund stakes from current investors or acquiring seasoned portfolios of loans through a dedicated secondary vehicle. In each case, the secondaries investor steps into the position of the seller. Transactions are typically executed at a discount to the most recent reported net asset value (NAV), and sellers are willing to accept the NAV discount in exchange for immediate liquidity in an otherwise illiquid market.
What are the two main types of credit secondaries transactions?
Credit secondaries typically consist of Limited Partners (LP)-led transactions and General Partners (GP)-led transactions (Exhibit 1). In LP-led transactions, an investor in a private credit fund—or in a portfolio of private credit funds—initiates the sale of its interest and seeks a secondary buyer to assume its position as an LP. In GP-led transactions, the GP sponsors the transaction, either by facilitating the transfer of fund interests on behalf of existing LPs or by transferring an existing portfolio of loans into a newly established vehicle—commonly referred to as a continuation vehicle—which the GP continues to manage on behalf of incoming investors (see “Continuation Vehicles Redefine Private Markets” for additional insights).
Exhibit 1
The Two Main Types of Credit Secondaries Transactions
How do credit secondaries differ from traditional private equity secondaries?
The first key difference is the predictability of cash flows in private credit, as interest income is contractual and can be easily computed from the portfolio. Hence, private credit generally offers less upside potential than private equity, but provides attractive cash yields, better loss protection, and more accurate pricing by secondaries buyers. Another key difference is the level of diversification. Most private credit funds still hold dozens of loans at the time they are transferred in a secondaries transaction. In GP-led transactions, the concept of a “single-asset continuation vehicle” does not exist, and transactions are typically well diversified.
Why do credit secondaries funds expect higher returns than primary private credit funds?
Credit secondaries are expected to have a risk profile broadly comparable to that of their underlying portfolio, which, in the case of PGIM Credit Secondaries, primarily consists of direct lending assets (listen to Alex Stuart explain more about credit secondaries here).
However, the strategy is expected to generate higher returns than primary funds.1 A combination of factors supports this assumption (Exhibit 2): (i) the acquisition of portfolios at a discount to the most recent NAV; (ii) the treatment of cash flows prior to transaction closing—which further reduces the purchase price and typically amounts to 3 to 6-month of interest income and principal repayments; and (iii) transaction structures, such as deferred payments and the ability to re-leverage portfolios. As a result, while nominal discounts were 8% on average in 2025, effective discounts are often 3-5 percentage points higher.2
Exhibit 2
A combination of factors supports the targeted return on private credit secondaries
How can credit secondaries complement an existing private credit allocation?
Credit secondaries can complement any private credit allocation by providing a high degree of diversification on several fronts. This diversification can exist across fund vintages and loan origination dates, GPs, industries and sectors, geographies, and investment strategies. Achieving a comparable level of diversification through primary commitments alone is typically challenging and administratively complex. Furthermore, credit secondaries may enhance the return of a private credit portfolio given their expected outperformance relative to primary funds.
How can credit secondaries help establish a new private credit allocation?
When building a new primary credit program, a key challenge is pacing capital deployment to diversify the portfolio. A single commitment to a credit secondaries fund can help address this challenge by providing immediate diversification. In addition, credit secondaries funds are expected to draw capital and generate distributions faster than typical primary funds due to the shorter maturity of the underlying portfolios. This ensures faster capital deployment, and distributions can be re-invested into primary funds, thus slowly building the program over time.
Do credit secondaries transactions primarily involve end-stage loan portfolios?
While transactions involving older funds with only a handful of outstanding— often restructured—assets exist, most credit secondaries transactions relate to younger, well-performing portfolios. Across the transactions we have reviewed to date, the median age of the underlying loans has been 3.5 years, with some portfolios averaging as little as one year. Both selling LPs and GPs recognize the importance of actively managing portfolios at an early stage, when diversification remains robust, asset quality is strong, and near-term liquidity is visible (see “The Case for Private Credit Secondaries” for reasons why investors may seek to exit primary private credit transactions).
Are there many players in the credit secondaries space?
No. Dedicated credit secondaries funds with a cost of capital suited to the risk profile of private credit have only emerged in recent years. At this point, there are only a handful of players in the sector with the requisite sourcing capabilities, underwriting expertise, and scale. Meanwhile, deal flow has expanded rapidly, with transaction volume growing at a 53% CAGR since 2020.3 In this environment, we believe disciplined investors with the appropriate platform and experience are well positioned to be selective and focus on the most attractive opportunities for their investors.
What is PGIM Credit Secondaries’ investment strategy?
We aim to build a diversified credit secondaries portfolio by underwriting both GP-led and LP-led transactions. The core focus is on direct lending in North America and Europe, with some flexibility to deploy into more junior transactions on an opportunistic basis. We are primarily active in the middle market segment, where we seek to leverage our large platform, extensive market knowledge, and broad relationship network to source attractive transactions and underwrite them on a borrower-by-borrower basis.
PGIM Credit Secondaries benefits from the firm’s $1 trillion global credit platform and established secondaries expertise. The team brings more than 75 years of private credit experience and 15 years of secondaries investing, alongside extensive sourcing and diligence capabilities supported by thousands of relationships across issuers, GPs, private equity sponsors, and advisors. This breadth enables detailed underwriting at the borrower level. In addition, while a significant portion of capital in the market has been concentrated in large-cap transactions—where competition is higher and returns more compressed—we focus on the middle market, a historical core strength. We believe this segment offers more compelling relative value and a more favorable competitive landscape.
How does PGIM underwrite credit secondaries transactions?
Our expertise in direct credit investing enables us to analyze private credit portfolios on a granular, loan-by-loan basis. This includes reviewing each loan’s key economic terms (spread, OID, payment frequency, maturity, etc.) as well as its historical performance and current valuation. Based on this analysis, we project expected future performance, including anticipated credit losses and repayment timing. We complement this bottom-up analysis with a top-down perspective, benchmarking our assumptions against market data and assessing them within the context of the current market environment. We also conduct thorough due diligence on the underlying GP. Finally, given our experience in secondaries investing, we model the underlying fund’s structure and cash flow waterfall, including management fees and carried interest, to estimate projected net returns for a credit secondaries portfolio.
1 Forecasts are not guaranteed and may not be a reliable indicator of future results.
2 Source for the nominal discount in 2025: Evercore Private Capital Advisory, “2025 Credit Secondary Market Survey”, January 2026.
3 Source: Evercore Private Capital Advisory, “2025 Credit Secondary Market Survey”, January 2026.
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