Half of investors have sold stakes in credit funds they have backed on the secondaries market, according to a report from Chicago-headquartered mid-market direct lender NXT Capital.
Of those, 12 percent said they had tapped the secondaries market to sell their LP or other interest in a private credit fund more than once.
Of the remaining half that had not transacted, 13 percent said they had considered selling their interest in credit funds. Forty percent indicated the valuation didn’t meet expectations, while 20 percent said the process took up too much time and resources.
NXT declined to provide the number of respondents to its survey.
Private debt secondaries has been gaining traction in recent years, with a number of household alternative asset manager names launching funds to get in on the action.
Pantheon has been particularly active in recent months. The firm is eyeing a final close in September for its third credit secondaries fund. Fund II is targeting $250 million or $350 million to invest in North American and European senior, mezzanine, special situations, distressed and opportunistic credit, primarily on a secondary basis, according to documents prepared for the June board meeting of Ventura County Employees Retirement Association.
The fund comes on the back of Pantheon’s closing on a pair of credit secondaries funds in May, which brought its total capital dedicated to private debt secondaries investing to more than $2.4 billion, the firm said in a statement.
Pantheon estimates that global private credit secondaries dealflow reached $18.4 billion in 2021, having barely registered only a few years ago. Alternatives peers Apollo Global Management, Ares Management, Tikehau Capital and Manulife Investment Management are among the groups that have been active in private debt secondaries.
While moves by such large names into the market reflect an overall increase in the number and size of secondary mandates, only 7 percent of the investors that affiliate title Private Debt Investor spoke with for its LP Perspectives 2022 study said they plan to commit capital to secondaries funds over the next 12 months – a sentiment down on previous years. In 2021, 12 percent indicated they had plans to commit to private debt secondaries funds.
Jess Larsen, founder and chief executive of specialist adviser Briarcliffe Private Credit, told Private Debt Investor: “We find that a lot of LPs are now very interested in private credit secondaries on an intellectual level and want to learn more about it, because there is a feeling that we will have more challenges in some private credit portfolios going forward and it might be interested to trade on the secondaries market. But for now there is not much willingness to commit money to secondaries funds.
“Quite a lot of LPs are willing to do direct deals in the secondaries market, but they are not keen to pay management fees for someone else to manage that for them.”
– This report has been updated to show that Pantheon is seeking $250 million or $350 million for its third credit secondaries fund, based on US pension documents.