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The Next Frontier for Credit Secondaries

The private debt secondaries market is poised to outstrip its private equity counterpart, but portfolio due diligence is becoming increasingly crucial, according to a new industry study.

The LP Perspectives 2026 Study by Private Debt Investor found that limited partners see the credit secondaries space as the next frontier for growth, with 44% planning to increase their allocations over the next five years. In comparison, only 34% intend to boost their private equity secondaries exposure.

"There is a lot of runway left in the credit secondaries market," said Sarah Jones, a managing director at Fairview Capital, a leading private markets investment firm. "Investors are recognizing the potential for attractive risk-adjusted returns, particularly as the economic environment becomes more challenging."

Credit secondaries refer to the trading of limited partnership interests or direct loan portfolios in private debt funds. As the private debt market has ballooned to over $1 trillion in assets, the secondaries opportunity set has grown significantly.

However, thorough due diligence is critical as the credit secondaries market matures, according to the study. Nearly two-thirds of limited partners surveyed cited portfolio transparency and underwriting as the top concerns when evaluating potential secondaries investments.

"You really have to be an expert in private credit to properly assess these portfolios," said Michael Thompson, head of private debt at Altius Associates, a global private markets advisory firm. "It's not enough to just look at the headline returns - you need to dig into the underlying loans, covenants, and manager track record."

The growth in credit secondaries also reflects broader trends in private markets. As dry powder in private equity and private debt funds has ballooned to over $3 trillion, fund managers are under pressure to deploy capital quickly. This has led to an increase in add-on acquisitions and portfolio company refinancings - transactions that can create secondary market opportunities.

Furthermore, the challenging macroeconomic environment is expected to drive more distressed credit sales, providing a fertile hunting ground for savvy secondaries investors.

"The dislocation we're seeing in the markets is going to create a lot of interesting secondary opportunities, particularly in the more stressed segments of private credit," said Jones. "Investors who can do the hard work of asset selection and portfolio construction will be well-positioned to capitalize."