Liquidity is no longer taboo: How LPs are rethinking private credit

For much of its history, private credit has been defined by one defining characteristic: illiquidity. Commit capital, lock it up, harvest the illiquidity premium. Needing liquidity was often treated as a signal of poor planning rather than prudent portfolio management. As the market scales, that mindset is changing. At SuperReturn Private Credit Europe, Josh Shipley, Managing Director, Head of European Private Credit, PGIM, and Caroline Hedges, Head of Credit, Railpen, shared complementary perspectives on how liquidity is being re‑evaluated - not as distress, but as part of a maturing ecosystem.

Private credit secondaries: liquidity as market infrastructure

Josh Shipley framed the growth of private credit secondaries as a natural consequence of scale. Over the past decade, the primary private credit market has expanded roughly fivefold, from around $500bn to an estimated $2–3trn today.

“As more and more capital has flowed into the primary market, the need for liquidity solutions has followed,” he explained.

Private credit secondaries are driven by two core constituencies , both with rational, structural needs:

• LPs, seeking liquidity to rebalance portfolios, manage DPI, or reallocate capital
• GPs, using secondaries to return capital efficiently while maintaining ownership of seasoned portfolios

“Both LP‑led and GP‑led transactions are continuing to drive growth,” Josh noted, adding that for the first time, the market has converged toward roughly a 50/50 split. Crucially, he expects GP‑led transactions to continue gaining share, mirroring the evolution already seen in private equity.

“For GPs, staying with portfolios they know can be beneficial for investors. Secondaries become a tool, not a last resort.”

Pricing has tightened, but structuring still drives returns

Josh acknowledged that early private credit secondary deals are often priced at significant discounts to NAV, delivering equity‑like returns. As the market has matured, pricing has become more competitive, but opportunity hasn’t disappeared. Even as headline discounts compress, secondary buyers can still enhance risk‑adjusted returns through:

• Deferred purchase structures
• Post‑reference‑date cash flow capture
• Thoughtful use of leverage and bespoke terms

Although pricing is typically referenced to NAV, “there are still many ways to drive value through structure,” he said, with secondary returns still offering an estimated 200–300bps premium over underlying primary strategies. Liquidity, in this context, is no longer about distress. It is infrastructure.

How a pension fund thinks about liquidity and credit cycles

Caroline emphasised that the way LPs think about credit has fundamentally evolved. “For us, it no longer makes sense to think about public and private credit as two distinct buckets,” she explained. “We think about credit as one spectrum, allocating across it depending on where we see value.” That shift reflects both scale and maturity.

Pension funds and insurers have long invested in private credit because its cash‑flow profile matches long‑dated liabilities. As the universe has expanded, across direct lending, asset‑based finance, infrastructure debt and beyond, LPs have gained more tools to shape portfolios deliberately. The role credit plays, however, varies by investor.

“For some, credit is a defensive allocation. For us, it’s a growth asset,” Caroline said. “But in all cases, it’s about capital preservation and downside risk management.”

Cycles, excess, and manager resilience

Caroline acknowledged familiar late‑cycle dynamics: strong fundraising, a search for yield, and pressure on covenants and underwriting standards. None of these is new.

“Credit investing is not risk‑free,” she said. “It experiences default cycles and credit cycles.” What matters is selecting managers who can navigate them.

A resilient credit manager is one who:

• Focuses on fundamentals
• Maintains discipline through competition
• Protects capital when conditions deteriorate

Where long‑term capital still sees value

Despite crowding in some segments, Caroline pointed to areas that remain relatively less congested, particularly where complexity or structural expertise is required. Asset‑based finance continues to stand out, especially outside the most senior parts of the capital structure.

For pension funds with patient capital, the illiquidity premium embedded in these strategies remains compelling, provided underwriting standards are not compromised.

What this means for private credit portfolios

Together, the two perspectives tell a clear story. As private credit scales, liquidity is no longer an admission of failure. It is increasingly part of responsible portfolio management, supported by secondary markets, evolving fund structures, and a more sophisticated LP toolkit. For asset owners, this allows portfolios to adapt without abandoning long‑term conviction. For liquidity providers, it reinforces their role as essential market infrastructure.

Private credit is no longer just about accessing yield, it’s about building portfolios that can evolve, endure, and perform through cycles.