As private credit continues its rapid ascent as a core allocation within private capital portfolios, attention is turning to a market that remains significantly underdeveloped: private credit secondaries. Recorded at SuperReturn North America, this interview with Sijia Cai, Partner, Investment Management, Davis Polk, explores why credit secondaries are emerging as a critical liquidity solution, and why the gap between primary market growth and secondary market adoption may represent one of the most compelling opportunities in private markets today.
Private credit growth is outpacing liquidity solutions
The starting point for understanding credit secondaries is scale. The global private credit market has grown to approximately $2 trillion, driven by reduced bank lending, sponsor demand for flexible capital and investor appetite for yield. Yet the secondary market supporting that growth remains comparatively small — around $20 billion, or roughly 1% of primary market volume.
By comparison, private equity secondaries typically represent 2–3% of their underlying market, highlighting how early private credit secondaries are, despite the maturity of the asset class itself. According to Cai, this gap is unlikely to persist. As capital continues to flow into private credit, the secondary market is beginning to catch up, following a path already established in private equity.
“The private credit market is around $2 trillion today, while credit secondaries are only about 1% of that, so there is significant white space for continued growth.”
Liquidity pressure is the key driver
The primary catalyst behind this growth is a familiar theme across SuperReturn conversations: liquidity. Many private credit portfolios are exposed to private equity‑owned businesses. In a muted exit environment, where sponsor-led realisations have slowed, underlying loans are being extended, often multiple times, to align with delayed exits. As a result, credit fund durations have lengthened by an average of around two years.
For investors who originally committed capital on a five‑year horizon, that extension can create portfolio management challenges. In response, both limited partners and fund managers are increasingly turning to the secondaries market as a liquidity solution.
Continuation vehicles are becoming part of the toolkit
Cai also highlighted the growing role of continuation vehicles in private credit, a structure that has already become well established in private equity.
While investors have long relied on traditional secondaries sales, continuation vehicles now give managers another option: the ability to provide liquidity, optimise portfolios and crystallise value, while retaining exposure to selected assets. Rather than being seen as a last‑resort solution, continuations are increasingly viewed as one of several tools available to GPs managing capital across longer time horizons.
Credit secondaries are structurally different from PE
One reason credit secondaries have taken longer to develop is structural complexity. Private credit portfolios differ fundamentally from private equity. While PE assets rely on terminal value creation, credit portfolios generate ongoing interest income and principal repayments, which materially affects valuation, underwriting and pricing models.
Factors such as leverage, recyclability and the treatment of post‑record‑date cash flows play a significant role in pricing credit portfolios, considerations that are largely absent in equity secondaries. As a result, the market has required more specialist expertise to mature. Cai estimates that credit secondaries are still five to ten years behind private equity in terms of development but that gap is beginning to close.
Significant white space remains
Looking ahead, Cai expects continued growth and increasing specialisation. As secondaries and continuation vehicles become more widely accepted across asset classes, participants are differentiating by focusing on specific sub‑strategies within credit and equity. The overarching message is clear: secondaries are no longer a niche strategy or a market of last resort. They are increasingly central to portfolio construction and liquidity management in private capital. For GPs and LPs navigating longer hold periods and tighter exit markets, private credit secondaries are moving rapidly from optional to essential.
