There is no doubt that general partner (GP)-led credit secondaries are becoming a bigger part of the market, but Michael Schad (pictured), head of Coller Credit Secondaries, has warned that firms need to maintain standards.
Last year, GP-led secondaries grew to 13 per cent of the overall credit secondaries market according to the latest report from Campbell Lutyens, accounting for $12bn (£8.8bn) in deals.
Coller Capital, which has completed several above-$1bn continuation vehicles (CVs) in the credit space, recently led a $1.3bn for Ares US Direct Lending’s 2018-vintage fund.
The use of CVs in private credit has attracted some criticism, with some highlighting potential conflict issues, noting how the use of CVs can allow for ‘amend and extend’ practices that defer needed restructurings. Others have also noted that valuations can be difficult, particularly in the case of non-performing loans.
For Schad, who thinks credit CVs can be useful tools, the key risk in this space is “nonadherence to best practice”.
“For the GP-led credit secondaries market to continue to grow sustainably, GPs need to ensure rolling LPs receive fair terms, sufficient decision-making time, and open, timely communication,” he explained. “Maintaining those standards is critical to preserving confidence and protecting the long term health of the market.”
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Schad has worked at Coller Capital for 21 years, starting during the early days of the secondaries market. At the time, there were no credit secondaries. Coller started working on credit secondaries back in 2008, and some of those first deals saw the firm do a lot of structured credit investing.
“We started off investing in some junior credit, structured credit, and then the occasional senior transactions,” he said. “But the big hurdle was that we had to create a proper credit secondaries market that we invested in from an equity secondaries fund.”
However, this wasn’t conducive to creating a market, Schad said, and in 2018-19, the firm saw the opportunity to set up a dedicated fund. In 2021, Coller completed the largest credit secondary transaction ever at that time, with a cheque size of around $700m.
At the time, some had questioned the need for credit secondaries. And now, there are questions being raised again about why there is a need for credit CVs.
“GPs have these funds in year five or six and they’re still pretty much fully invested,” said Schad. “So it’s a question of whether they want to give money back to their investors early so it can be recycled, or if they want to continue running the funds until they run down, but that’s obviously quite a long period of time.”
Credit CVs differ from private equity (PE) ones in a few ways, Schad explained. For example, much of the PE GP-led deals are now for single assets, but in credit, the portfolios are typically highly diversified.
He also added that in private credit funds, particularly when they are levered, the leverage is optimised when it is recycling capital, but when the fund starts winding down, a lot of the cash that comes back goes to repaying the debt.
“So in a way, the fund structure itself becomes somewhat suboptimal,” he added. “These continuation funds are actually starting to optimise the structure of a fund again as you might renegotiate the leverage that sits there. So in a way you’re rejuvenating that vehicle.”
As the market grows, although more assets are being put up for sale, there is also growing competition among managers. As a result, Schad focuses on a few key characteristics when deciding on which deals to do.
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For example, he does not like taking any form of concentration risk and therefore is looking for a diversified portfolio across sectors. Furthermore, he focuses on working with who he believes are high-quality managers.
“If you help to create the ecosystem to a certain degree, that gives you additional insight,” he said. “It helps you because you know all the people that operate in the ecosystem, be that GPs that manage the funds, be it limited partners that are potential sellers, or be it intermediaries that operate in the space.”
He also pointed out that the market’s nascence means that there is not a template for transactions in the same vein as private equity secondaries, but that allows Coller to help shape the narrative and ensure that standards are good.
In addition, he says that firms need to have a very broad pipeline, because you do not want to be a forced buyer.
“You don’t want to be in a situation where you have to do a certain deal because you don’t have the pipeline or you don’t have the resource actually to work on other transactions,” he said. “And then you’re coming into a position where you have a need to deploy.”
Second to none: The rapid rise of private credit secondaries
Private credit secondaries still make up a relatively small proportion of the broader secondaries market but industry stakeholders are forecasting significant growth in the coming years.
Recent estimates from Evercore and LTG Capital Partners suggest last year’s volumes hovered around the $20bn (£14.8bn) mark.
However, this is still a minor share of the broader secondaries market, which hit record volumes of more than $110bn in 2025, according to HarbourVest Partners data.
Predictions of how far the private credit secondaries market could grow vary widely, with some onlookers suggesting that it could reach $80bn by 20230.
Meanwhile, Josh Shipley, head of European private credit at PGIM, expects deal volume to exceed $50bn within the next two to three years.
Growing deal volumes are being driven by limited partners’ (LPs’) demands for liquidity, as well as general partners’ desire to diversify their LP base. Furthermore, secondaries are beneficial for managers amid a muted M&A environment, maturing private credit funds and increased competition in fundraising.
