
The Case for Credit Secondaries: A Timely Opportunity for Private Credit Investors
- Strategy insight
September 16, 2025 | 9 min read
In the ever-evolving landscape of private markets, credit secondaries have emerged as a fast-growing, compelling investment opportunity. This undercapitalized and growing market has the potential to become one of the largest segments of global private markets. For investors, understanding the dynamics of credit secondaries and how they can enhance portfolio returns while mitigating risks is crucial.
In this paper, we examine the strategic advantages of credit secondaries, including their potential to deliver enhanced returns, increased portfolio diversification, and early access to a rapidly growing segment of private markets. We also outline the scope of the credit secondaries opportunity, while offering guidance on identifying the most important qualities when selecting a credit secondaries manager.
Understanding the private credit market
The private credit market has undergone significant transformation since the Global Financial Crisis (GFC). Fixed income allocators, forced to look beyond traditional allocations to meet yield targets, turned to private credit as an alternative. Concurrently, regulatory changes compelled banks to reduce their lending to middle-market businesses. Today, bank lending constitutes only 12% of middle-market lending, down from over 75% pre-GFC.1 The broadly syndicated loan (BSL) market, another key source of middle-market lending, now represents just 27% of non-bank financing, down from nearly 65% pre-GFC.2
Private credit has evolved to become the primary source of credit for private businesses, filling the gap left by banks and the BSL. It has grown into an institutional asset class, with more than $1.6 trillion of capital, rivaling the size of the high-yield bond and leveraged loan markets, and is expected to have an estimated compound annual growth rate of 13% between now and 2030 (see chart below).
Market evolution: Global private credit assets under management
Source: Preqin 2024 Global Report: Private Debt. For illustrative purposes only. Past performance is not a reliable indicator of future results.
What are credit secondaries?
Many allocators invest in private credit out of their public fixed income allocations, trading liquidity for higher yields. Other allocators have dedicated private credit allocations, often sitting alongside private equity allocations, intended to provide diversification and accelerated liquidity relative to other, longer duration strategies in the private markets. However, private credit is an illiquid asset class. Private loans are not traded; therefore, there is no natural mechanism to liquidate loans prior to a refinancing event or maturity. For LPs in private credit funds who need to adjust their portfolios or address liquidity concerns, private credit secondaries offer an effective solution.
Secondary investment occurs when a buyer, like HarbourVest, purchases existing private assets. While secondary investments can be executed in various ways, all secondary transactions represent a means for private asset investors to generate liquidity in place of traditional organic exits.
Private credit secondaries allow for the buying and selling of existing private credit funds after they’ve already been originated or deployed. Unlike committing capital to new loans or funds, secondaries allow investors to step into seasoned portfolios, often at discounted valuations and with greater visibility into performance. These transactions can be initiated by limited partners (LPs) seeking liquidity or portfolio rebalancing, or by general partners (GPs) restructuring funds to accelerate liquidity back to their LPs.
LP-led secondaries
LP interests in one or more private funds are sold by a limited partner directly to a secondary buyer.
GP-led secondaries
A general partner, in close partnership with a secondary buyer (or buyers), develops liquidity solutions which are then offered to the GP’s limited partners.
Benefits of credit secondaries
Private credit secondaries offer a compelling mix of shorter duration, accelerated cash flow, and reduced blind pool risk, making them an increasingly strategic way to access income-generating private credit exposure without the long ramp-up periods typical of primary allocations. Here’s a deeper look at some of their key benefits:
Higher potential return
Credit secondaries offer an enhanced return profile over underlying private credit funds, with quicker deployment, accelerated DPI, J-curve mitigation, reduced blind pool risk, immediate cash yield, low volatility, and potential strong absolute and relative returns. Credit secondaries can also capitalize on market dislocations and the overall undercapitalization of the market to capture discounts.
Risk mitigation
Credit secondaries can reduce the risk in an allocator’s credit allocation by providing a more diversified portfolio. Instead of exposure to 70-80 companies, a secondaries portfolio will typically have exposure to thousands of underlying loans, minimizing the impact of a default or impairment in any underlying position. It also offers vintage diversification across prior vintages, which is particularly interesting to new entrants to the private credit market.
Downside protection
Approximately two-thirds of defaults happen in the first three years of a loan’s effective life (see chart below); This is because a loan is at its riskiest point when it is first issued- leverage is the highest, EBITDA add backs are the most significant and the management team and PE sponsor are often new. Secondary buyers have the opportunity to evaluate seasoned pools of loans that have had time to exhibit under writable operating performance. This allows the secondary buyer to better calibrate and price default risk, which provides valuable downside protection relative to making primary commitments in the credit market.
Cumulative loan default by year
Source: Proskauer Private Credit Default Index, as of June 30, 2024. For illustrative purposes only. Past performance is not a reliable indicator of future results.
The credit secondaries opportunity
We believe the credit secondaries market is sufficiently scaled to support multiple winners but remains highly undercapitalized, allowing buyers to capture attractive discounts with early gains and predictable cash flows. Due to the diversified nature of these assets, investors are taking advantage of the opportunity to earn higher returns while taking less risk than by investing in the asset class directly.
Data from Jefferies highlights the market’s growth. Credit secondary transaction volumes rose from $6 billion in 2023 to $10 billion in 2024 to an estimated $17+ billion in 2025 – a CAGR of 70%+ since 2023. Estimates place 2027 volume as high as $40B+ (see chart below).5 Despite this growth, the market is currently undercapitalized, with only 4% of secondaries capital sitting in dedicated credit funds.6 This is creating two notable opportunities for credit secondary investors: the potential for enhanced returns and a more favorable risk profile.
Increasing liquidity needs create second secondaries opportunity
Credit secondaries - Annual transaction volume
Transaction Volume Source: Jefferies and HarbourVest, as of July 8, 2025. 2025 and 2027 figures are estimated by Jefferies. 2026 figure reflects HarbourVest’s estimate based on Jefferies data.
Dry Powder Source: Evercore FY 2024 Secondary Market Review, as of February 2025. For illustrative purposes only. Past performance is no guarantee of future performance.
As this market has evolved, GP-led deals have become a prominent fixture in this market. To put this trend in perspective, in 2024, only one GP-led credit secondary deal exceeded $1 billion. By comparison, there were five such deals in the first six months of 2025.7 In fact, GP-led deals are expected to account for 60% of transaction volume in 2025, surpassing annual LP-led transactions for the first time ever.8
The increase in GP-led transactions has been driven, in part, by prominent private credit managers employing continuation vehicles to deliver comprehensive liquidity solutions for their respective LP bases, which is a trend that we expect to continue.
A powerful combination—with the right manager
Allocating to credit secondaries serves as an effective mechanism to establish or enhance a private credit program, offering enhanced portfolio resilience and access to diversified risk premia. Strategic collaboration with an established manager—one with demonstrable expertise and an established track record in both private credit and secondary transactions—can increase the likelihood of a superior outcome. When assessing potential partners consider the attributes that we believe distinguish a truly capable manager:
- Demonstrated credit expertise through multiple market cycles
- A successful track record of structuring and executing secondary deals
- Track record of successfully underwriting private credit transactions
- Demonstrated access to reliable, high quality deal flow
- Strong execution capabilities
Why HarbourVest for credit secondaries
Market position: HarbourVest has been executing transactions in the PE secondaries market for 38 years. Over that period, we have committed $59 billion of LP capital across 500 transactions and typically rank in the top five firms for annual deployment in secondary transactions.
Lead arranger/co-lender proficiency: Importantly, we occupy a distinct position as a lead arranger in the secondary market and a co-lender in the credit market. This allows us to drive terms and structure on secondary transactions, while mitigating potential conflicts of interest with lead lenders in the credit market. We have been operating in this capacity for over 20+ years and currently manage over $8 billion of dedicated private credit AUM. And with our credit primary capital resources, we can be a full-service provider to private credit GPs.
Credit expertise: Our intimate familiarity with leaders in the private credit market, coupled with our underwriting discipline and our position as a co-lender, allows us to participate in the full aperture of the credit secondaries market, while maintaining a high degree of selectivity and underwriting discipline.
Dedicated Quantitative Investment Sciences (QIS) team: We have a team of over 30 data scientists who provide the quantitative support needed to accurately model the cash flow profile of a portfolio of underlying assets. This team enhances our ability to make informed investment decisions and optimize portfolio performance.
Proof of concept: Over the course of the past 20 years, HarbourVest has deployed approximately $1.2 billion of LP capital to credit secondaries across 19 transactions in our PE secondary strategy.
Connect with HarbourVest
Key takeaways
The credit secondaries market presents a compelling opportunity for private markets investors, offering a combination of enhanced liquidity, accelerated deployment, and access to seasoned credit portfolios at potentially discounted valuations.
We believe HarbourVest Partners’ multi-manager, GP-centric platform positions us as a counterparty of choice, enabling us to access the widest opportunity set in the industry and exercise strong investment selectivity. We believe HarbourVest’s expertise, access to deal flow, and established track record position us as a leader in the burgeoning credit secondary market. We invite you to join us in capitalizing on this differentiated and timely investment opportunity.
- Source: Refinitiv as of March 31, 2025.
- Source: Refinitiv as of March 31, 2025.
- Source: Bain & Company’s Global Private Equity Report 2025.
- Source: S&P Global, “Top 20 private credit managers hold more than one-third of dry powder,” January 2025.
- Source: Jefferies Boardroom Intelligence, “A Dramatic Shift in The Credit Secondaries Market– Continuation Vehicles Become Mainstream,” July 8, 2025.
- Source: Evercore FY Secondary Market Review as of February 2025.
- Source: Jefferies Boardroom Intelligence, “A Dramatic Shift in The Credit Secondaries Market – Continuation Vehicles Become Mainstream,” July 2025.
- Source: Campbell-Lutyens, Secondary Market Overview Report 1H 2025, as of June 30, 2025.
Diversification does not ensure a profit or protect against a loss.
HarbourVest Partners, LLC is a registered investment adviser under the Investment Advisers Act of 1940. This material is solely for informational purposes and should not be viewed as a current or past recommendation or an offer to sell or the solicitation to buy securities or adopt any investment strategy. The opinions expressed herein represent the current, good faith views of the author(s) at the time of publication, are not definitive investment advice, and should not be relied upon as such. This material has been developed internally and/or obtained from sources believed to be reliable; however, HarbourVest does not guarantee the accuracy, adequacy, or completeness of such information. There is no assurance that any events or projections will occur, and outcomes may be significantly different than the opinions shown here. This information, including any projections concerning financial market performance, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. The information contained herein must be kept strictly confidential and may not be reproduced or redistributed in any format without the express written approval of HarbourVest.
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An investment in the private markets involves high degree of risk, and therefore, should be undertaken only by prospective investors capable of evaluating the risks of the Fund and bearing the risks such an investment represents. The following is a summary of only some of the risks of investing in private markets.
Risks Related to the Structure and Terms of a Private Markets Fund. Investments in a fund of funds structure may subject investors to additional risks which would not be incurred if such investor were investing directly in private equity funds. Such risks may include but are not limited to (i) multiple levels of expense; and (ii) reliance on third-party management. In addition, a fund may issue capital calls, and failure to meet the capital calls can result in consequences including, but not limited to, a total loss of investment.
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Availability of Suitable Investments. The business of identifying and structuring investments of the types contemplated by the strategy is competitive and involves a high degree of uncertainty. Furthermore, the availability of investment opportunities generally will be subject to market conditions and competition from other groups as well as, in some cases, the prevailing regulatory or political climate. Interest rates, general levels of economic activity, the price of securities, and participation by other investors in the financial markets may affect the value and number of investments made by the strategy or considered for prospective investment.
Reliance on the General Partner and Investment Manager. The success of the strategy will be highly dependent on the financial and managerial expertise of a fund’s general partner and investment manager and their expertise in the relevant markets. The quality of results of the general partner and investment manager will depend on the quality of their personnel. There are risks that death, illness, disability, change in career or new employment of such personnel could adversely affect results of the strategy. The limited partners will not make decisions with respect to the acquisition, management, disposition or other realization of any investment, or other decisions regarding the strategies’ businesses and portfolio.
Market Risk. Private equity, as a form of equity capital, shares similar economic exposures as public equities. As such, investments in each can be expected to earn the equity risk premium, or compensation for assuming the non-diversifiable portion of equity risk. However, unlike public equity, private equity’s sensitivity to public markets is likely greatest during the late stages of the fund’s life because the level of equity markets around the time of portfolio company exits can negatively affect private equity realizations. Though private equity managers have the flexibility to potentially time portfolio company exits to complete transactions in more favorable market environments, there’s still the risk of capital loss from adverse financial conditions.
Credit Secondaries Investing Risks. Investments in secondary investments in underlying portfolio funds focusing primarily on senior secured credit investments include risks related to both secondary market transactions generally as well as risks specific to such credit investments will apply with respect to a portfolio. Secondary market transactions may impose higher costs than other investments and may require a portfolio to assume contingent liabilities associated with events occurring prior to the investment. The overall performance of an investment in an underlying portfolio fund acquired through a secondary transaction will depend in large part on the purchase price paid. In addition, the portfolio will generally not have any ability to negotiate terms with respect to interests in underlying portfolio funds acquired through secondary market transactions. Investments in senior secured credit investment portfolios through its underlying portfolio fund investments will expose a portfolio to credit risk, which is the risk that a borrower will be unable or unwilling to make principal and interest payments on its outstanding debt obligations when due. Adverse changes in the financial condition of a borrower and general economic conditions (or both) could impair the ability of a borrower to make payments on its senior debt and result in defaults on, and declines in, the value of such debt as well as, potentially, the collateral securing it. There is no assurance that such collateral will be sufficient to mitigate the losses incurred as a result of defaults.