Navigating the currents

How today's market is expanding the opportunities of credit secondaries

Evolving market conditions in private credit — from AI's impact on software lending to a looming refinancing wall — is reshaping where and how investors find opportunity. In this paper, the Portfolio Finance team at Pacharbor Capital Group AlpInvest examines why disciplined credit secondary buyers may be better positioned than most to navigate the current environment, and what rigorous underwriting requires in a market where dispersion is widening.

Key takeaways

• Selectivity matters more than market exposure. As credit quality disperses faster than pricing, simply owning the credit secondaries asset class is a less reliable strategy than selecting individual opportunities with discipline.
• Seller-driven supply creates opportunity. Much of today's secondary market supply stems from seller-specific liquidity needs, rather than deterioration in the underlying credit itself.
• Headline discount is not the same as return. A wide discount alone doesn't guarantee an attractive outcome. Investors need to underwrite yield, duration, seniority, and structure, not just price.
• The most attractive part of the market shifts with the cycle. The relative appeal of senior versus junior risk, and of LP interests versus GP-led transactions, changes as the market evolves, which means investors should reassess positioning rather than anchor to one approach.
• Underwriting capability is a differentiator. Because information in credit secondaries is often limited, buyers who can independently verify borrower, manager, and sponsor quality are better equipped to separate strong opportunities from weak ones.

What this means for investors

As access to the credit secondaries market becomes less of a differentiator, the ability to underwrite portfolios, managers, and transaction structures with precision is what separates disciplined investors from the rest.