Ares Management scaled back a blockbuster €1bn private credit continuation vehicle to about €400mn after investors demanded steeper discounts on loan valuations than the firm would accept. The vehicle aimed to shift loans from a decade-old European direct-lending fund into a new entity Ares would still manage.

Continuation vehicles have become popular in private capital to return cash to investors without traditional exits, accounting for roughly a fifth of private equity exits last year. But the market for private credit continuation vehicles in Europe remains nascent, with only four secondary investors large enough to anchor big deals. Arcmont successfully closed a $2.5bn vehicle earlier this year, anchored by Ares's own secondaries arm, but copycat transactions have faced delays.

Intermediate Capital Group pulled a >€1bn continuation vehicle over pricing differences. Credit managers resist steep discounts as substantial haircuts would force markdowns of underlying loans. "Many of these are performing loans. We use continuation vehicles for liquidity purposes, it's not a fire sale," said a secondaries investor.

Ares is now seeking to raise a €2.5bn continuation vehicle for its 2018 European fund, with Coller Capital exploring an anchor role.