Markets abhor a vacuum, and private credit secondaries are emerging to exploit disruptions. These funds buy stakes from investors wanting out or loans managers want to turn into cash. Demand for liquidity is rising as older institutional funds must return cash and semi-liquid retail funds face exit stampedes.

Investors fear loans are overexposed to AI-threatened software stocks, pulling a net $1.8bn from the 10 largest credit funds in Q1 per Morningstar. Semi-liquid funds promise 5% quarterly redemptions but outflows may prolong. Managers need to supplement yields, turnover, and liquidity — creating opportunity for secondaries investors.

Secondaries can buy loans directly from spooked retail investors — a strategy Boaz Weinstein unsuccessfully tried at Blue Owl — or act as liquidity providers to fund managers. Selling loan strips to SPVs capitalized by secondaries secures cash while keeping management fees. Buyers may extract good deals, deferring payment to lower effective entry points.

Despite growth, few private credit secondary funds exist. Ares Management raised $7bn this year; total AUM is tens of billions versus $2tn for private credit. Even unstressed funds benefit from extra cash options. Carve-outs are new but useful as private credit ventures further into retail.