Credit Secondaries
Is it just me or is there next to no deal flow in this space unless you want to pay 98-102% of NAV for some Ares fund yielding 10%?
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I have never understood this space. Maybe someone can explain it to me as I may be misunderstanding the PC space as an asset class but… why would investors sell via a secondary in a yielding asset class? The liquidity need angle just doesn’t make sense to me. But I might be missing something.
People sell assets for a variety of reasons. The issue with PC is that especially for senior lending funds the returns are low so you can't really take much of a discount when selling - this means buyers need to pay full prices and use leverage/engineering to get a low teens return...pretty weak.
We have a small sleeve for credit secondaries. It's not usually direct lending, senior-type loans, but more opportunistic credit and special situations stuff that have some more opaque securities in the portfolio that are harder to value. We peeled a special situations fund off at a 30%+ discount for example because no one could really value it (think warrants, structured prefs, etc), but we knew the portfolio because we were in the fund already elsewhere in the firm. Sometimes that's considered "credit secondaries", others not, so your mileage may vary.
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