Private Debt News Weekly Issue #66: Secondaries Surge, Geographic Expansion, and Distribution Wars
Credit firms expand globally while liquidity pressure drives record secondary volumes
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The private credit industry is simultaneously booming and breaking down. While Goldman Sachs relocates top executives to chase Middle Eastern opportunities and Apollo raises $7 billion from Asian wealth clients, funds formed just a few years ago are struggling to return a single dollar to investors.
Credit secondaries volume is set to exceed $18 billion this year, up from $11 billion last year, as funds formed since 2017 show median distribution-to-paid-in ratios below 0.6. Translation: investors have received back less than 60 cents for every dollar committed. Coller Capital led a $2.3 billion continuation fund for Benefit Street Partners, while Goldman's new $15 billion secondaries fund targets private equity liquidity solutions.
The European private credit market is gaining ground on the US, with six largest firms accounting for 59% of regional fundraising, tripling their share since 2019. Nuveen Private Capital attracted minority investments from Hunter Point Capital and Temasek, validating the $87 billion platform's global expansion strategy.
Competition intensifies as banks and private credit firms vie for the €3 billion Zentiva financing, with Goldman providing €2.8 billion staple financing at 6.75x leverage while private lenders offer 7x debt-to-EBITDA packages.
Key Market Themes
1. Secondaries Market Explodes Amid Liquidity Crisis
Private credit secondaries volume is projected to reach $18 billion in 2025, up from $11 billion last year and $6 billion in 2023, according to Evercore data. Funds formed in 2016 achieved median DPI above 1.0, but subsequent vintages remain well below target, with 2020 and later funds showing median DPI below 0.6.
Distribution pressure stems from lack of M&A activity preventing natural loan exits, while credit fund debt facilities amortize faster than underlying assets can be repaid. Coller Capital pooled $6.8 billion for its second private credit secondaries platform, while Ares collected over $3.5 billion for its inaugural credit secondaries fund.
Pricing has improved significantly, with GP stakes trading at 95-100 cents on the dollar versus historical discounts, making secondary sales attractive for fund managers seeking to boost distribution metrics and provide LP liquidity options.
Market Reality
Secondary sales provide temporary liquidity relief but don't address underlying exit market dysfunction. The trend indicates systemic maturity challenges as private credit's growth outpaced traditional exit mechanisms, creating structural imbalances requiring innovative solutions.
2. Goldman Positions for Private Equity Rescue Operations
Goldman Sachs is raising $10 billion for hybrid capital and $15 billion for secondaries to capitalize on private equity's liquidity challenges. Marc Nachmann noted that 45% of buyout holdings breach leverage caps, reducing opportunities for dividend recaps and growth while creating demand for alternative financing solutions.
Hybrid capital funds provide debt-equity combinations that allow portfolio companies to upstream dividends to private equity parents, addressing cash flow constraints. Goldman's previous $15 billion hybrid fund from 2021 demonstrated market demand for flexible financing structures during challenging exit environments.
The asset management arm expects to reach $300 billion in private credit assets by 2028, more than doubling from current levels, while expanding quick-turn financing through special-purpose vehicles offering pricing guarantees superior to traditional secondary sales.
Strategic Positioning
Goldman's dual-fund strategy targets both immediate liquidity needs and longer-term structural challenges facing private equity. The $25 billion combined fundraising positions Goldman as a dominant solution provider for industry-wide exit market dysfunction.
3. Middle East Becomes Next Private Credit Frontier
Goldman Sachs relocated Deb Dutt, a top private credit executive, from London to the Gulf region as part of an aggressive Middle Eastern expansion. Saudi Arabia's Public Investment Fund agreed to anchor new Gulf-focused funds across private credit and public equity strategies, while other large institutions expressed interest in regional opportunities.
Saudi banks face tightening liquidity as they finance Crown Prince Mohammed bin Salman's Vision 2030 economic development program, creating opportunities for non-bank lenders. Goldman established regional headquarters in both Abu Dhabi and Riyadh, becoming the first bulge-bracket bank to secure such licenses.
Zaid Khaldi noted "significant funding needs" as "banks focus on giga projects," while Goldman's dedicated Middle East private credit fund will "originate financings across the board" targeting small and medium enterprises overlooked by traditional lenders.
Regional Opportunity
Middle Eastern expansion offers untapped market potential with government-backed growth initiatives and limited competition from established private credit platforms. Goldman's early-mover advantage could establish market leadership before competitors recognize regional opportunities.
4. European Market Gains Ground on US Dominance
European private credit is closing the gap with the US market, driven by regulatory reforms, deglobalization pressures, and increased infrastructure spending needs. Six largest firms now account for 59% of European fundraising, tripling their share since 2019 and indicating rapid market consolidation.
Moody's analysis highlights untapped market potential and greater autonomy requirements forcing increased regional spending on defense and infrastructure. Apollo estimates Europe requires $18 trillion of investment in AI, defense, and infrastructure, creating massive deployment opportunities.
Regulatory progress includes reforms to unlock insurer capital, make securitization more accessible, and lower capital charges for private credit investments. ESG considerations around defense sector investments are changing as regulations evolve, opening previously restricted opportunities.
Competitive Dynamics
European market development creates geographic diversification opportunities while concentration among top firms intensifies competitive pressures. Regulatory reforms and spending requirements provide structural tailwinds for sustained regional growth.
5. Apollo Targets Asset-Backed Credit in Asia
Apollo's Edward Moon raised $7 billion from Asian wealth clients since 2022 while targeting the $20 trillion asset-backed finance market. The firm's asset-backed strategy returned 11.9% through June, outperforming traditional corporate credit amid economic uncertainty.
Apollo manages $246 billion in asset-backed finance versus $395 billion in corporate credit, with 70% investment-grade exposure offering "wider spreads versus public credit markets." Moon plans to expand his Asia team to 12-15 professionals by early 2026, focusing on Japan, Australia, and South Korea.
MSCI warns that asset-backed valuations are "particularly fragile" because they rely on "modeled assumptions rather than observable prices," potentially leaving Asian wealth investors vulnerable to inflated portfolio mark-ups during stress periods.
Innovation Risks
Asset-backed finance expansion offers diversification benefits and stable cash flows but introduces valuation opacity and complexity challenges. Wealth client demand drives growth while structural risks require sophisticated risk management.
6. Bank-Private Credit Competition Intensifies
Banks and private credit firms are competing directly for the €3 billion Zentiva financing, with Goldman Sachs providing €2.8 billion staple financing at 6.75x debt-to-EBITDA while private lenders offer 7x leverage packages. The generic drugmaker sale by Advent International attracted interest from GTCR and TPG.
Deal competition reflects nascent M&A revival as Goldman expects major dealmaking ramp-up toward year-end with potential for 2026 to be a record M&A year. Staple financing provides funding certainty and asset attractiveness while private credit offers flexibility and relationship lending advantages.
The €420 million EBITDA business would require senior and junior debt combinations regardless of financing source, but pricing and structure differences influence buyer preferences and competitive positioning.
Market Evolution
Direct competition between banks and private credit indicates market maturation and pricing pressure on both sides. Staple financing versus relationship lending represents different value propositions appealing to distinct buyer segments.
7. Strategic Partnerships Validate Platform Consolidation
Nuveen Private Capital attracted minority investments from Hunter Point Capital and Temasek, validating the $87 billion platform created through Churchill and Arcmont integration. The partnership provides strategic business building expertise and long-term capital commitments for new and existing strategies.
Nuveen invested over $21 billion across 400 companies over the past year, serving more than 5,000 investors globally while building one of the world's leading private credit platforms. Ken Kencel and Anthony Fobel emphasized "scaled, highly differentiated platform" combining global reach and deep local market expertise.
Hunter Point's Avi Kalichstein praised "longstanding relationships with sponsors and ability to source deal flow" as "among the best in the industry," while Temasek's involvement provides Asian market access and sovereign wealth fund credibility.
Platform Benefits
Strategic partnerships with sophisticated investors validate platform integration success while providing growth capital and market access. Minority investment structures preserve management control while enhancing competitive positioning.
Deals of Note
Zentiva — €3B financing competition between banks and private credit for Advent sale
Coller/Benefit Street — $2.3B continuation fund for 2016 vintage loan portfolio
Goldman Hybrid Capital — $10B fundraising for private equity dividend solutions
Goldman Secondaries — $15B flagship fund targeting PE stakes and continuation vehicles
Nuveen Private Capital — Strategic partnership with Hunter Point Capital and Temasek
Forward Outlook
Secondaries volume accelerates as 2017-2020 vintages face continued liquidity pressure
Middle Eastern expansion intensifies among major private credit platforms
European market growth driven by regulatory reforms and infrastructure spending
Asset-backed finance gains wealth client adoption despite valuation complexity
Bank-private credit competition increases across large corporate financings
Platform consolidation continues through strategic partnerships and minority investments
Hybrid capital demand grows as private equity exit challenges persist
Final Takeaway
Private credit is expanding geographically and structurally while confronting fundamental liquidity challenges across aging fund vintages. Goldman's $25 billion fundraising across hybrid capital and secondaries demonstrates how private equity's exit crisis creates opportunities for flexible capital providers.
Apollo's $7 billion Asian wealth expansion and Goldman's Middle Eastern push show how geographic diversification addresses market saturation in traditional US and European markets. European market consolidation among six dominant firms mirrors broader industry concentration trends while regulatory reforms unlock new deployment opportunities.
Credit secondaries volume tripling to $18 billion reflects systemic liquidity pressure rather than natural market evolution. Funds formed since 2017 showing sub-0.6 DPI ratios indicate structural mismatches between deployment timelines and exit market realities.
Nuveen's strategic partnership with Hunter Point and Temasek validates platform consolidation strategies that combine scale, geographic reach, and capital resources. Bank-private credit competition for €3 billion Zentiva financing demonstrates pricing pressure and product differentiation challenges as markets mature.
Asset-backed finance growth in Asia highlights innovation opportunities beyond traditional corporate credit, but MSCI's valuation warnings underscore complexity risks as wealth clients demand transparent returns from opaque structures.
Private credit's next phase depends on successfully managing liquidity challenges while executing geographic expansion and product innovation. Secondary market growth provides temporary relief but sustainable success requires fundamental exit market recovery or permanent structural adaptation to longer hold periods.
I like that Evercore’s data