Credit Secondaries: Opportunity, Dispersion, and Discipline | Q&A with Steve McMillan

Steve McMillan Head of Credit Research, GCM Grosvenor

Credit secondaries have emerged as one of the fastest-growing segments of the private markets landscape, driven by a mix of structural and cyclical forces. Record levels of capital formation, combined with a growing need for liquidity among both general partners and limited partners, have expanded the opportunity set.

At the same time, the market remains relatively early in its development. There is meaningful dispersion between highly competitive, well-trafficked transactions and less efficient, more specialized opportunities. As continuation vehicles, portfolio sales, and other liquidity solutions become more common, investors are navigating a market that is becoming both deeper and more complex.

In this Q&A, Steve McMillan, Head of Credit Research at GCM Grosvenor, discusses how the market is evolving, where opportunities are emerging, and how credit secondaries may fit within institutional portfolios.

Credit secondaries have grown rapidly in recent years. Has that expansion improved market efficiency, or increased the risk of mispricing in more complex portfolios?

The market has grown on both sides. Supply has increased meaningfully, with 2025 representing a record year for credit secondaries, while significant capital has also been raised to pursue these opportunities.

At a high level, that growth has helped improve market depth and efficiency. However, credit secondaries remain a relatively early-stage market, and inefficiencies still exist in certain areas. There can be a disconnect between where capital has been raised and where opportunities are emerging, which may create pockets of mispricing.

As a result, while the market is broader and more developed than it was a few years ago, investors generally need to be more selective and do more work to identify attractive opportunities.

If the landscape is increasingly bifurcated between high-quality and more challenged assets, what is driving that dispersion?

A significant driver of dispersion is the amount of capital targeting large direct lending continuation vehicles compared with the rest of the market.

Large-scale direct lending transactions have attracted substantial capital. At the same time, general partners have strong incentives to bring these deals to market. Continuation vehicles can help address issues such as extending loans that may be difficult to refinance and managing fund life constraints.

Because that segment of the market is highly competitive, with strong intermediary involvement and sophisticated investors deploying capital at scale, pricing in those transactions is often relatively tight.

GCM Grosvenor sees more relative value outside of that highly trafficked cohort, including portfolio trades, asset-backed opportunities, restrictive GP situations, LP-led transactions with limited broker involvement, and smaller deals.

The firm does not view the market as simply split between high-quality and low-quality assets. Instead, the goal is to acquire high-quality, performing portfolios at attractive discounts, with a focus on less crowded areas of the market.

Given the complexity of these portfolios, how are underwriting approaches evolving, and how important is pricing discipline in this environment?

In credit secondaries, pricing discipline is a primary driver of outcomes. Unlike equity, there are generally fewer opportunities for outsized gains to offset losses, and more mature portfolios can carry meaningful negative selection risk. As a result, investors need to underwrite the risk carefully and maintain a margin of safety.

Underwriting approaches vary by portfolio type. For highly diversified portfolios with many positions, investors often apply portfolio-level default and recovery assumptions similar to a CLO-style analysis. This is typically paired with closer review of the individual assets most likely to drive outcomes, including positions on watch lists or those showing signs of stress.

In more concentrated portfolios, deep underwriting expertise and access to information become especially important. Differentiation often comes from combining analytical capability with strong relationships that allow for more detailed diligence.

GCM Grosvenor’s process incorporates base, downside, and upside cases using both portfolio-level assumptions and position-level analysis. Given the information asymmetry in the market, disciplined pricing and conservative assumptions remain critical.

As investors look to diversify beyond traditional direct lending, where do credit secondaries fit within a broader credit allocation?

Investors are using credit secondaries in several ways. For some, they provide a way to build credit exposure more quickly, gain diversification across vintages and managers, and become more fully deployed with earlier cash flow.

Others use secondaries to diversify away from traditional middle market direct lending, especially when working with managers that invest across a broader range of credit strategies.

From GCM Grosvenor’s perspective, the main objective is to buy high-quality credit at a discount to fair value. Because credit secondaries can involve fees at both the underlying manager level and the secondary fund level, entry discount is an important part of creating value for investors.

More broadly, credit portfolios are increasingly incorporating a mix of primaries, co-investments, and secondaries, similar to the evolution that has taken place in private equity.

With continuation vehicles and other liquidity solutions gaining traction, how should investors distinguish between transactions that are creating value versus those driven by portfolio constraints?

GCM Grosvenor takes a broad view of the opportunity set. Continuation vehicles, LP sales, asset-level disposals, and NAV financing are all mechanisms for providing liquidity. From a secondary investor’s perspective, they represent different ways to access assets.

Understanding deal dynamics and seller motivation is important. More motivated sellers and less competitive situations are typically associated with more attractive pricing.

The firm evaluates both the underlying assets and the transaction context. That includes assessing what the assets may be worth under a range of scenarios, as well as the price at which they may be acquired. Bid prices are calibrated based on both asset value and the price required to win.

Where does GCM Grosvenor see its competitive advantage in credit secondaries?

GCM Grosvenor points to several factors that it believes contribute to its competitive position in credit secondaries.

First, the firm takes a broad approach across the private credit ecosystem. Direct lending is part of the opportunity set, but the firm is not limited to that segment. This allows the team to evaluate a wider range of opportunities, including areas that may be less efficient.

Relationships are also central to the firm’s approach. GCM Grosvenor has deployed more than $50 billion to credit general partners across its platform and is often a large investor or key prospect with managers. That can support deal origination, underwriting access, transparency, and engagement.

The firm’s goal is not simply to out-analyze competitors or win auctions by offering the lowest cost of capital. Instead, it aims to use its relationships for differentiated deal flow and underwriting advantages, supported by deep experience underwriting both funds and single-name credits.

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