Investors in credit secondaries are doubling down on risk mitigation as more continuation vehicles, or CVs, are brought to the market, panelists said at Proskauer’s Secondaries Pulse event last week.
To date, data shows that in 2026 there has been a surge in credit CV deal flow, with a number of sizable deals driving up volume. However, even as more sponsors tap the secondary market as a tool for liquidity and portfolio management, the panelists warned that for every deal that gets done, there are even more that fail to transact.
“On the secondary side, the failure rate of processes in the credit sector is shocking,” said one large fund of funds investor. “It’s not even just deals that didn’t get past pre-launch, it’s deals that launched and have fallen over.”
Many of the CVs that fail stem from valuation gaps between buyers and sellers. Historically, sponsors have turned to the secondary market as a “whole fund solution,” said the investor. This has meant that buyers could be seeing assets that they find desirable but are held back by those that are less so.
“I think one of the biggest risks that many investors have, and rightly so, is how much of this is just buying left tail risk in these kinds of older portfolios,” said a second investor.
One way that some investors are mitigating this risk is by working to more actively shape the final form of a CV transaction. One investor said that there have been more deals where sponsors are being more discerning about “cherry-picking” which loans will end up in a CV to bridge any valuation gaps.
In an environment characterized by broad macroeconomic uncertainty, maintaining discipline and discernment will take on more importance. Many managers have not been cycle tested before, according to the fund of funds investor, who cautioned that they will need to become more selective about which sponsors to back if conditions sour.
“We’re 12 years into a benign credit environment, and that may be changing,” said the investor. “Duration is a big part of how we make our return, and there is no doubt that duration is extending right now, even for the performing names.”
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