Giovanni Amodeo hosted a fireside chat with Michael Schad, Partner at Coller Capital, as part of the Ion Influencers series. The discussion delved into the intricacies of credit secondaries, offering valuable insights for investors and industry professionals. Below are the key topics discussed:

1. Michael Schad’s Background and Role at Coller Capital

Michael Schad shared his journey from an M&A banker to becoming a partner at Coller Capital, highlighting his early involvement in the secondary market since 2005. He emphasized Coller Capital’s focus on secondary transactions across various asset classes, managing approximately $35 billion in AUM globally.

2. Early Movers in Credit Secondaries

Schad discussed the challenges and advantages of being an early mover in credit secondaries. He noted that the market has grown significantly from under $10 billion in 2005 to over $150 billion today. He also addressed the skepticism faced initially and the importance of educating stakeholders about the benefits of liquidity in illiquid assets.

3. Education and Market Development

The conversation highlighted the ongoing need for education in the market. Schad explained how Coller Capital educates potential sellers and investors about the advantages of obtaining liquidity for illiquid assets, drawing parallels with more familiar asset classes like leveraged loans.

4. Drivers of Liquidity Needs

Schad identified various reasons why investors seek liquidity, including portfolio rebalancing, regulatory impacts, and changing asset allocations. He emphasized that sellers are not distressed but are using liquidity as a strategic management tool.

5. Evolution of Private Credit Secondaries

The discussion covered the evolution of private credit secondaries, comparing it to the development of private equity secondaries. Schad noted that while the market for credit secondaries started later, it has quickly adopted similar transaction types, including GP-led transactions and structured deals.

6. Impact of Interest Rates

Schad addressed the impact of interest rate changes on the credit secondaries market. He argued that while interest rates influence overall portfolio management, they are not the primary driver of transaction volumes in credit secondaries.

7. Correlation with Fundraising Activity

The chat explored the correlation between primary market fundraising and secondary market activity. Schad explained that as the primary market for private credit grows, so does the secondary market, driven by the need for liquidity and portfolio management.

8. Risks and Manager Selection

Schad discussed the importance of diversification and platform strength in selecting credit managers. He highlighted the need for managers to have robust work-out capabilities and the benefits of investing in larger, well-established credit platforms.

9. Attracting Talent to Secondaries

Finally, Schad emphasized the attractiveness of the secondary market for young professionals, noting its rapid growth and the career opportunities it presents compared to more static or declining markets.

Key Timestamps:

00:09 Introduction to the Fireside Chat
01:12 Overview of Coller Capital
02:04 Early Movers in Credit Secondaries
03:59 Education and Market Understanding
06:00 Understanding Investor Needs for Liquidity
09:21 Evolution of Private Credit Secondaries
12:11 Future of Continuation Funds in Credit
13:56 Impact of Interest Rates on Credit Secondaries
16:56 Correlation Between Fundraising and Secondary Market Activity
20:22 Concerns and Risks in Private Credit
23:18 Understanding Manager Interactions
24:27 Key Considerations for Manager Selection
25:51 The Appeal of Secondary Markets
26:51 Conclusion and Closing Remarks