Episode summary
Private Credit Concerns in Context
Exchanges (Goldman Sachs)
· · Guests: Alex Blostein, Vivek Bantwal
Summary
Private credit has moved from a favored asset class to a more controversial one because of three concerns: rapid growth, headline risk around credit quality, and liquidity in retail products. The analyst argued that the market is mixing real risks with exaggeration. He said the direct lending market is large, around $3.5 trillion plus, has grown about 15% a year for more than five years, and remains relatively opaque, but he also noted that portfolio credit metrics have not yet shown major deterioration.
The sharpest worries are concentrated in software exposure and in retail evergreen funds. The analyst said software is roughly 25% of direct lending exposure and that current loan-to-value levels around 30% to 40% leave substantial cushion. He also argued that retail redemptions are the main liquidity pressure, but that most assets are not subject to this mechanism and that industry-level fire sales are unlikely because managers can cap redemptions at 5% and have other sources of liquidity.
The guest was more constructive on the investment opportunity. He said AI is changing how software credits are underwritten, especially for ARR-based loans, but that not all software is equally exposed. He also argued that as retail money leaves, spreads should become more lender-friendly, which could make institutional vintages more attractive. Both speakers said the market has confused illiquid with “semiliquid,” and both framed current fears as serious enough to matter, but not obviously systemic.
Key takeaways
- The analyst said private credit is roughly a $3.5 trillion plus market growing about 15% annually, but its opacity makes risk harder to judge.
- He argued that direct lending software exposure is about 25% of the market, yet current 30% to 40% loan-to-value levels still leave a large equity cushion.
- The analyst said retail direct lending products are driving the redemption problem, while the institutional market lacks the same liquidation mechanism.
- He expects evergreen retail private credit funds to stay in net outflows through 2026 and likely 2027.
- The guest said AI is making lenders more selective, especially on ARR loans, but also creating a more lender-friendly spread environment for new capital.
- Both speakers said the main systemic-risk fears are overstated because losses would likely be dispersed and fire-sale pressure should be limited.
Notable quotes
“private credit has gone from one of the hottest asset classes to perhaps one of the coldest”
“we think it's about $3.5 plus trillion asset class. It's grown at about 15 percent a year for, really, the last five plus years”
“the retail channel is a little bit less than 20 percent of the assets in the direct lending space as a whole”
“I would anticipate that businesses with either one large institutional dry powder, so capital that's available on the sidelines, will get deployed here”
“The key is that you don't need that money in the short term. And so, that you've sized your portfolio the right way that you've allocated that correctly”
How the episode opens
In what seems like a matter of months, private credit has gone from one of the hottest asset classes to perhaps one of the coldest. Concerns that the rapid growth in private credit funds has come at the expense of underwriting standards and that these funds are far too exposed to the software companies now in the crosshairs of AI innovation have precipitated this sentiment shift. And as retail investors rush to exit these funds and run up against redemption limits, there are serious questions about the private credit push to access flows from retirement accounts.
So, what's really going on in private credit? And what will it take to restore faith in this asset class? I'm Allison Nathan and this is Goldman Sachs Exchanges.
A little bit later I'll be speaking to Vivek Bantwal, global co-head of Private Credit in Goldman Sachs Asset Management. But let's start this episode with Alex Blostein, who covers US asset managers and other financial companies for Goldman Sachs Research. Alex, welcome back to the program.
Great. Thank you for having me. So, Alex, let me take a stab at trying to summarize this very bearish narrative we have right now around private credit.
The idea is that private credit firms took in a lot of money and they rushed to deploy it as quickly as possible. Which meant there were some frauds. They maybe have overallocated into potential risky sectors.
Software, which we have discussed on this podcast, looks vulnerable. So, there are a lot of factors playing into some negativity around this space. Did I get it right, first of all?
Yeah. And is there any truth to any of this, most importantly? Yeah, we look, this is certainly the narrative.
But like with anything, there is a lot of nuance to it.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- private credit concerns
- market sentiment
- credit fundamentals
- private credit outlook
- credit risk
Companies and tickers mentioned
- GS
- Goldman Sachs
Watch the episode
Watch “Private Credit Concerns in Context” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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