Goldman Says It’s Unlike Private Credit Peers Hit by Redemptions
(Bloomberg) — Goldman Sachs Group Inc.’s asset management arm sought to reassure clients that redemption rates and software risk are relatively low at one of the largest retail-focused private loan funds.
The Wall Street firm distanced itself from its peers in a detailed letter on Thursday as the $1.8 trillion industry grapples with rising risk from investors pulling out of retail funds and scrutiny on borrowers (especially companies under pressure from the rise of artificial intelligence).
Goldman Sachs Private Credit Corp.’s enterprise software exposure was about 15.5% at the end of the third quarter, “which is toward the lower end of what its peers are reporting,” the firm said. In its letter, the firm added that the fund’s redemption rate in the fourth quarter was below the industry average of 3.5% and that the 7% decline in quarterly fund inflows was “a more modest decline relative to its peers.”
The firm said the majority of its $188 billion in alternative credit assets consists of institutional funds and separately managed accounts, with 17% coming from the U.S. business development company, or BDC, complex.
“By having a variety of financing sources, you will be in a position to deploy capital throughout the cycle,” Vivek Bantwal, global co-head of private credit at Goldman Sachs Asset Management, said on a conference call Friday. “Obviously, it’s easier to scale faster if you’re doing everything together in the retail channel.”
The move to boost confidence comes as non-traded BDCs face increasing redemption demands. Last month, investors withdrew about 15.4% of net assets from one of Blue Owl Capital Inc.’s technology-focused funds.
Blue Owl Concern Shaken the $1.8 Trillion Private Loan Market
The Goldman Sachs investor letter also emphasized the firm’s underwriting standards and stated that it did not sacrifice them in the search for assets.
“We do not underestimate the risk of AI disruption,” the letter said. Still, the firm sees some winners emerging from the AI shakeup. His letter highlighted companies’ “embedded in mission-critical workflows” and “proprietary data.”
He said the companies he audited were less likely than many in the industry to rely on annual recurring revenues or payment-in-kind interest arrangements that allow borrowers to pay interest on more debt.
Annual recurring revenue “allows companies to trade at very high multiples,” Marathon Asset Management President Bruce Richards said in an interview with Bloomberg Television this week.
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