Key Takeaways
- • Goldman Sachs Asset Management's Vivek Bantwal, global co-head of private credit, says fundamentals remain strong, with defaults and overdue loans in public and private credit still at relatively low levels.
- • Private credit's recent stress is described as more technical than fundamental, driven in part by retail investors pulling money after reports of potential risks.
- • Many private credit managers have software and technology exposure of as much as 25% to 30% of portfolios, but senior, top-of-capital-structure lending provides a substantial cushion against AI-driven disruption.
- • Bantwal expects greater dispersion in private credit fund performance, with the gap widening between the best and worst managers as underwriting quality diverges.
- • Systemic risk is judged limited: the $1.5 trillion to $2 trillion market is spread across many stakeholders, leverage in private credit vehicles is about one-to-one, and closed-end and BDC structures limit rapid withdrawals.
Summary
Concerns about private credit have intensified in recent months, with investors worried that unrecognized risks have accumulated and some pulling capital from the market. According to Goldman Sachs Asset Management, however, the underlying picture is more resilient than the headlines suggest. Vivek Bantwal, global co-head of private credit at Goldman Sachs Asset Management, says data show defaults and overdue loans remain at relatively low levels, and that borrowers are reporting double-digit revenue and EBITDA growth, rising interest coverage and improving margins.
Bantwal characterizes much of the current pressure as technical rather than fundamental. Retail investors, who gained access through business development companies (BDCs) and other evergreen structures, are withdrawing amid reports of potential risk. He notes that the so-called semi-liquid structures were sometimes oversimplified for investors, and that these vehicles were always meant for the illiquid portion of a portfolio. As redemptions widen spreads, he suggests yields may rise relative to the risk-free rate.
Bantwal does flag caution. He observes that the industry has not experienced a true credit cycle since the recovery from the Global Financial Crisis, and that many new participants have not been tested through a downturn. Underwriting standards tend to loosen during extended benign periods, which he expects to produce dispersion among lenders when stress arrives. A central worry is exposure to software companies vulnerable to AI-driven disruption, a concern amplified by a sharp fall in software stocks since February. Bantwal says many managers have 25% to 30% of portfolios in software and technology, but that senior lending at the top of the capital structure remains relatively insulated. In a sample scenario, a loan made at six times debt-to-EBITDA would retain a significant cushion even if a company valued at 24 times EBITDA saw that valuation halved.
On systemic risk, Bantwal sees limited concern given the market's size of roughly $1.5 trillion to $2 trillion, its dispersion across many stakeholders, low interconnection, roughly one-to-one leverage in vehicles, and well-matched assets and liabilities. Note that this summary draws on a Goldman Sachs publication and headline snippets; the original full article was unavailable.
Bantwal characterizes much of the current pressure as technical rather than fundamental. Retail investors, who gained access through business development companies (BDCs) and other evergreen structures, are withdrawing amid reports of potential risk. He notes that the so-called semi-liquid structures were sometimes oversimplified for investors, and that these vehicles were always meant for the illiquid portion of a portfolio. As redemptions widen spreads, he suggests yields may rise relative to the risk-free rate.
Bantwal does flag caution. He observes that the industry has not experienced a true credit cycle since the recovery from the Global Financial Crisis, and that many new participants have not been tested through a downturn. Underwriting standards tend to loosen during extended benign periods, which he expects to produce dispersion among lenders when stress arrives. A central worry is exposure to software companies vulnerable to AI-driven disruption, a concern amplified by a sharp fall in software stocks since February. Bantwal says many managers have 25% to 30% of portfolios in software and technology, but that senior lending at the top of the capital structure remains relatively insulated. In a sample scenario, a loan made at six times debt-to-EBITDA would retain a significant cushion even if a company valued at 24 times EBITDA saw that valuation halved.
On systemic risk, Bantwal sees limited concern given the market's size of roughly $1.5 trillion to $2 trillion, its dispersion across many stakeholders, low interconnection, roughly one-to-one leverage in vehicles, and well-matched assets and liabilities. Note that this summary draws on a Goldman Sachs publication and headline snippets; the original full article was unavailable.
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