Not All Capital Is Created Equal in Private Credit

What's New

Private credit's real stress test isn't coming. It's already here. In a conversation at the Goldman Sachs Alternatives Summit on the Alt Goes Mainstream podcast, James Reynolds, Global Co Head of Private Credit at Goldman Sachs Asset Management, argued that the credit cycle began in 2022 when rates moved from zero to 5%, and three years of compounding pressure on capital structures is now producing the first meaningful dispersion in private credit performance in over a decade. Reynolds, who has spent 25+ years building Goldman's credit platform, laid out why origination quality, investment culture, and the willingness to say no will separate winners from the wave of capital that flooded the asset class over the past five years.

Why It Matters

Nearly $3 trillion now sits in private credit, up from a few hundred billion just six years ago. Yet Reynolds's central argument is that all capital is not created equal: firms that entered the market recently without deep origination engines or cycle tested teams are now facing adverse selection in deal flow, weakening underwriting standards, and rising restructurings. For LPs, the implication is that manager selection in private credit is about to matter far more than it has at any point in the asset class's modern history.

Memorable Quotes

• On the investment culture imperative: "It's not about deploying. It's an investment culture. It's about saying no. It's about cautious underwriting." Reynolds frames discipline not as a risk management overlay but as the foundational identity of a credit platform, arguing that the pressure to deploy capital is the single greatest threat to returns in an overcapitalized market.

• On origination as the real moat: "If you can see those deals at the time of inception, not announcement of the deal, but six months earlier because you're in the room... that is very differentiated." Reynolds explains how Goldman's integration with its investment bank creates a structural timing advantage, giving the credit team access to borrowers months before deals reach the broader market.

• On the unequal flood of capital: "All the capital that is coming into the industry is not created equal. Some capital is getting access to deals almost like in an adverse selection type of opportunity." This is a direct warning to LPs that newer, less connected platforms may be systematically seeing worse deal flow, not just slightly different deals.

• On why worrying is the job: "We spend all that time worrying so that our LPs can sleep well at night." Reynolds describes the ideal credit investor temperament as an "optimistic pessimist," someone who remains constructive on the asset class while obsessing over what can go wrong at the company and portfolio level.

• On providing more than capital: "By us becoming your sole or largest lender, you're going to have access to the entire platform at Goldman Sachs... we're going to provide a lot more than just capital." Reynolds argues that as private credit scales, the ability to offer borrowers advisory, wealth management, economic research, and peer networking alongside financing becomes a decisive competitive differentiator against single strategy lenders.

Big Picture Drivers

• Cycle recognition: The rate shock of 2022 initiated a new credit cycle that has now exposed capital structures built for a zero rate world, accelerating restructurings across the US and Europe over the past three years.

• Origination inequality: Established platforms with integrated banking relationships, 700+ portfolio company ecosystems, and decades of GP trust see deals months earlier than new entrants, creating a widening quality gap in deal access.

• Performance dispersion ahead: After 15 years of relatively compressed private credit returns, Reynolds expects the first meaningful separation between top and bottom quartile managers, driven by defaults, loss severity, and recovery capabilities.

• Credit universe expansion: Private investment grade financing, pioneered by insurance companies a decade ago, is opening a parallel origination channel where coverage of 12,000+ corporates through banking relationships creates structural advantages for integrated platforms.

• European complexity as moat: Multi jurisdiction lending across fragmented European markets with varying regulatory regimes, languages, and legal frameworks favors incumbents with 25+ years of local infrastructure over new entrants attempting to scale quickly.

By The Numbers

• ~$3T: Current private credit market size, up from a few hundred billion approximately six years ago.

• 700+: Portfolio companies in Goldman's global private credit book, creating a self reinforcing origination ecosystem as those companies grow and require additional capital.

• 25+ years: Tenure of Goldman's private credit platform, with the first European investment made in 1996 and the first senior direct lending fund raised in 2007 at $10.5B.

• 22 years: Average tenure of partners on Goldman's private credit investment committee, reflecting the depth of cycle experience embedded in underwriting decisions.

• 3 years: Duration of the current credit cycle since rates moved from near zero to 5%, with restructuring activity accelerating across both US and European portfolios.

Key Trends to Watch

• Recovery capability as differentiator: As restructurings accelerate, LPs should evaluate whether their credit managers have the operational expertise, board governance experience, and firm resources to maximize recovery on distressed positions rather than outsourcing to third parties.

• AI as underwriting variable: Goldman's credit team began declining deals two years ago based on AI disruption risk, signaling that technology assessment is becoming a core competency for credit underwriting rather than a secondary consideration.

• Deployment pace as signal: Reynolds noted Goldman has deliberately slowed deployment over the past 12 months in areas where the market appeared to be overheating, suggesting that funds maintaining or accelerating pace may be accepting deteriorating risk adjusted returns.

• Narrative versus reality gap: The public discourse around private credit stress may be running ahead of actual portfolio deterioration at disciplined platforms, but the underlying cycle dynamics Reynolds describes suggest dispersion will widen significantly over the next 12 to 24 months.

The Wrap

Private credit's era of compressed returns and forgiving macro conditions is definitively over. The firms that will emerge strongest from this cycle are those with origination engines that let them say no to the vast majority of deal flow, investment cultures built over decades rather than fundraising cycles, and integrated platforms that can provide borrowers with more than capital while managing restructurings in house when credits deteriorate. For LPs, the message is clear: the next three years of private credit performance will reveal which platforms were built for durability and which were built for a zero rate world that no longer exists.

Watch Full Episode: Goldman Sachs' James Reynolds on Alt Goes Mainstream