Private Credit Concerns Are Real But Overblown, Say Goldman Experts

What's New

In a revealing Goldman Sachs Exchanges episode, equity research analyst Alex Blostein and Vivek Bantwal, global co head of Private Credit in Goldman Sachs Asset Management, push back on the doom narrative engulfing private credit. Their message is nuanced but clear: the asset class faces legitimate headwinds from retail redemptions and software exposure, but the systemic risk fears dominating headlines are disconnected from the actual data. With retail evergreen funds likely in net outflows through 2027 and institutional capital poised to step in at better spreads, the current dislocation may end up producing some of the best vintage years for disciplined lenders.

Why It Matters

• Narrative versus reality gap: The media conflation of fraud incidents in bank markets and structured credit with direct lending BDCs is creating disproportionate fear. None of the headline fraud cases actually occurred in the direct lending space where most investor exposure sits.

• Retail exodus reshapes dynamics: Evergreen retail funds are seeing redemptions at roughly 10% unannualized in Q1, with gross sales running 50% below 2025 levels. Most managers will cap redemptions at 5%, creating queues that could take over a year to clear.

• Institutional opportunity window: Compressed spreads from the retail capital flood are now reversing. Institutional allocators entering today face a more lender friendly environment with better terms and better covenants, suggesting the next vintages could meaningfully outperform.

Big Picture Drivers

• Software is not monolithic: Software represents roughly 25% of direct lending exposure, but not all of it is equally vulnerable to AI disruption. Companies with proprietary data, regulatory overlays, and system of record status are far more insulated than generic SaaS providers.

• Credit is not equity: Loan to value ratios at entry sit around 30 to 40%, meaning roughly 70% of enterprise value must evaporate before lenders lose principal. Even as public software equities have dropped 30%+, the senior secured position provides substantial cushion.

• Liquidity math works at industry level: The roughly $50 to $70 billion in net outflows the retail channel needs to fund can be absorbed through liquid holdings ($40 to $45 billion), natural loan maturities, and existing credit facility capacity without triggering fire sales.

• ARR loans are the real risk pocket: Revenue based loans to pre cash flow software companies represent the most vulnerable segment. In an AI world, some of these businesses may never reach profitability, making them a watchlist priority.

By The Numbers

• $3.5T+: Total private credit market, growing at roughly 15% annually over the last five plus years

• $1.6 to $1.7T: Direct lending portion of the broader private credit ecosystem

• 1.54%: Average nonaccrual rate for the top 20 BDCs, meaning 98.5% of portfolio companies are paying on time

• 12 bps: Goldman Sachs Asset Management's own nonaccrual rate, well below the industry average

• 150 to 300 bps: The illiquidity premium private credit earns over public credit through the cycle

• $230B: Total NAV sitting in retail evergreen vehicles today

Memorable Quotes

• "Credit is credit. It's not equity." — Alex Blostein, framing why the 30%+ drawdowns in public software stocks do not translate directly to lender losses given capital structure protections.

• "We don't use the word semiliquid. The reality is that it's not semiliquid, it's illiquid." — Vivek Bantwal, on the importance of honest product labeling and why the current retail exodus may actually be healthy for the asset class.

• "For every company in that situation, there's 98.5 other companies that are paying their bills on time where there's not an issue." — Bantwal, contextualizing fraud and default anecdotes against the actual portfolio data.

• "Defaults have been zero. They have literally nowhere to go but up." — Blostein, acknowledging that headline deterioration is inevitable but arguing it should be measured against cumulative loss rates, not individual incidents.

• "If you start to see some of that money leave a little bit, the return environment actually becomes more attractive for the incumbents." — Bantwal, explaining the counterintuitive upside of the retail outflow cycle for patient institutional capital.

The Wrap

The Goldman discussion reveals a market caught between two realities. The sentiment story is genuinely ugly: retail outflows will persist, headlines will worsen as defaults rise from zero, and the opacity of private credit will continue to invite skepticism. But the fundamental story is far more resilient than the narrative suggests. Senior secured lending with 60 to 70% equity cushions, manageable industry level liquidity, and an institutional channel that sees better entry points ahead all point to an asset class going through a necessary correction rather than a structural crisis. The biggest risk is not credit losses at the portfolio level. It is whether the reputational damage from the retail channel experience permanently impairs the wealth management growth thesis that alternative asset managers have been building their valuations around.