After a decade of rapid growth, the private credit market has come under pressure.
Several high profile defaults, concerns about valuations,
and especially substantial exposure to a software industry vulnerable to AI disruption have fueled a surge
in redemption requests, which has raised alarm bells for the asset class.
So are these concerns merited or overblown?
And how will the current stresses shape the outlook for private credit in the years ahead?
I'm Allison Nathan, and this is Goldman Sachs Exchanges.
Each month, I speak with investors, policymakers,
and academics about the most pressing market-moving issues for our top-of-mind report from Goldman Sachs Research.
This month, I spoke with Howard Marks of Oaktree Capital Management,
Michael Aragetti of Aries Management, and our chief credit strategist in Goldman Sachs Research, Amanda Lynam.
I started by asking legendary investor Howard Marks what fueled the rise of private credit.
Private credit has probably always existed.
Which is to say the making of loans.
That's what banks do.
And there's been non-bank lending forever.
Direct lending is just one subset under the broad heading of private credit.
Direct lending is the label that has been given to private loans
made by non-bank lenders to mid-size private equity deals.
And the private equity business has existed and run on the use of other people's money to lever up returns