The case for private credit

The rise of private credit has become one of the biggest stories in global financial markets and has led to significant changes in the ways investors allocate their portfolios and companies raise money. So will the increasing uncertainty about the economic outlook reverse this trend or accelerate it? I'm Alison Nathan, and this is Goldman Sachs Exchanges. Today, I'm joined by James Reynolds, global co head of private credit and Goldman Sachs asset management, and by Lotfi Karawi, our chief credit strategist and the head of credit, mortgages, and structured products research. James Lotfi, welco

for having me. Thank you.

Lotfi, lots of volatility in the markets right now, but today, we're gonna focus on private credit markets. So give us some context. How much has the asset class grown in the past few years, and what's really driving that growth? Well,

it's been in focus because it's a young and new asset class that has experienced dramatic growth over the last fifteen years. And so I think the reason why it's attracted so much attention is that everyone is expecting to see how it behaves in a full blown sort of recession or a cyclical downturn. But let me take a step back, actually, and kinda define what we're what we mean by private gutted. But if you define it as any sort of debt claim that is privately negotiated without any third party being involved, such as a bank, the total AUM, if I use a conservative estimate, is probably to the tu

Interesting. James, you've been at the forefront of this asset classes growth. Tell us a little bit about your role, what you do at Goldman Sachs related to this, and how private credit has changed over the past few years from your seat.

So I oversee the private credit business within, asset wealth management together with my co head, Vivek Bentwall. And by the way, I've been doing private credit for the last twenty five years. But at Goldman, we've been investing in private credit since the mid nineties pretty much. You asked about what has changed over the past few years. Certainly, we've seen a lot of growth in the past twenty five years, but also really in the past five to ten years. A lot of this growth is associated with the growing acceptance of private credit as a solution for the borrowers, for privately owned compani

So if we do think about the markets today, obviously, exceptionally volatile. Fears of recession are growing given the volatility in policy and the behavior of markets. Latvie, talk to us what that is doing broadly in the credit space and in the private credit space in particular. How exposed is it? James just said it's a place where you can find more certainty. Yeah.

I mean, look. By design, private credit and private markets actually more generally are insulated from these fluctuations in sentiment. And, actually, if you look back the last couple weeks, that's exactly what we've seen. We've seen a repricing of risk premium across the board in public credit markets and equities everywhere you look off of levels that were historically quite expensive because, actually, as violent as the price action has been the last three to four weeks, if you look at basic valuation metrics on the public side, this is still not a cheap market. If I look at public IG sprea

James, how are investors responding in private credit from your observation?