Goldman Sachs (GS) has stated that relying on more sticky and patient institutional investors, rather than wealthy individual clients, has allowed its $15.7 billion private credit fund to avoid the capital outflows that have plagued many peers this year. Now, the firm is seeking to capitalize on the retreat of retail funds and gain an edge as competitors pull back.
According to recent filings, a non-traded business development company (BDC) managed by Goldman Sachs’ private credit unit met redemption requests equivalent to 4.999% of its outstanding shares in the first quarter. This stands in stark contrast to peers such as Blue Owl Capital, which have seen redemption demands far exceeding the industry’s typical 5% cap. Amid capital outflows, Goldman Sachs has observed a “significant shift” in the lending environment: the intense competition that has driven the rise of the $1.8 trillion private credit market in recent years is beginning to ease. In a letter to shareholders, the fund manager stated that this is tilting the balance back in favor of lenders rather than borrowers.
Goldman Sachs is also raising a $10 billion direct lending fund, but it is not the only firm seeing this opportunity. A fund managed by Barings LLC faced redemption requests of 11.3% on Monday and stated that its decision to limit redemptions would allow it to seize investment opportunities arising from market turmoil. Morgan Stanley and JPMorgan Chase are planning to launch new private credit investment funds, even as JPMorgan CEO Jamie Dimon warned that leveraged loan losses would be higher than expected. Meghan Neenan, head of North American non-bank financial institutions at Fitch Ratings, said that as retail investors remain on the sidelines, a “rebalancing” could occur, leading to higher spreads, improved covenant terms, and other transaction conditions that benefit lenders. However, she added that these effects would take time to appear in financial reports.
Redemptions remain a major challenge for the market. More than $8 billion in capital is currently trapped in private credit vehicles, and investors are expected to again seek larger-than-usual redemptions next quarter. Meanwhile, industry-wide performance has declined, with losses reported in February marking the worst in more than three years. Filings show that as of the end of February this year, Goldman Sachs’ fund delivered a return of 0.4%, down from 1.3% in the same period last year. The fund described itself as the “only non-traded BDC among its peers with repurchase requests below the quarterly 5% cap.” Goldman Sachs said that although redemption requests remained higher than the 3.5% seen in the fourth quarter, net inflows were positive, with subscriptions totaling approximately $1.04 billion. The fund manager wrote that while they are not immune to industry dynamics, maintaining an institutionally oriented private credit platform has allowed them to strategically diversify their sources of capital, enabling them to remain patient, control their own investment pace, and maintain a competitive advantage throughout the credit cycle.
