Goldman bucks private credit redemption trend as AI disruption fears mount

By Manya Saini

Feb 27 (Reuters) - Goldman Sachs' GS.N asset management arm has assured investors that the redemption rate at GS Credit remains well below that of its peers, setting it apart from turbulence in private credit sparked by concerns that AI could disrupt software companies.

In a letter to investors seen by Reuters on Friday, the Wall Street firm added that Goldman Sachs Private Credit Corp continued to see strong appetite, with December inflows 11% above the year-to-date average and a fourth-quarter redemption rate of 3.5%, compared with more than 5% for peers.

Fears that AI could erode the earnings power of software companies and weaken their ability to repay loans are rippling through private credit, a key lender to the technology sector, prompting investors to reassess exposure, redemption risks and fundraising prospects, analysts have said.

Concerns have been compounded by renewed troubles at Blue Owl OWL.N over asset sales, triggering a sharp selloff in shares of alternative asset managers with a footprint in the private credit market.

The shift in sentiment is testing a corner of the alternatives market that has swelled into a roughly $2 trillion juggernaut in recent years.

"As we enter 2026, the private credit landscape is facing volatile macroeconomic conditions, shifting flows in the traded and non-traded BDC (Business Development Company) market, and accelerating technological change - particularly around AI," Goldman said.

ASSESSING AI IMPACT

The firm disclosed that GS Credit's exposure to enterprise software credit was about 15.5% at the end of the third quarter, toward the low end of the range reported by its peers.

Investors have been grappling with the prospect of AI disruption for weeks, with many increasingly concerned that the technology has shifted from an efficiency and productivity tailwind for the software sector to a potential existential threat.

Goldman said it has been assessing the impact of AI on the software space for years and passed on its first deal due to AI concerns in October 2023.

"We agree with the perspective that AI is significantly lowering development costs which will lead to increased competitive intensity for incumbent software companies," it said in the letter.

Goldman added that it invests in businesses that show "structural advantages and incumbency moats" that may be difficult for new entrants to displace.

The company said it rolled its first internal framework to evaluate AI disruption risk in early 2025.

"We do not underestimate the risk of AI disruption," it added.