Goldman Sachs' private credit fund defies sector-wide spike in redemptions

By Manya Saini and Saeed Azhar

April 6 (Reuters) - Goldman Sachs' GS.N private credit fund disclosed on Monday that investors sought to repurchase just under 5% of shares in the first quarter, setting it apart from the rest of the industry that is struggling with a surge in redemptions.

Fears that artificial intelligence could erode the earnings power of software companies and weaken their ability to repay loans have rattled the private credit industry, a key lender to the technology sector, prompting investors to reassess their exposure, redemption risks and fundraising prospects.

Several asset managers have capped redemptions at the standard 5% quarterly limit after a recent surge in withdrawal requests, driven by negative headlines that have put the roughly $2 trillion private credit industry under scrutiny over lending standards, valuations and transparency.

Analysts still point to JPMorgan Chase JPM.N CEO Jamie Dimon's warning in October that "more cockroaches" could emerge, after the collapse of auto firms First Brands and Tricolor, in which some private credit players had exposure, even though the issues so far do not appear to be systemic.

However, Goldman's ability to meet all requests, which did not breach its cap, suggests that redemption stress is not uniform across the sector, which could help allay some fears.

A big portion of investors come from Goldman's private wealth channels, who have been long-term investors in the private credit space and they can tolerate illiquidity, said a source familiar with the matter.

The bank said the health of the broader private credit industry remains strong and default rates continue to be low across both the public and private credit markets.

NOT ALL THE SAME

Goldman said it operates in the same market as other business development companies (BDCs) and is not insulated from industry dynamics, but has diversified its capital sources by maintaining an institutionally oriented private credit platform.

"We believe these results highlight the strong position of GS Credit relative to the broader non-traded BDC industry," it added in a regulatory filing.

There has been a sharp selloff this year in the shares of alternative asset managers due to concerns over risks in private credit. Morgan Stanley MS.N, BlackRock BLK.N and Apollo Global APO.N, among others, have capped redemptions in recent weeks.

"While retail and some wealth management investors are pulling back from private credit, we believe many institutional investors are recognizing this dislocation as an attractive entry or re-entry point into the asset class," Goldman Sachs added.

It also disclosed that its fund generated roughly $823 million in proceeds from repayments and sales of portfolio investments, up from $669 million in the previous quarter.

Meanwhile, institutional investors accounted for over 80% of its broader Goldman Sachs Asset Management Private Credit platform, keeping it insulated from the repurchase dynamics that threaten funds exclusively for retail investors.

Goldman said its direct lending platform is seeing a strong pipeline of institutional mandates across its senior direct lending strategies, with documentation and diligence underway on more than $10 billion of commitments.

ASSESSING AI DISRUPTION RISKS

Investors have been grappling with the prospect of AI disruption for weeks, with growing concern 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 sector for years. It rolled out an internal framework to evaluate AI disruption risk in early 2025.

"While we approach the topic of AI with humility and will continue to evolve and pressure-test our framework as new datapoints emerge, we believe the impacts of AI (both negative and positive) will be nuanced and company-specific," the Wall Street giant said.

Its software portfolio is well positioned for the AI era, the bank added, but acknowledged that companies must invest ambitiously in their AI roadmaps to protect their legacy businesses.