Displaying items by tag: private credit

Goldman Sachs Asset Management's alternative investments platform has raised over $20 billion for its latest senior direct lending fund, West Street Loan Partners V. 

This fund focuses on supporting private equity-backed global businesses and has already committed $4 billion across 37 portfolio companies. Direct lending, a significant segment of private credit, has grown rapidly due to fewer regulatory hurdles for non-bank entities. Goldman Sachs plans to expand its private credit portfolio from $130 billion to $300 billion within five years.

The latest fund secured $13.1 billion in equity capital, $550 million in co-investment vehicles, and $7 billion in managed accounts. Capital was raised from both existing and new investors, along with contributions from Goldman Sachs and its employees.

Finsum: Direct lending is one of the biggest streams of private credit and growing with the focus on niche assets.

Goldman Sachs has raised $21 billion for private credit investments, its largest fund yet in this asset class. 

Fresh capital, borrowed funds, co-investments, and SMAs are all a part of the how the firm has secured its newest private lending channel. This initiative is crucial for Goldman to demonstrate its ability to attract substantial external funds, focusing on steady fees instead of occasional large revenues. 

High-net-worth individuals and institutional investors alike are increasing their allocations to alternatives, viewing private credit as a valuable investment. With plans to double its private credit assets to $300 billion in five years, Goldman is leveraging its extensive experience while other banks form partnerships to enter this market.

Finsum: Alternatives are a good way to hedge against the mainstream macro volatility problems looming on traditional portfolios

According to panelists at the SALT conference, private credit will continue to experience strong growth over the next few years. Additionally, they believe that reports of banks stepping in to more aggressively compete with private credit lenders are overblown. Instead, there’s more likely to be partnerships between private credit investors and banks in terms of originating deals and arranging terms.

Michael Arougheti, the co-founder and CEO of Ares Management, sees private credit compounding at an annual rate of 15% for the next decade. He sees growth driven by cyclical and secular factors such as companies staying private for longer, the current high-rate environment, and many ‘good’ borrowers with weak balance sheets. Another factor is the billions being raised for private credit funds across Wall Street. 

Panelists also agreed that there are many selective opportunities in fixed income and credit at the moment. And more opportunities should emerge over the next year, especially with rates staying higher for longer. Arougheti believes that there will be more opportunities created by the lack of liquidity. This underscores another difference between the current environment and past cycles for distressed debt - weakness is not sector-specific, rather, it’s more rate-induced. 

Finsum: At the SALT conference, panelists agreed that despite headlines, private credit markets will see strong growth over the next few years. They also see more attractive opportunities emerging given high rates and limited liquidity. 

At the annual Milken Institute Global Conference, many expressed concerns that, as rates remain elevated, there is increasing liquidity risk for some borrowers. So far, robust economic growth has masked these underlying issues, but many borrowers would be vulnerable in the event of an economic downturn.

So far, default rates have remained low. Skeptics contend that this is due to amendments made to loan terms, leading to maturity extensions and payment arrangements. Ideally, these maneuvers would buy time for borrowers until monetary conditions eased. 

Yet, economic data has not been supportive of this outcome so far in 2024, leading to more stress for borrowers and concerns that defaults could spike. According to Katie Koch, the CEO of the TCW Group, “This cannot be extended forever. Eventually, those default rates will rise.” Danielle Poli adds, “It is going to be ugly. Many of these companies are burdened with excessive leverage, with holes in their covenants like Swiss cheese.”

Some investors sense opportunity as there has been an increase in bridge loans to borrowers, searching for liquidity. Oaktree Capital has reduced exposure to syndicated loans and raised cash levels to take advantage of any dislocations. In addition to bridge loans, there is also increasing demand for hybrid capital, which is in between senior debt and equity and provides liquidity and cash flow relief to borrowers.

Finsum: At the annual Miliken conference, Wall Street heavyweights warned that as rates remain elevated for longer, borrowers are getting more stressed and that a spike in defaults is looming.

Cerulli Associates' recent report predicts substantial growth for structured notes, debt securities linked to underlying assets, in the upcoming year, prompting advisors to take heed of this emerging trend. 

Despite their reputation for being illiquid, inaccessible, and costly, structured notes are gaining traction, with only about 22 percent of advisors currently incorporating them into their strategies, but the landscape is changing, with roughly 8 percent of advisors planning to adopt structured notes within the next year matching industry standards with the likes of hedge funds and private debt. 

While alternative investments pose challenges for many clients, Cerulli's findings reveal advisors' concerns about the lack of liquidity and product complexity associated with structured notes, alongside hurdles related to expenses and subscription/redemption processes. Nonetheless, asset managers are adapting by targeting retail investors and partnering with advisory firms to introduce structured notes capabilities. Advisors could be missing out on a key alternative to improve the performance of clients portfolios. 

Finsum: Liquidity concerns should come down as the interest rate schedule becomes more certain and advisors should consider assets that are traditionally less liquid such as structured notes.