Podcast Summary: Exchanges – "Private Credit Concerns in Context"
Host: Allison Nathan (Goldman Sachs)
Guests:
- Alex BLAustin, U.S. Asset Managers & Financials Analyst, Goldman Sachs Research
- Vivek Bantwal, Global Co-Head of Private Credit, Goldman Sachs Asset Management
Date: March 23, 2026
Episode Overview
This episode dives deep into the shifting landscape of the private credit market, a once “hot” asset class now beset by liquidity concerns, riskier underwriting, and worries about software company exposures amid AI disruption. Host Allison Nathan leads discussions to separate sensational headlines from nuanced reality, speaking first with analyst Alex BLAustin and then practitioner Vivek Bantwal. They explore whether the bear narrative is justified, how retail versus institutional channels differ, and what the future holds for private credit investors and managers.
Key Discussion Points & Insights
1. The Private Credit Narrative: From Boom to Concern
Summary:
- Rapid growth in private credit, especially funds targeting retirement accounts, has sparked scrutiny.
- Key worries center on deteriorating underwriting standards, overexposure to software companies (especially those vulnerable to AI), and liquidity/withdrawal risk for retail investors.
- Headline fears suggest an opaque, unstable market facing a crisis.
Quote:
“Private credit has been a great asset class and has grown really quickly ... It's about three and a half plus trillion dollar asset class, grown at about 15% a year for really the last five plus years. It’s relatively opaque.”
— Alex BLAustin, [01:36]
Three Big Concerns (BLAustin, [01:36]):
- Opacity: Less public disclosure than public credit.
- Credit Quality: Asset class not yet tested through a full economic cycle; software exposure questioned.
- Liquidity: Rising withdrawals, especially in “evergreen” retail funds, imposing redemption limits and pressure on fund operations.
2. Software Company Exposure & AI Disruption
How big is the risk?
- Roughly 25% of direct lending portfolios are tied to software companies.
- Thus far, portfolio performance is stable — non-accruals and payment-in-kind rates haven’t spiked.
- Loans are supported by 30-40% Loan-to-Value (LTV), providing significant downside cushioning.
Quote:
“Today these credits are performing just fine ... If we look at the space today, the LTVs are currently at around 30 to 40%, which clearly means there is significant amount of cushion beneath the loan. In other words, almost 70% of the value of the company has to go away before you lose any capital.”
— Alex BLAustin, [03:29]
Viewpoint:
- Credit is fundamentally different from equity; even large valuation drops in public software names don’t immediately equate to losses for lenders due to loan structures and subordination.
- The challenge will come with companies whose business prospects are fundamentally eroded by AI—but many remain robust and well-positioned.
3. Liquidity Crunch: Retail vs Institutional
Retail Channel:
- Retail-oriented funds make up less than 20% of direct lending assets but account for nearly all current redemption and liquidity pressure.
- Redemptions are capped at 5% per period (by manager choice), leading to queues and extended timelines for investors to access their money. Projected net outflows could persist through 2026–2027.
- Gross sales to retail have dropped by 50% YoY, while redemptions hover around an annualized 10%.
Institutional Channel:
- No notable redemption mechanisms; assets are “locked up.”
- Institutions with dry powder are now likely to face less competition and more compelling returns as spreads widen again.
Quote:
“Over 80% of the assets that are sitting in these funds do not have this liquidation mechanism that could result in this fire sales and then downward spiral in prices, which is what everybody's worried about.”
— Alex BLAustin, [07:16]
Fire Sale Fears (Refuted)
- Unlikely at industry-wide level thanks to controlled redemptions, available cash, loan maturities, and access to credit facilities.
- Outflow pressures are contained and manageable for now.
4. Growth, Systemic Risk, and Market Sentiment
Growth Prospects:
- Retail channel’s outsized growth and potential have been dialed back — projections for funds flowing from mass affluent and retirement investors are being “re-valued.”
- Alternative products (private equity, infrastructure, secondaries) have not experienced similar outflows.
Systemic Risk Perspective:
- Liquidity challenges are concentrated in a small proportion of assets.
- No sign of systemic risk to broader financial markets.
Quote:
“It's really easy to make that leap to say, hey ... I have to worry about liquidity, which really starts to kind of create early innings of a broader systemic problem. ... Given the amount of subordination ... the ultimate loss rate will be pretty manageable at a systemic level.”
— Alex BLAustin, [13:00]
5. Silver Linings & Investor Opportunity
Emerging Opportunities:
- Dormant areas in private credit, e.g., special situations, mezzanine, restructuring, may see increased activity.
- Spreads are widening, improving prospects for new institutional investors.
- Expect more nuanced, differentiated returns across funds and managers (retail- vs institutionally-skewed platforms).
Quote:
“There’s definitely no one really focusing on any glass half full so far ... There are pockets of private credit [like] special situations ... restructuring, mezzanine ... As we go through the next couple of years ... that’s going to require capital from these other parts of the credit market.”
— Alex BLAustin, [14:10]
6. Practitioner Perspective: How Funds Are Reacting (Vivek Bantwal, GSAM)
AI & Software Credit Assessment
- AI is a meaningful risk but not all software companies are created equal.
- Focus on underlying business models; companies with proprietary data and those mission-critical to clients are more insulated from disruption.
- Loans are written with strong equity cushions (often less than 30% LTV); discipline around “ARR loans” (cashflow-negative, growth-focused software companies) is key.
- Engineers and outside consultants help vet AI risk in due diligence processes.
Quote:
“If you have proprietary data, and so you own the data and you own the customer, you’re going to be less disrupted than a company that doesn't do those things.”
— Vivek Bantwal, [18:12]
Is Now a Good Time to Deploy Capital?
- Early panic often leads to overcorrection; those prepared with capital can secure better terms as spreads widen and retail capital exits.
- Instituionally-backed managers with less reliance on retail money are in a better position to seize the improved lending environment.
On Illiquidity & Structure Reality:
- Investors need to understand that these funds are illiquid; “semi-liquid” is an inaccurate, potentially misleading term.
- 150–300bps premium vs public credit compensates for illiquidity risk.
Quote:
“We don't use the word semi liquid ... it's not semi liquid. It's illiquid ... it's important not to confuse that with being half liquid because that's just not what it is.”
— Vivek Bantwal, [21:15]
7. Headline Risks & Systemic Risk Context
Recent High-Profile Concerns:
- Many fraud or default stories cited in media occurred outside the direct lending BDC market (e.g., bank loans, broadly syndicated loans, niche/structured credit).
- Default rates in broadly syndicated loans (~1.3%) and top-20 BDCs (~1.5%) remain healthy by historical standards.
- Even in historical stress scenarios (e.g., GFC), losses in credit were severe but not catastrophic for senior lenders; equity bore the greater impact.
Outlook:
- Fundamentals remain strong for now; more risk in specific niches (e.g., AR loans to non-cashflowing software firms).
- If a sharp economic downturn occurs, dispersion in outcomes is expected — some managers/funds will outperform due to better selection and risk controls.
Quote:
“For every article that you read or that you might read about something going wrong in private credit, for every company in that situation, there's 98 and a half other companies that are paying their bills on time where there's not an issue.”
— Vivek Bantwal, [24:47]
8. What It Will Take to Restore Faith in Private Credit
- Ongoing outflows from retail are likely, but as performance remains strong and spreads improve, remaining investors may see better risk-adjusted returns.
- Data transparency, continued robust payments by portfolio companies, and successful navigation through AI risk and economic cycles will help restore confidence.
Quote:
“What will cause that to evolve is ... as that money leaves, returns will get higher for those that stayed ... and you'll actually see continued earnings reports ... the fundamentals of the economy right now actually continue to be relatively robust.”
— Vivek Bantwal, [27:49]
Notable Quotes & Memorable Moments
- “Credit is credit, it's not equity. So there is significant amount of subordination that exists below these credits.” — Alex BLAustin, [03:29]
- “Defaults have been zero. They have literally nowhere to go but up.” — Alex BLAustin, [06:34]
- “If you have a big equity cushion, doesn't matter as much [if AI hits the value],” — Vivek Bantwal, [18:03]
- “There's a tendency early ... to throw the baby out with the bathwater and then differentiation happens over time.” — Vivek Bantwal, [19:19]
- “We have a strong view ... that the customer understands exactly what it is they're getting ... liquidity is a bit more nuanced than that [‘semi-liquid’].” — Vivek Bantwal, [20:50]
Timestamps for Key Segments
- Bearish Private Credit Narrative – [00:05]–[03:15]
- Software & AI Disruption Discussion – [03:15]–[06:18]
- Liquidity, Redemption, Retail vs Institutional – [06:59]–[11:14]
- Systemic Risk and Growth Outlook – [12:50]–[13:54]
- Opportunities for New Investors & Differentiation – [13:54]–[15:45]
- Practitioner POV – Assessing AI, Credit Quality, Illiquidity (Vivek Bantwal) – [15:55]–[23:20]
- Systemic Headlines vs. Reality – [22:20]–[26:54]
- Future of Private Credit & Path to Recovery – [27:49]–[28:50]
Conclusion
“Private Credit Concerns in Context” delivers a nuanced, data-driven look at the current worries dominating private credit. Both guests see real pockets of risk — especially in software/AI-exposed lending and highly liquid retail structures — but they stress that headlines often exaggerate the dangers. Most of the market remains non-systemic, with good relative fundamentals and new opportunities on the horizon. With improved spreads for lenders and a winnowing-out of risk-tolerant and better-informed investors, the asset class may yet show resilience against its doubters.