Private Credit Market Under Pressure

The $1.8 trillion private credit market is facing increasing pressure from investors seeking to exit, with some major firms imposing limits on fund withdrawals. Goldman Sachs Group Inc., in particular, has defended its semi-liquid private credit funds' use of gates to restrict withdrawals, describing them as "features and not bugs."

Gating Allows for Protection

Gating mechanisms, which allow for quarterly redemptions of up to 5% but restrict withdrawals beyond that threshold, enable funds to protect investors and maintain value during times of market stress. Vivek Bantwal, global co-head of private credit at Goldman Sachs Asset Management, argued that gating prevents the degradation of fund value that can occur during fire sales.

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Industry Outlook

The private credit market is expected to face challenges in 2026, with Robert A Stanger & Co. forecasting a 40% year-over-year drop in capital formation among business development companies. The industry has been impacted by concerns over the effects of artificial intelligence on software businesses, leading to a "hairpin turn" away from the asset class.

Alternative-Asset Managers React

Blue Owl Capital Inc. sparked a decline in alternative-asset manager shares when it halted quarterly withdrawals in one of its funds, instead selling assets to return investors' cash. Goldman Sachs described this move as a "price discovery" moment, where investors are reassessing their appetite for illiquidity.

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Long-term Outlook

The turbulence in the private credit market is expected to lead to higher spreads for those remaining in the industry. Vivek Bantwal believes that this is a healthy development, as it allows those who are committed to the asset class to benefit from more favorable terms.

Key Figures

• $1.8 trillion: The size of the private credit market
• 5%: The maximum quarterly redemption threshold for semi-liquid private credit funds
• 40%: The forecasted year-over-year drop in capital formation among business development companies
• $16 billion: The annual turnover liquidity of Blackstone's flagship private credit fund, BCRED