Goldman Sachs believes private credit's long-term financing role remains solid

Overview

From a long-term perspective, this report assesses private credit's position in the corporate financing ecosystem. Goldman Sachs notes that recent market attention has focused on redemption activity in retail products such as non-traded or evergreen BDCs, but these products remain small relative to institutional private credit capital. For the broader corporate credit market, the key question is whether private credit's role in the financing system has changed; the report concludes that it remains firm, and long-term deployment opportunities may expand, especially when macro growth or idiosyncratic sector events create dislocations in the syndicated financing channel.

Core views

The report's core views are: first, private credit is not too large relative to private equity, bank loans, or syndicated credit markets, so there is still room to expand; second, the financing opportunity set for private companies is huge, with 63% of US companies with annual revenue above $100 million being private, a higher share in the EU and the UK, and combined annual revenue of private companies across the three regions approaching $12 trillion; third, the average size of new issuance in the syndicated market has risen, increasing the entry barrier for mid-sized companies, and private credit fills this financing gap; fourth, jumbo private credit loans of $1 billion or more have grown, enabling private credit to serve larger borrowers and creating a financing continuum between public and private markets; fifth, fundamentals through the end of 2025 remained generally resilient, with PIK and non-accrual activity mostly moving within a range without showing clear deterioration.

Analysis framework

The report evaluates private credit's long-term role, risks, and room to expand by combining perspectives on market size comparisons, the corporate financing opportunity set, syndicated market issuance sizes, private credit fundraising structure, CDLI historical returns and losses, PIK and non-accrual metrics, covenant terms, and spread changes. Data sources include S&P Capital IQ, Preqin, the Cliffwater Direct Lending Index, PitchBook LCD, KBRA Direct Lending Deals, the FDIC, the ECB, the BIS, and Goldman Sachs Global Investment Research.

Methodology notes

• Market size comparisonAnalysis of private credit relative to financing channel size

  Compare private credit AUM with private equity, bank C&I loans, syndicated high yield bonds, and leveraged loans.

  Used to judge whether private credit has expanded excessively relative to other financing channels. The report concludes that, whether viewed globally, in North America, or in Europe, private credit remains relatively moderate in size.

• Performance and risk measurementCliffwater Direct Lending Index analysis

  Use CDLI as a proxy for the US direct lending market and observe total return, realized loss, PIK, and non-accrual metrics.

  The report emphasizes that private credit and public credit default definitions differ, so realized losses and total returns are more appropriate for evaluating the asset class.

• Financing channel migrationFinancing continuum framework

  Track takeout refinancing and private market steals between direct lending and the broader syndicated leveraged loan market.

  Used to show that the issuer base served by private credit and the syndicated market overlaps, and that choosing private financing does not necessarily mean the borrower lacks other financing options.

• Terms and pricingCovenant count, cov-lite share, and LBO spread comparison

  Compare US direct lending covenant protection, cov-lite transaction share, and direct lending versus syndicated market LBO financing spreads.

  The report argues that lenders have already conceded somewhat, but private credit covenant protection remains more complete than in syndicated leveraged loans, and a spread premium still exists.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Private credit/direct lending

  Core research focus

  Strengths

  Financing certainty, structural customization, the ability to serve mid-sized and increasingly larger borrowers, and historically strong CDLI return performance.

  Weaknesses

  Lower liquidity and weaker valuation transparency than public markets; in some years and sectors, non-accrual or PIK pressure can emerge.

  Comparison

  Compared with USD high yield bonds and leveraged loans, CDLI's total return was higher in 15 of the past 21 years; relative to syndicated loans, covenant protection is usually stronger.

  Risks

  Slower macro growth, sector concentration stress, higher financing costs, looser terms, and spillover from retail-style BDC redemption sentiment.

• BDC

  A retail channel for private credit

  Strengths

  Provides high-net-worth retail investors with a lower-threshold, faster way to access private credit.

  Weaknesses

  Limited liquidity, with quarterly redemption capacity typically around 5% of NAV; recent redemption activity has drawn market attention.

  Comparison

  Compared with institutional drawdown funds, BDCs are smaller but growing faster, with a different capital lock-up structure.

  Risks

  Redemption pressure, NAV volatility, changes in retail sentiment, and liquidity mismatch.

• Syndicated leveraged loans and high yield bonds

  An alternative and complementary financing channel to private credit

  Strengths

  Higher public-market liquidity, suitable for larger borrowers with more standardized financing needs.

  Weaknesses

  Market technicals are affected by CLO demand and rating constraints, and B- or lower-rated borrowers may face difficulty financing during volatile periods.

  Comparison

  Issuer overlap between private credit and the syndicated market is rising, forming a financing continuum; the USD leveraged loan index's cov-lite share is as high as 92%.

  Risks

  Market volatility, rating downgrades, CLO constraints, closed issuance windows, and weaker covenant protection.

• Private equity

  An important comparator and source of borrower ecosystem for private credit

  Strengths

  Global AUM is significantly larger, supporting substantial financing demand and transaction activity.

  Weaknesses

  Exit conditions, valuations, and leverage financing conditions affect deal volume.

  Comparison

  Global private equity AUM is about $10.5 trillion, roughly six times the size of the global private credit market.

  Risks

  Slower deal activity, higher financing costs, portfolio-company earnings pressure, and valuation adjustments.

• Bank lending

  A corporate financing channel and a lens on financial-system linkages

  Strengths

  Especially important in Europe, where bank lending to the private non-financial sector as a share of GDP is much higher than in the US.

  Weaknesses

  May be constrained by regulatory capital, risk appetite, and the economic cycle.

  Comparison

  Continental Europe relies more heavily on bank lending than the US, so private markets still have room to grow outside the US.

  Risks

  Tighter bank lending standards, NDFI-related risk, and a deteriorating credit cycle.

Key data

• Report date2026-04-13Credit Strategy Research, published at 5:59 PM EDT.
• Private company share63% of US companies with annual revenue above $100 million are private companiesThe report says the ratio is even higher in the EU and the UK.
• Private company revenue opportunity setNearly $12 trillion in annual revenueCovering private companies in the US, the EU, and the UK; public companies' trailing 12-month revenue is about $33 trillion.
• Average new issuance size for USD high yield bonds$791 million on average from 2022 to 2025The report uses this metric to show that syndicated-market entry barriers have risen.
• Global private equity AUM$10.5 trillionThe report says global private equity is about six times the size of the global private credit market.
• North American BDC size$549 billionThe BDC universe tracked by Cliffwater, included in the North American private credit size comparison.
• Euro area bank loan dependencePrivate non-financial-sector bank loans account for 78.1% of GDPAs of September 2025; the US was 43.5%.
• NDFI share of bank loans14% of total US bank loans as of February 2026The report argues that relative to other lending activity, it does not appear overly large.
• Commercial credit intermediaries' share of NDFI loansAbout 25%FDIC data as of Q3 2025 show that commercial credit intermediaries include direct lenders, private credit funds, and BDCs.
• Jumbo private credit loan threshold$1 billion or moreThis type of loan growth allows private credit to serve larger borrowers.
• Fundraising share of mature managers83% on average from 2022 to 2025Refers to the share of global closed-end private debt fundraising by managers with four or more active funds; first-time managers accounted for 4%.
• CDLI coverageMore than 21,000 loan positions, totaling $549 billionAs of Dec. 31, 2025, this is the US direct lending market proxy used in the report.
• CDLI relative returnOutperformed USD high yield bonds and leveraged loan indices in 15 of the past 21 yearsCDLI total returns were positive in every year except 2008, when it was -6.5%.
• 2025 CDLI realized loss64 bpBelow the long-term average of 100 bp since the index's inception.
• Cumulative CDLI realized loss during the global financial crisis-10.16%Covers 2008 to 2010, when the share of more junior loan structures in the index was higher than today.
• CDLI loan structure87% senior loansUsed to show that the current structure is more senior than during the financial crisis.
• PIK income share7.4% on average since Q3 2021As of Dec. 31, 2025, below the above-8% levels seen repeatedly in prior years.
• 2025 non-accrual source44% came from 2021 and 2022 vintagesThese vintages, especially early 2021 and 2022, were formed in the post-pandemic ultra-low-rate environment.
• US direct lending cov-lite share14% in 2025Up from 12% in 2023; two-covenant transactions fell from 42% in 2023 to 27% in 2025, while one-covenant transactions rose to 59%.
• USD leveraged loan index cov-lite share92% as of March 2026Indicates significantly weaker covenant protection in the public leveraged loan market.

Impact & implications

The report's investment implication is that private credit may remain an important long-term source of capital in the corporate financing system and may gain more deployment opportunities when the syndicated market is volatile, rating constraints bind, or borrowers need certainty and customization. For investors, redemption volatility in retail BDCs should not be simply extrapolated to the entire private credit market; more important is tracking macro growth, sector stress, realized loss, PIK, non-accruals, covenant protection, and spread compensation.

Risks

• Slower macro growth could weaken borrower debt service capacity and test whether private credit's previously low realized loss rate is sustainable.
• Stress in higher-weight sectors such as software could weigh on non-accrual, PIK, and loss metrics.
• Retail-style BDC redemption activity could create short-term headline volatility and sentiment pressure.
• The open market environment in 2024 and 2025 led to some covenant concessions in private credit, and cov-lite share rose.
• The increase in jumbo loans allows private credit to serve larger companies, but it may also increase single-name concentration and transaction complexity.
• Rising linkages among banks, NDFIs, and private credit vehicles require continued monitoring of financial-system transmission risk.
• Private credit default statistics are not directly comparable with public credit; ignoring definitional differences may misstate the risk level.

What to watch

• Whether the macro growth backdrop remains sufficiently resilient to support low realized losses in private credit.
• CDLI realized losses, PIK income share, non-accrual activity, and changes in loan marks.
• The subsequent performance of 2021 and 2022 loan vintages, given their large contribution to 2025 non-accruals.
• BDC redemption activity and whether it spills over from retail products into the broader private credit financing environment.
• Whether the syndicated loan and high yield bond markets continue to show dislocations, especially financing availability for B- and lower-rated borrowers.
• Whether jumbo private credit loan counts and sizes continue to grow.
• Fundraising concentration, fund size, and industry consolidation trends among mature private credit managers.
• Whether LBO financing spreads between direct lending and syndicated markets in the US and Europe continue to compress.