Goldman Sachs bullish on private debt in 2024
Goldman Sachs Asset Management has predicted that demand for private debt investments will rise in 2024, as investors seek fixed returns and diversification.
In the asset manager’s 2024 investment outlook, the private credit market was highlighted as representing a key opportunity for investors next year due to higher base rates, attractive spreads, and continued capital inflows.
“We believe investors will need dynamic solutions to successfully navigate change in 2024,” said Michael Brandmeyer, global co-head and co-chief investment officer of the external investing group at Goldman Sachs Asset Management.
“Active strategies for traditional and alternative investments that can help deliver alpha will be important, along with diversification and risk management.”
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The asset manager added that increased allocations to private credit by limited partners have translated to growth in assets under management and the ability to finance larger deal sizes. This is creating a more competitive market, where origination capabilities will become increasingly important.
“Recent disruption and volatility in the broadly syndicated market has driven market share gains in private credit,” explained Kevin Sterling, global co-head of private credit at Goldman Sachs Asset Management.
“Appetites have grown for customized financing solutions, such as delayed draw term loans and payment-in-kind optionality – features more readily accessed in private credit markets. As managers seek to effectively deploy capital, origination capabilities and pipelines increasingly will be important.”
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Goldman Sachs also noted that investors in the private credit sector are increasingly seeking out sustainable investment opportunities, by committing private capital to “innovative solutions for resource efficiency and the physical effects of climate change for many critical industries, particularly around water”.
Liquidity was listed as a key concern for private credit investors, with secondary market activity rising across the spectrum.
But overall, Goldman Sachs said that private market investors are “staying the course” and added that many companies now prefer private capital to public, as it allows them to restructure more discretely, away from quarterly earnings cycles.
“Perhaps because these are uncertain times, the outlook for private markets is improving,” added Brandmeyer.
“Investors should remain mindful of macroeconomics and geopolitics, including recession risks, political and military conflicts, inflation, and higher rates.”
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