GSAM: Private Credit Fundraising Remains Solid

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00:00So I've just talked through some of the concerns, but tell us more about what you are seeing in

00:05terms of market conditions. Specifically, is there a sort of gap between deal-making and

00:11fundraising at the moment? I would say since Q2, we've certainly seen an increased level of

00:16activity, right? On the back of Liberation Day, steadily increased M&A activity, the IPO markets

00:23have reopened. And so I think that bodes well overall for private credits, given the need to

00:29finance, whether it's buyouts or in general to finance the industry, whether it's digitalization

00:35of the industry, energy transition. So I think there's been actually a renewed level of activity

00:41in private credits. I wouldn't say there's a gap, by the way, between fundraising activity

00:47and between the investing activity. I think fundraising is different this year. Maybe it's

00:52more skewed towards outside of the US. If you look at direct lending, for instance, we're seeing a lot

00:58more activity for funds getting raised for Europe, for instance, or LPs asking questions around

01:05other regions, such as Asia. But I would say overall, the fundraising activity remains pretty

01:11solid, also with more innovation, innovation around evergreen vehicles, for instance.

01:16What about deal value? What are you seeing overall? Has that been improving as well?

01:21Valuation of companies? I would say that's less of an issue for us. You know, we're lenders.

01:26We care about predictability of cash flows, making sure that, you know, our loans get repaid

01:32plus interest. So I would say, you know, valuation is less of a concern. Obviously, we look at some

01:37stats like equity cushion. I would say it's been pretty steady. It remains competitive out there

01:43for private equity in particular. And so for the right assets, for the high quality companies,

01:49pretty hefty valuations are still being paid.

01:51You talk about some of the questions that you're getting from investors about Asia in particular.

01:58I know you've been an early entrant to Japan. And this is also a market where a lot of talk has

02:04been about this private credit boom. What are you seeing in market conditions specifically in Japan?

02:10Look, we're excited about Asia. By the way, you mentioned in your introduction, it's not been tested,

02:14but the industry. We started almost 30 years ago. So we've had, you know, our fair share of experience

02:19over the cycles. And we've been in Asia for a very long time. Goldman Sachs has been in Asia for 50

02:25years. We've been investing in these markets in private credits for over 25 years. We have teams

02:32all over Asia. We've been very active in Japan. We're seeing a renewed interest, I would say,

02:38or an increased interest from private equity firms in Japan in particular, but across Asia.

02:44By the way, these private equity firms, they want to get the same experience that they're having with

02:50us in Europe or in the U.S. when it comes to financing their deals, right? And so we're very

02:55active. We've got a team on the grounds. And we work really hand in glove with our investment banking

03:02colleagues. I think that's also very special. The edge in what we do is around the origination,

03:06and it's around keeping the discipline of the underwriting.

03:09So what are the deals? Tell us a bit more about what sort of deals are, you know, being transacted,

03:15and where do you see the opportunities, specifically sector-wise?

03:19Look, I won't go into specifics, but I would say we've, over time, over the last 28 plus years,

03:26we've tilted our global portfolio towards larger companies. And so we're seeing an increased level

03:31of activity, buyout activity in particular around Asia, but obviously Europe, U.S., around larger

03:39buyouts. I would say we, you know, in credit, you know, your alpha is just about avoiding losses.

03:47And so if you want to do that, we think it's preferable to focus on those sectors that are a bit more

03:52defensive, non-cyclical, recession resilient. And certainly, again, we've been tested over time,

03:58including during the GFC. And so we're going to tilt and index our portfolios towards these sectors.

04:05I would say we do a lot of healthcare. We do a lot of mission-critical business services.

04:10We have some exposure to large software businesses. I would say, you know, this is the type of sector

04:16that we like to lend to. Predictable cash flows, market-leading firms with pricing power. And again,

04:24we've been tested through the inflationary years. Now we may be on the other side slowly, but these

04:29are the type of businesses that we like to lend to. And I would say at the core of it is cash flow

04:34lending. Really predictable cash flow generation. That's what repays our debt eventually.

04:38What about AI?

04:40Look, AI, I would say at this stage, what are we seeing in AI?

04:44One, we're very active financing kind of the AI boom, whether it's around data center or the increased

04:53consumption level of energy, right? So whether it's the first derivative or the second derivative

05:00of AI. We're also asking a lot of questions about what does AI mean for our portfolio companies or

05:08companies in which we want to lend to, right? Because again, go back to basics. Credit is

05:14about avoiding those losses. If a company is going to get disrupted or business model is going to get

05:20disrupted by AI. I mean, this is where we spend all our time in investment committee and screening

05:25discussions.

05:25Right. You alluded to some of this, right? When you look at some of the software companies that

05:30you're focused on, how are you ensuring quality? What are you actually digging into the details of when

05:37you look at the tech stack, for example?

05:39And that's also where experience does matter, you know, having that kind of dedicated teams that are

05:44sector experts and also gathering all the network expertise that we can within and outside the

05:51firm. I would say what I've noticed recently or in the last couple of years is the market leaders

05:57are using AI to their benefits, maybe to be a bit more productive. I think they're growing a little

06:04bit faster or certainly extending their relative market share versus their smaller competitor.

06:11Thanks also to the way that they're using AI. But I would say this is where, this is the core of

06:17what we do as a team, as an investor team, you know, around the world, which is asking all these

06:22questions and trying to get to an answer or a conviction one way or another, by the way. Most of

06:28the time, you know, we decide not to invest in a company, right? And like private equity,

06:31there's no upside here in what we do, apart from getting your money back plus interest. So that's

06:36where, that's at the core of what we do. The essence of what we do is asking, you know, what can disrupt

06:41a company, whether it's AI, regulation, competition, inflation, the next cycle, right? I mean,

06:48this is where we spend our time.

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