(Bloomberg) -- Many investors think they’re under-allocated to private credit and are looking for more ways to take a slice of the $1.7 trillion market, according to a private markets survey from Goldman Sachs Group Inc.
Investors surveyed included asset managers, private pension firms, insurers, endowments and public pensions, known in the industry as limited partners. And as private credit is raking in records amount of cash, most LPs are looking to invest even more, according to the report released Monday, which gathered responses from 190 LPs and 45 fund managers, which are known as general partners.
As the private credit universe expands to include other forms of lending, GPs are looking to strategies like secondaries and co-investments to give LPs differentiated exposure. Secondaries allow investors to buy up and offload stakes in private credit funds with more ease, opening up liquidity. Co-investments allow LPs to participate in deals directly, rather than through a fund.
Nearly half of surveyed LPs are now allocating to secondaries and co-investment strategies, a “pretty meaningful increase” compared to last year, Stephanie Rader, Goldman Sachs’ global co-head of alternatives capital formation, said in an interview. “It’s solidifying private credit as an asset class within an alternatives portfolio.”
The spread premium for private corporate direct lending compared to broadly syndicated loans has tightened, as banks have returned to leveraged loans, heating up competition. Direct lenders have been sweetening terms to claw back business from banks, which typically can offer cheaper financing options.
“Coming off of abnormally wide spreads, if you just look at snapshot in time, of course the spreads look different,” Kevin Sterling, Goldman Sachs’ global head of investment-grade private credit, said. “It doesn’t mean the asset class is under pressure.”
Almost 40% of surveyed LPs are increasing their capital deployment, while 21% are reducing or putting deployment on hold. A quarter of those surveyed allocators reported being less bullish on credit. As LPs make fewer, larger commitments and focus on investing on pre-existing relationships, the market is seeing more consolidation, according to the report.
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