Other large Wall Street funds have seen redemption requests of 10% to 17% of shares in recent months. Goldman Sachs just reported that only 3% of its private credit fund wanted to cash out last quarter. The firm says it is a sign of trust from investors.
Goldman Sachs Private Credit Corp. is a nontraded business development company, or BDC. The Goldman BDC, like many other private credit funds, uses leverage to enhance returns on its $9.2 billion in net assets. So far this year, the total return stands at 2.5%.
Since its inception in 2023, the average annualized return has been 9.6%. Most private funds like this one limit redemptions to 5% of shares per quarter.
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The fund's 3% request rate is far below that cap. In a Wednesday letter, Goldman Sachs Private Credit Corp., a $17 billion fund, informed shareholders that it would buy back the full 3% of shares requested, as that amount was under the 5% quarterly limit common in private funds. While the fund's outflows slightly surpassed new subscriptions in the second quarter, its net outflows remained much lower than the typical industry rate.
Goldman wrote in the letter: "We view this as a meaningful expression of shareholder confidence - particularly during a period when the broader nontraded BDC industry is experiencing meaningful repurchase pressure."
One reason for the low redemptions might be the fund's healthy loan portfolio. Loans to software companies make up a portion of the fund. A Goldman spokesperson said, "Our software borrowers are using a relatively low 7% of PIK in their loans, versus 30% at some credit funds." PIK interest means the borrower pays with more loan instead of cash.
Goldman's software loans are also holding their value. A full 98% of its software loans are valued at 90% or more of their original amount. Across the entire fund, PIK from amended or restructured loans represents 0.3% of the fund's investment income.
Industry-wide, nonaccrual levels have accelerated this year, but Goldman stated, "the acceleration is concentrated at a small number of managers." Goldman's fund seems to have avoided those problems.
Reports from other private credit funds in the coming weeks will show whether the low redemptions at Goldman are a sign of confidence in that specific firm or whether the industry-wide outflow pressure is starting to slow. Observers will also watch whether the rise in nonaccrual loans spreads to more managers. So far, Goldman's fund looks like an outlier in a choppy market.
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