Goldman Sachs estimates credit conditions in the direct lending sector remain stable after reviewing roughly $500 billion in private loans, equivalent to about one-third of the industry's total exposure.
Non-accrual rates in the assessed portfolio are tracking below historical averages at less than 2%, while payment-in-kind and watchlist metrics have also held steady. Third-quarter sponsor-led activity shows signs of recovery compared with the prior quarter, though direct lending spreads remain approximately 50 basis points above the tight levels observed in 2025.
Retail redemption requests are projected to decline to around 10% in the third quarter, down from roughly 15% in the second quarter. Most non-traded business development companies are expected to report net outflows through the first quarter of 2027. Year-to-date performance for these firms has lagged liquid benchmarks.
Goldman Sachs identifies TPG, Brookfield Asset Management, StepStone Group, and BlackRock's HPS unit as best positioned based on trailing twelve-month returns, smaller legacy portfolios, and shorter redemption queues. Ares Management is noted for its faster growth potential driven by substantial undeployed institutional capital.
