SYDNEY: Goldman Sachs Group Inc chief executive officer (CEO) David Solomon says he’s watching the private credit market for “frothiness,” though in contrast with some of his peers he hasn’t seen significant cause for concern.
“We’re watching very closely to see if there’s been a little bit too much aggression, frothiness,” Solomon said in a Bloomberg Television interview in Sydney.
“While there have been a bunch of idiosyncratic events where there have been problems, the broad portfolios are performing reasonably well.”
Concerns have been bubbling up over the US$1.8 trillion private credit market in recent weeks, with investors spooked in part by the risk of artificial intelligence (AI) on some borrowers and worries about valuations.
Last month, a Blue Owl Capital Inc fund opted to halt quarterly redemptions and started selling assets to return money to investors. This week, Blackstone Inc’s flagship private credit fund allowed investors to redeem a record 7.9% of shares.
Worries have mounted more broadly in credit markets following a spate of high-profile corporate collapses, most recently of UK-based Market Financial Solutions Ltd.
Banco Santander SA executive chair Ana Botin likened hits from bad loans to jellyfish stings, after her bank was reported to be exposed to the mortgage finance firm.
JPMorgan Chase & Co CEO Jamie Dimon has spoken of failed corporate borrowers as “cockroaches,” suggesting there could be more.
Meantime, Solomon said there remains “a lot of uncertainty” about the direction of the Middle East conflict and how it will be resolved, with investors trying to understand “what’s the end game”.
“What market participants are really looking at is, is this going to translate through to things that affect economic growth and activity, particularly energy supply chains,” he said.
President Donald Trump has expressed confidence in the military campaign against Iran, even as the timeline remains unclear. Tehran dismissed a report it had reached out to the US to negotiate an end to the conflict.
The S&P 500 Index of US stocks rose 0.8% on Wednesday after better-than-expected economic data, and the gauge is barely down this week. Asian equities rebounded yesterday morning, with South Korea’s Kospi climbing as much as 12% a day after a record plunge.
“I don’t see complacency, I just think there is a lot of uncertainty around the direction of the conflict, how it will be resolved and what the off ramps are,” Solomon said.
“It’s fair to say when you look at markets, that the market reactions have been relatively benign.”
Solomon added that keeping staff in the Middle East safe remains a top priority for Goldman, with many employees in the region working from home. “We’re very, very focused on making sure our people are safe and sound,” he said.
He said he remains very focused on US-China tensions, adding that’s he’s looking forward to the expected meeting between Trump and President Xi Jinping in the coming weeks.
“It’ll be interesting to see what comes out of that and whether or not China and the US can make more progress on their bilateral relationship,” he said. “That’s important for growth in the world.”
“I’d like to see more certainty and clarity around how the bilateral relationship will work going forward,” he said. It’s still “relatively uncertain.”
Speaking on artificial intelligence (AI), the Goldman CEO said he’s encouraged by what the technology can bring to economies, and while there will be “winners and losers” he’s taking a “glass half-full” stance.
“AI is a fabulous, incredible technology that is going to drive massive productivity gains through society. There is a lot of capital being deployed to grow AI capabilities around the world.” — Bloomberg
