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9Questions is our Q&A series featuring key decision-makers in leveraged finance — get in touch if you know who we should be talking to!

Stephanie Rader is the global co-head of alternatives capital formation at Goldman Sachs Alternatives. She joined Goldman Sachs in 2004 and July will mark her twenty-year anniversary at the firm.

9fin caught up with her to learn more about recent trends in the global private credit and fundraising space.

1. Fundraising and private credit aren’t new to Goldman Sachs, but in recent quarters have become a more visible part of the firm’s growth strategy. When did private credit start becoming a major plot point in the Goldman Sachs story and why?

We’ve been investing in private credit at Goldman Sachs for nearly 30 years, starting with our first Mezzanine Partners fund in 1996. Notably this was a global fund, lending junior capital to large sponsor-backed companies across the US and EMEA. While many private credit managers are only recently moving into Europe, we have been lending in this region for a very long time through many cycles.

Private credit has grown in the wake of dislocation and disruption in traditional bank lending. This accelerated following the 2008 financial crisis where traditional bank lending froze, and private lenders were able to provide crucial financing to companies that required capital. We launched our first global senior direct lending fund, Loan Partners, during this time. During the Covid pandemic, there was again dislocation and disruption in the markets. We launched our first hybrid capital fund Strategic Solutions in 2020, focused on providing solutions to high quality companies in complex situations. Most recently in 2022 and 2023, market volatility spiked due to inflation, rising rates, geopolitical concerns, and regional bank failures. Private credit once again stepped in to fill a financing void with much more significant scale.

As the opportunity set has grown in private credit, investors have continued to allocate to the asset class, seeking current income, diversification, and resilient risk-adjusted returns with lower volatility. Private credit has expanded beyond the boundaries of direct lending and innovative structures have broadened access to investing in this asset class. These dynamics, combined with our unique vantage point to consistently capitalize on ever-changing markets across the risk-return spectrum drive our excitement about private credit over the next five years.

2. Your growing private credit footprint is also happening at a time where other bank peers like JP Morgan, Wells Fargo and Citi are re-entering the space, either through launching their own platforms or through partnerships. Is there room to compete?

We believe that private credit is an expanding asset class and will benefit from long-term secular growth underpinned by many factors. While the balance between public and private markets will ebb and flow, private credit’s ability to support larger deal sizes creates opportunity for future growth. Sponsors increasingly see the benefits of this bilateral relationship with a private credit lender, including speed, flexibility and certainty of execution. Direct lending makes up less than a third of the total leveraged finance market, leaving ample runway for growth and product innovation.

Additionally, there is significant undeployed capital held by private equity sponsors that will translate to future investment opportunities as M&A activity returns to normal levels. We have the only private credit business connected to the world’s top investment bank and this relationship has organically grown and flourished over the last 30 years, providing solutions to companies and sponsors through many market cycles. This unique sourcing engine generates a very wide funnel of investment opportunities, which allows us to be very selective and rigorous in our credit selection.

3. Your latest direct lending fund, West Street Loan Partners V, closed in May at a mouth-watering $13.1bn, during a time when some of your peers are struggling to fundraise. What’s driving this, and what is the key to successful fundraising in this market?

We were very pleased to close more than $20bn in the strategy, including separate accounts and co-investment vehicles. Senior direct lending has become an increasingly important allocation for both institutional and private wealth clients seeking attractive risk-adjusted returns. We were very thoughtful in enhancing the structure of Loan Partners V to significantly expand our investor base globally, while maintaining commitments from our existing investors given our time-tested track record in direct lending. Clients are also looking to diversify their geographic exposure into European credit, notably seeking exposure to large sponsor backed global companies.

4. Loan Partners V is also the first fund in the series to make disclosures under Article 8 of the European Sustainable Finance Disclosure Regulation (SFDR). Can you tell us more about this?

Yes, we were pleased to achieve Article 8 designation under the SFDR for the first time in our Loan Partners fund family and we now have three Article 8 funds across direct lending. We just completed our annual SFDR disclosures for these funds, which outline risks and opportunities within each fund and performance to the prior year. We know how important SFDR is to our clients, especially our European investors, and we take this commitment very seriously.

5. According to data from 9fin’s first quarter European league table, a number of US firms including GSAM dominated the large-cap dealmaking segment. Why is Europe such a draw for American funds right now?

The European market has several unique considerations compared to the US market. Europe’s loan market is more bank-centric versus the United States, and its public debt markets are much smaller and less liquid. As I mentioned earlier, our private credit business has been global since inception, with deep presence in Europe for nearly 30 years. We believe that we have a particularly differentiated offering in Europe given our scale and relationships across the large-cap and mid-cap parts of the market. We continue to see very attractive risk-adjusted opportunities in Europe and are able to leverage the power of incumbency with our existing portfolio companies across the entire platform.

6. Meanwhile in the US, we’re beginning to see distressed debt tactics — such as liability management exercises — show up in private credit portfolio companies. Will this impact private credit’s selling point for prospective clients?

While we are keeping a close eye on these cases, we have confidence in our ability to negotiate key terms and protections in our documents that reflect careful underwriting and diligence. In general, private credit portfolios have shown resilience. While there has been some dispersion across sectors and companies, private equity backed companies broadly continue to exhibit strength. Companies have been proactive in refinancing over the last couple years and while the cash interest burden has increased, it’s been manageable as defaults remain relatively benign.

Relative to the broadly syndicated loan market, we continue to see reasons to expect lower credit losses in private markets for a number of reasons; firstly, lower number of lenders in private credit reduces coordination and promotes faster resolution, secondly, buy and hold strategy of private credit creates similar incentives amongst lenders as compared to publicly traded loans, where buyers may have different cost bases and motivations, and lastly direct lenders have more access to information for due diligence and tighter controls with respect to documentation and structure.

7. Private credit (and the BSL market) has been suffering a lack in M&A activity. What needs to happen to ease the bottleneck?

One of the biggest factors is the gap in valuation expectations between buyers and sellers. While this delta has been smaller in the highest quality businesses where we have seen transactions completed, there is still some room to bridge the gap across the board. We do think with banks re-entering the market and more financing options available, M&A activity should pick up meaningfully in the second half of this year and into 2025 as private equity sponsors are facing pressure to return capital to LPs, while also sitting on record amounts of dry powder. This, combined with private credit’s ability to support larger deal sizes, creates opportunity for future growth.

8. In recent months, GSAM has teamed up with OMERS and Mubadala to co-invest in private credit in Asia Pacific. What does the opportunity set look like in that region?

Asia is a driving force for global growth, with five of the world's 15 largest economies. Global private equity firms are expanding their presence in Asia presenting an opportunity for private lenders to support the growth of leading companies by providing flexible, long-term capital. Goldman Sachs has been investing across multiple Asia Pacific markets since 1998 and our on the ground presence and relationships in key focus markets allows us to source unique deals and apply years of local expertise in the region to underwrite very attractive relative value. The opportunity in Asia private credit is still developing and we are excited to partner with our clients, capitalizing on our unique position to continue investing in this region.

9. You’ve spent your entire career to-date at Goldman Sachs and held roles at both its markets and asset management divisions. Can you share any advice that has helped you navigate your career path?

Yes, I will be celebrating 20 years at Goldman Sachs next month and have enjoyed many different roles with my current role being my favorite thus far. No matter the role you are in, strive to be the go-to expert in your space. And then keep expanding that space. Never stop learning and growing. Share your knowledge with others. Don’t write long emails — pick up the phone, spend time with people. Don’t let perfection get in the way of progress. Realize that your greatest strengths can also be your greatest weaknesses. Know the difference between a mentor and a sponsor. Be both to others. Enjoy the journey!

9Questions — Stephanie Rader, Goldman Sachs Alternatives

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