Amidst escalating turmoil in the private credit industry and a wave of redemption restrictions by several leading asset management firms, Goldman Sachs economist Manuel Abecasis has issued a clear judgment: private credit stress itself is unlikely to trigger large-scale macroeconomic spillover effects, but a broader tightening of financial conditions poses a greater threat.
Alternative asset management giants like Apollo, Ares, and BlackRock have recently imposed restrictions on investors due to a surge in redemption requests from retail and high-net-worth clients, sparking widespread concerns about whether private credit crises will spill over externally. In its report, Goldman Sachs used a default scenario stress test framework to systematically assess the potential impact of private credit losses on overall economic loan volume and GDP growth, pointing out that even in an extreme scenario where the default rate rises to 10%, the drag on GDP would be only 0.2% to 0.5%.
The report also noted that bank lending to corporations has accelerated recently, corporate balance sheets are generally healthy, and the growth in AI-related investment demand will provide support to the credit market, partially offsetting the impact of private credit tightening. Goldman Sachs emphasized that the greater risk lies in: the uncertainty of AI prospects leading to a widening of overall credit spreads, or a broader tightening of financial conditions.
However, more pessimistic voices also exist in the market. UBS recently raised its baseline forecast for private credit defaults to 15%—already far exceeding Goldman Sachs' worst-case scenario—and warned of potential &#34;chain defaults&#34; and widespread transmission risks, a conclusion sharply contrasting with Goldman Sachs'.
<h2>Private Credit Scale: Rapid Expansion but Still Marginal</h2>
According to the Goldman Sachs report, the private credit industry currently holds approximately $1.7 trillion in leveraged loans to companies, accounting for about 4% of all credit in the private non-financial sector.
Goldman Sachs pointed out that despite the industry's rapid expansion in recent years, its scale remains limited compared to the overall financial system—for reference, before the 2008 financial crisis, residential mortgages accounted for about 45% of credit in the private non-financial sector, far higher than the current level of private credit. Goldman Sachs used this to refute market views that liken current private credit stress to the 2008 financial crisis, including similar analogies previously made by Bank of America strategist Michael Hartnett.
In terms of current loan performance, available indicators cited by Goldman Sachs show that as of the fourth quarter of 2025, loan performance has generally remained flat compared to the average since 2023. The proportion of underperforming loans in private credit firms' portfolios saw a slight increase in the second half of 2025 but remained below 2023 levels. Furthermore, while the proportion of loans with payment-in-kind (PIK) options has increased, this mainly reflects the inclusion of more PIK options in the terms of recently issued loans, rather than borrowers being forced to convert to PIK due to financial pressure—the proportion of borrowers voluntarily converting to PIK has remained stable recently.
<h2>Software Exposure: The Most Concentrated Risk Point</h2>
The disruptive impact of the AI wave on the software industry is the core catalyst for the recent sharp deterioration in private credit market sentiment. Goldman Sachs equity analysts estimate that the software industry accounts for slightly less than 25% of business development company (BDC) loan portfolios. Concurrently, technology company borrowers have higher leverage ratios than other types of borrowers in the private credit space, and the recovery rate of software loans may be lower than in other industries—due to software companies' lack of tangible assets that can serve as loan collateral.
In addition to software exposure, fraud incidents in a few large loans, and the credit risks accumulated from the rapid expansion of private credit in recent years, have also heightened market concerns about deteriorating loan quality. Goldman Sachs also pointed out that the correlation between the private credit industry and other financial institutions has continuously deepened in recent years: insurance companies have significantly increased their allocation to this sector, while increasing leverage and relying more on short-term wholesale funding; banks have formed closer links with private credit by providing loans and credit lines.
<h2>Stress Test: Quantifying Impact Under Two Scenarios</h2>
Goldman Sachs set up two default scenarios for stress testing and conducted quantitative assessments by integrating equity analysts' observations on inter-institutional correlations, credit strategists' conservative estimates of recovery rates, and the extent to which different types of financial institutions would reduce lending under stress.
Under the base scenario, the private credit default rate rises from approximately 1% in 2025 to 3% to 4% (corresponding to the lower end of historical credit cycle leveraged loan default rates), resulting in approximately $45 billion in additional defaults. Estimating a 40% recovery rate, this equates to approximately $25 billion in actual losses. In this scenario, the drag on the loan stock is about 0.2% or less (equivalent to about 1.5% or less of the total new loan origination flow), and the drag on GDP is about 0.1%.
Under the extreme scenario, the default rate rises to 10% (the upper end of the historical leveraged loan range), resulting in approximately $150 billion in defaults. Estimating a 40% recovery rate, this equates to about $90 billion in losses; if the recovery rate for software loans falls to 30%, losses would expand to approximately $105 billion. Considering the impact on private credit funders such as banks, this scenario could lead to a reduction in the private non-financial sector's credit volume of $350 billion to $400 billion, equivalent to 5% to 6% of the total new loan origination flow, with a GDP drag of 0.2% to 0.5%. For reference, private sector loan flows decreased by about 30% during the 1990 recession and savings and loan crisis, and by about 55% after the 2008 financial crisis.
Goldman Sachs also noted that loan contraction does not translate to an equal proportion of output decline—unaffected lenders can partially fill the gap. According to its vector autoregression model built on the financial conditions index and the Federal Reserve's Senior Loan Officer Opinion Survey (SLOOS), a 1% decrease in the loan-to-GDP ratio corresponds to a 0.3% to 0.4% decline in real GDP.
<h2>Controversy and Limitations Behind Optimistic Conclusions</h2>
Goldman Sachs' conclusions are based on several important premises, which the report explicitly mentions: the Iran war can be quickly resolved without triggering a global stagflationary recession, and the AI bubble does not burst. The report also acknowledges that if the shock triggers widespread panic in the market and leads to proactive contraction by lenders beyond direct exposures and regulatory constraints, indirect effects could exceed the scope of existing model estimations.
Goldman Sachs also added two technical clarifications: first, private credit loan defaults do not directly equate to monetary losses in the same way as other types of loans, because private credit contracts usually contain more covenant clauses that can trigger default protection before borrowers miss an interest payment; second, private credit loans currently hold a relatively senior position in the borrower's capital structure, meaning higher private credit default rates could heavily overlap with losses in other asset classes, which is an unfavorable factor for the overall market.
In contrast to Goldman Sachs, UBS's recent baseline scenario—a 15% default rate—already far exceeds Goldman Sachs' extreme assumption, and it warns of potential &#34;chain defaults&#34; and widespread transmission effects. The significant divergence between the two institutions reflects the high uncertainty in the market's assessment of private credit risk pathways and prompts investors to remain cautious when referencing institutional forecasts.

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Goldman Sachs believes that although the private credit industry is experiencing turmoil due to redemption restrictions, it only accounts for 4% of private non-financial credit. Even in an extreme scenario of 10% defaults, the drag on GDP would be only about 0.2% to 0.5%, making it difficult to trigger a systemic crisis similar to 2008. The core risks are concentrated in the 25% exposure to the software industry and the uncertainty of AI premiums

- Goldman Sachs economist Manuel Abecasis asserts that while private credit pressures are unlikely to trigger large-scale macroeconomic spillovers, tighter financial conditions pose a greater threat.  
- The private credit industry, holding about $1.7 trillion in leveraged loans, represents only around 4% of private non-financial sector credit, far below levels seen before the 2008 financial crisis.  
- Significant concerns remain about defaults, particularly in the software sector, as UBS raises its default rate forecast to 15%, contrasting Goldman’s more optimistic predictions.

Goldman Sachs: Will Private Credit Trigger a New Financial Crisis?