According to Goldman Sachs Asset Management’s 2026 Global Alternatives Survey, 53% of limited partners (LPs) identified rising defaults as the biggest risk to their private credit portfolios this year. Another 19% pointed to a potential recession or macroeconomic shock, while 16% cited spread compression.
The findings suggest investors are increasingly prioritizing credit quality over higher yields as private credit expands and competition intensifies.
“As private credit matures, dispersion matters as much as direction: allocators must be as selective in choosing managers as managers are in choosing borrowers,” said Stephanie Rader, global co-head of alternatives capital formation at Goldman Sachs.
Investors Wonder: Who’s Managing Their Private Credit Investments?
Manager selection ranked as the biggest challenge for private credit investors, cited by 25% of LP respondents. Valuation followed closely at 22%, while 18% identified liquidity as their primary concern.
Goldman Sachs noted that rising payment-in-kind (PIK) income and amendment-and-extension activity could lead investors to scrutinize managers’ valuation practices more closely.
Liquidity is another growing headache. With realizations taking longer and exits remaining difficult, investors are increasingly looking for strategies that can generate distributions sooner rather than relying on longer-term unrealized gains.
The concerns haven’t translated into a broad retreat from private credit, however. In fact, 56% of LPs said they were under-allocated to the asset class, up from 43% in 2025.
Investors Look Toward Asset-Backed Finance
Asset-backed finance emerged as the biggest allocation opportunity, with 58% of LPs planning to increase commitments to the strategy over the next three years.
“Traditional anchors remain intact, but asset-backed finance is no longer a satellite strategy – it’s becoming a structural answer to default and liquidity concerns,” said James Reynolds, global co-head of private credit at Goldman Sachs Alternatives.
Direct lending remains a core holding, with 53% of investors planning to maintain existing allocations and another 31% expecting to increase commitments.
Mezzanine debt, meanwhile, faces a more cautious outlook, with 30% of LPs planning to reduce their exposure.
Private Credit’s Liquidity Recovery Could Take Years
Only 8% of GPs surveyed expect a meaningful recovery by the end of 2026. Instead, 69% anticipate improvement in 2027 or 2028, while 22% believe it could take even longer.
Competition is adding another layer of pressure. Some 39% of GPs identified the convergence of large, diversified investment platforms as the biggest competitive threat over the next three to five years. Another 28% pointed to spread compression.
For managers, the challenge will be finding attractive lending opportunities without sacrificing underwriting standards to win deals.
“GPs aren’t waiting for the cycle to turn – they’re building for a longer one,” said Vivek Bantwal, global co-head of private credit at Goldman Sachs Alternatives.
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