Taking The Keys: Insights On The European Private Credit Market - Goldman Sachs Asset Management

Goldman Sachs Asset Management's analysis of the European private credit market reveals a decade-long pattern of selective credit stress concentrated among smaller and cyclical borrowers, with approximately $38 billion in credit events distributed across roughly 150 companies since 2017. The research underscores that a prolonged low-rate, benign macroeconomic environment masked underlying credit selection risks, which became acute once geopolitical and macroeconomic conditions deteriorated. This period of stress exposed the critical importance of disciplined credit selection across both borrower size and sectoral positioning.

The data analysis demonstrates that lending to larger, higher-quality companies in non-cyclical sectors provided meaningful portfolio insulation during the recent credit cycle. This finding challenges the notion that private credit inherently provides downside protection; rather, outcomes are heavily dependent on the quality of credit selection during vintage years. Importantly, private credit portfolios benefit from a structural advantage unavailable to public market investors: the ability to underweight or entirely avoid certain market segments without benchmark constraints. Goldman Sachs' research emphasizes that this selectivity lever has proven material in differentiating portfolio performance, suggesting that future alpha generation depends critically on tactical positioning along both company and sectoral dimensions.

Looking forward, Goldman Sachs economists project constructive but uneven economic conditions. European real GDP growth is forecast at 1.0–1.3% over the next three years with inflation tracking at 1.8–2% annualized, while US growth is expected to moderate to 2.1% following a strong 2026. This modest macroeconomic backdrop will likely produce divergent company trajectories, with borrower outcomes increasingly dependent on inflation sensitivity and exposure to sectors vulnerable to long-term secular disruption. Consequently, credit event rates are anticipated to remain elevated relative to the prior decade's benign environment.

Market microstructure is also shifting materially. The past three years have been characterized by strong capital inflows supporting active refinancing activity, which enabled borrowers to manage rising financing costs and extend maturities. However, as M&A activity recovers, capital deployment is expected to tilt toward new transactions rather than refinancing, creating a supply-driven reset in market dynamics. This transition will test borrower resilience as refinancing options narrow and sponsor incentives potentially shift toward more aggressive portfolio management, further supporting elevated credit event forecasts.