Goldman Sachs to Launch Private Credit Product for Retirement Plans

Goldman Sachs, led by CEO David Solomon, is launching a private credit product for retirement plans. (Jeenah Moon/Bloomberg)

Goldman Sachs is building a private credit product for retirement plans, joining a broad push by money managers to get their alternative investments into retirement portfolios and capitalize on a period of loosening regulation.

The bank’s asset-management arm is launching a product structured as a collective investment trust, or CIT, which is built for defined-contribution retirement plans such as 401(k) plans.

Goldman’s vehicle is set to launch in the fourth quarter and offer exposure to private credit funds managed by the firm, including North American and European direct-lending investments and private placements. Goldman expects to charge clients a fee of about 1% of assets, inclusive of expenses such as administrative fees.

The firm’s push to launch the GS Private Credit CIT captures key themes and debates shaping the asset management and retirement industries today. The ever-shrinking public markets are driving the strategy behind this product and ones like it.

Big-bank investment-management units and fund managers such as BlackRock and Invesco are focused on growing their private-assets operations, where the products are more lucrative than those trading on exchanges. Private credit—loans made by nonbanks to generally riskier companies— has been expanding at a particularly rapid pace, and Wall Street is looking for ways to package it for Main Street.

The Trump administration is helping that push with what analysts say will be the largest rollback of financial regulations in a generation.

That shift includes an expected opening for private assets in 401(k) plans. While it would be a win for alternative money managers seeking new sources of capital, industry watchdogs and plan sponsors are wary of pricey, hard-to-value assets in retirement funds.

Marc Nachmann, Goldman’s global head of asset and wealth management, said that retirement portfolios, with decadeslong time horizons, are an appropriate place for illiquid assets, which may be locked up for multiple years. The “right balance is important,” he added.

Goldman’s competitors agree.

Earlier this month, Voya Financial said it would develop private markets products for its defined-contribution retirement plans, including a CIT, in partnership with the alternative money manager Blue Owl. Elsewhere, KKR recently hired its first head of defined contribution, signaling its ambitions to tap the individual retirement market.

“The challenge is that many corporate sponsors are conservative and some just don’t want to face potential litigation from their plan participants,” Evercore ISI analyst Glenn Schorr wrote last week after The Wall Street Journal reported President Donald Trump was expected to sign an executive order that would open up 401(k) plans to private assets.

“In addition, the higher fees from private investments are a big stumbling block,” wrote Schorr, referring to the industry broadly rather than to specific managers.

The first funds Goldman’s trust will join are a target-date fund series from Great Gray Trust Co., a private equity-backed CIT specialist that was previously part of M&T Bank’s Wilmington Trust.

Those funds offered by Great Gray will charge an average of 0.38% and include private investments managed by BlackRock. Goldman plans to bring more solutions to the retirement market after launching its CIT in the fourth quarter, said Greg Wilson, the global head of retirement at Goldman Sachs Asset Management.

“Within [defined-contribution] plans, within 410(k) plans, the largest allocations to private markets have historically been to private real estate, and there are a few key leaders that have offered that for the last 10 years,” Wilson said. “But private equity, private credit, infrastructure—this is relatively new to the market.”

As private investment managers develop new CITs, some are lobbying lawmakers to get their products into more retirement plans.

Great Gray wrote to U.S. senators last year to advocate for passing a bill that would allow CITs into retirement accounts known as 403(b) plans, which cater to employees of public schools and certain tax-exempt nonprofit organizations. Whether employers on a large scale choose to add their private equity and credit products into retirement plans remains to be seen, though executives say there is demand.

Entering individual retirement plans will present another test for the private credit market. Some investors worry about the potential risks in private credit given the rapid growth that has yet to be tested by high interest rates or by a prolonged period of severe economic decline, beyond the instability brought on by the pandemic.

Fund managers say those fears are overblown, noting that defaults have remained low and that the asset has been resilient through market turbulence.

“We haven’t seen a credit cycle in the last many, many years,” Goldman’s Nachmann said, noting that the firm can be discerning in the deals it does. “At some point, there will be a credit cycle, and you’ll be able to distinguish the good investors from the not-so-good investors.”

Write to Rebecca Ungarino at rebecca.ungarino@barrons.com