The former Goldman Sachs chief executive says investors should be paying close attention to opaque and illiquid corners of the market.
In a new Bloomberg interview, Lloyd Blankfein says his concern centers on the private credit market, where assets are difficult to price and even harder to test in real time.
“I’m worried. Look, one has to worry about opaque assets where there’s illiquidity. So it’s very hard to mark to market, and you’re marking it by analogy to other companies. So there’s no precision there.
Very hard to test in the market whether your marks are correct because the only way to really test it is to sell some, and it’s very hard to sell to a knowledgeable buyer because any knowledgeable buyer would have to do the work and the credit analysis and who’s going to do the credit analysis to buy a little smidgen, little piece of something.”
Private credit markets involve non-bank entities such as private equity firms and hedge funds that raise money from investors to lend capital to businesses. These firms entice investors by offering high yields because the loans are less transparent and illiquid, as they are not valued and sold easily.
Last week, JPMorgan CEO Jamie Dimon said he’s seeing people “do dumb things,” as private credit becomes vulnerable to severe AI disruption.
Blankfein adds that while he is not certain the cycle has peaked, the late-stage dynamics are evident.
“I don’t know if we’re in the absolute end of the cycle, but we’re getting close to the end of, you know, late stages of cycles on this and we’re due for a reckoning. So generally, I’m always very cautious. I’m in the risk management business, but especially cautious at this time.
You can point to several reasons, but if for no other reason, just because we haven’t had a problem for such a long time, undoubtedly, we’ve put money in places where write-offs are going to need to happen.
And when you’re dealing with opaque illiquid assets like credit, that’s a place that one would clearly have to look.”
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