Here's a novel form of market relief: geopolitical tension. According to a report, some clients of Goldman Sachs (GS) are finding a strange silver lining in the ongoing conflict involving Iran. It's not that they're profiting from the turmoil—it's that it gives everyone something else to talk about.
Kunal Shah, the co-chief executive of Goldman Sachs International and global co-head of fixed income, currencies and commodities, reportedly said that some of the bank's private markets clients were "just glad there's something to talk about that isn't software exposures and private credit." The comments were made on a client call intriguingly titled "Strikes in Iran — End of the Beginning...?" which also featured Sir Alex Younger, the former chief of Britain's Secret Intelligence Service.
It's a telling remark about where the real pain points are for these investors. While public markets gyrate on headlines from the Middle East, the private markets have been dealing with their own, quieter crises.
Earlier this week, reports indicated that Goldman Sachs itself has been advising hedge funds on strategies to short private corporate loans. This essentially provides a way to bet against the debt of companies, including enterprise software firms and other sectors seen as vulnerable to disruption from artificial intelligence. So, while some clients are glad for the distraction, the bank is also helping others position for further pain in those exact areas.
The Iran conflict has, of course, shaken public markets, triggering wide swings in energy, bond, and stock prices that have hurt some hedge funds. Shah noted that while some clients have weathered similar volatility before, those with direct exposure to the region are struggling to manage these heightened risks.
The Underlying Headaches: Private Credit and Software
So, what are these clients so eager to stop talking about? Two main things: private credit and software stocks.
The private credit market, a massive $1.8 trillion arena where non-bank lenders provide loans to companies, is facing a historic sell-off. Plummeting valuations and rising defaults are the culprits. Confidence has been cracking due to issues like redemption limits at funds and high-profile bankruptcies.
The strain is visible. Blue Owl Capital (OWL), a major player, is in a deepening crisis with its shares down over 40% year-to-date. In February, the firm revealed significant internal stress by accelerating redemptions and liquidating $1.4 billion to return capital to investors.
Then there's the software sector. Software-as-a-service (SaaS) and data-provider stocks have seen sharp declines over the past two weeks. The driving fear in the market is that artificial intelligence will diminish the relevance and business models of many existing software companies. Top private equity CEOs have been fielding investor worries about what some are dramatically calling the "SaaS apocalypse."
The reactions have been stark. Apollo CEO Marc Rowan called investor sentiment toward software stocks "extreme," while Ares CEO Michael Arougheti said his firm is well prepared to handle market and software-related risks. Their comments highlight an industry trying to calibrate to a sudden and severe reassessment of a core investment area.
Goldman Sachs did not immediately respond to a request for comment on the executive's reported remarks.
It creates an odd dynamic. Public markets fret over war and oil prices, while a segment of the sophisticated private market seems to view that drama as a welcome break from staring at the potentially more structural problems in their own portfolios. Sometimes, the scariest monster isn't the one making the most noise.
