Goldman Sachs has been presenting hedge funds with a structured way to take directional exposure to corporate loans, according to a person with direct knowledge of the discussions. The instrument on offer is a total return swap - a derivative that enables investors to profit from movements in the market value of underlying loans, either by taking a long position or by effectively shorting them.
According to the source, the bank has been talking through how the swap could be used to express views on the creditworthiness and market pricing of corporate loans. The source added that, to date, there have been no executed trades using this strategy.
Separate reporting has said Goldman has proposed complex structures that would allow clients to potentially benefit if loans to software companies decline further in value. The outreach by the Wall Street firm follows a period of notable weakness for software equities, a trend market participants have linked to concerns over rapid advances in artificial intelligence.
Traders have flagged the risk that AI agents capable of carrying out complex tasks across multiple applications could undercut growth prospects for legacy software-as-a-service providers. That anxiety has translated into reduced appetite in primary debt markets: market participants note that no major debt offerings backed by software companies have come to market since the large Oracle debt package priced on February 2.
Industry sources say loan and debt transactions for software issuers have been put on hold as investors weigh how AI-driven disruption might affect the revenue profiles and demand for existing software products and services.
"As a market-maker, we obviously engage constantly with clients on facilitating the trading strategies they want to execute. This happens every day, across many asset classes, in every market environment," a Goldman spokesperson said in an email.
The discussions around total return swaps underscore the interplay between derivative markets, bank market-making activity, and sector-specific credit stress. While the product would give hedge funds a tool to take precise exposures to loan valuations, sources emphasise that, so far, the proposal has not translated into live trading activity.
Sectors affected: Credit markets, hedge funds, software and technology lending.