Goldman's Solomon on Iran, AI and Private Credit

Markets are really gripped by what's going on roughly 8,000 miles away, right? The Middle East conflict is still front and center. We don't know how extended it's going to be. You said yesterday that you were surprised by how benign markets were. Your team of strategists, led by Peter Oppenheimer, is saying buy the tip. Do you see complacency at the moment? I don't see complacency. I think there's a lot of uncertainty around the direction of the conflict, how it will be resolved, what the off-ramps are. I think it's fair to say when you look at markets, market reactions have been relatively benign. I certainly could have seen over the last couple of days a little bit more volatility, but I don't think people are being complacent. I think that market participants are looking and trying to say, how is this going to play out? What's the endgame? You can see good scenarios and more difficult scenarios. As they have more information in the coming days, the coming week or two, I think that will have an impact on risk premiums. I think at the moment, what market participants are really looking at is, is this going to translate through to things that affect economic growth and activity, particularly energy supply chains? So far, I think one of the reasons why markets are reacting the way they are is they're encouraged that there is strong support for trying to ensure that doesn't happen. But it's uncertain. You don't know. And we'll see. In the long run, for portfolio allocation, and I know Peter Oppenheimer, they did a call for our wealth clients. If you have portfolio allocation, there's nobody that's saying you should change your fundamental portfolio allocation because of what's going on. But for traders and day-to-day market participants that think about risk premium every single day, obviously they're watching very closely. What about the people that run big, major global banks like yours? Do you worry about the lack of predictability when it comes to policy, when it comes to how this potentially ends and when it ends? What's going on with your Middle East operations, for example? I worry about a lot of things. We run a big global business. We have an extraordinary team. And I think one of the things that we have to accept is the world is a very complicated place. There's always a lot of uncertainty. There's always a lot of nuance. But we have base beliefs on how economies will perform, how the world will evolve. And we operate around that, but we always are prepared to risk manage and think about downside risks. And I think one of the things you have to do when you run a big, large financial institution is that when facts change or risks come up, you've always got to be prepared to pivot, to shift, to de-risk, and we run our business that way always. We run a big balance sheet, and we think about that every day. But while these are very, very significant events, and I don't want to diminish them in any stretch, we've operated the firm through lots of very significant events year in, year out. And that's part of what we do. Is it business as normal then for, say, your offices in Saudi Arabia? Is there still travel going on? What's the communication being with clients? That is complex. We've got a significant number of people in those Middle East countries. And obviously, first and foremost, we're concerned with their safety. And we're trying to do everything we can to support them and their families. I would not say it's business as usual in those markets. All those markets for all businesses are operating work from home and stay safe is a first priority. And so we'll just have to watch closely how things play out. And we're very, very focused on making sure our people and their families are safe and sound. And at the moment, that's our primary focus in that part of the world. Do you think there is a bit of an existential cloud over Dubai as a financial center now? Well, I do think safety and security matters. And I wouldn't say, I think it's a little bit premature to talk about existential clouds. But if you're living and operating in a place and you didn't anticipate this, it's quite scary and it's quite unsettling. And so, as I said, our primary focus is on the safety and security of our people there. We're working very hard to make sure that we're protecting them and their families. It's not as though the background prior to this conflict was crystal clear, right? We just came off really trying to work out what the AI scare trade was going to be like. Do you still think that when it comes to that narrative of sustainability, of, you know, I know Jamie Dimon said there's some players doing dumb things, for example, does that still have further to go? I'm not sure I understood the question exactly. Are you talking about kind of AI investment? Look, AI is a fabulous, fabulous, incredible technology that is going to drive massive productivity gains through society. There's a lot of capital being deployed to grow AI capabilities around the world. Some of that capital is going to get reasonable returns, some of that capital is not. There are going to be winners, there are going to be losers, as within any technology super cycle. I think we're early in that process, but I think it's exciting. And I actually look at the glass being half full. That doesn't mean that there won't be, you know, capital that's burned, companies that don't work out. But I think overall the benefits to enterprise, productivity, you know, the economy broadly as this technology gets developed and deployed is going to be quite exciting. And I'm looking at the optimism of, you know, what's ahead from all of this. And, of course, trying to manage the risks and the downside, the speed bumps that will inevitably come along the way. I like that earlier you said, you know, in your job you worry about a lot of things, right? Trade, tariffs, US policy is obviously one of them. And I think this is the first time we've spoken to you since the Supreme Court passed down their judgment. Does the further lack of predictability on trade policy, is that also a concern when it comes to business sentiment, when it comes to your views on how the US economy is going to cope? You know, I think uncertainty does affect business sentiment broadly. But I just say I don't think that, I don't think that at the moment US trade policy is that uncertain. I, you know, I think this administration has been clear about how they intend to drive a trade policy. I think the Supreme Court decision affects a certain discharge of tariffs into the economy. But there are certainly other avenues for the president. I think the president's made quite clear, you know, how he thinks about tariff and trade. And I think while this administration is in place, that is going to be a construct that we have to operate in. Of course, if there could be more uncertainty around exactly how that looks. And I think the important thing is how it will look in longer perpetuity. You know, of course, the market would appreciate that. But I think the market operates knowing that there's a level of uncertainty around trade and trade policy that we just have to adapt to and we have to live with. I wanted to get a bit more on why you're here, for example, in beautiful Sydney. Do times like this of increased global uncertainty, does it make a relatively more idiosyncratic market like Australia more interesting? Well, Australia has always been an interesting market. We have 400 people here. There are a lot of very, very important, you know, companies in Australia. We have a good wealth business in Australia. You know, Australia is an important market and an important economy, not just for the world, but also for Goldman Sachs. You know, any market, any economy that's important is important for Goldman Sachs, given our global footprint. I try to get here about once a year. I try to do it around an event like this. So we've got a lot of our clients brought together, first of all, for this conference. But this has always been, you know, this has always been an important market, an important economy for Goldman Sachs. And, you know, I think that's consistent, you know, in any environment. So I was here the same week last week and I'm excited to be back again this year. What else are you excited about around the region? As a house view, Goldman Sachs is very bullish on China. It's, of course, National People's Congress week as well. What's your feel about that market, given some of the crosswinds on trade, on tech, on geopolitics? China is one of the largest. China is one of the largest economies in the world. It's going to continue to be one of the largest economies in the world. You know, at the moment, I'm very focused on the bilateral relationship between the U.S. and China. I'm looking forward to President Trump's visit with President Xi that's planned for later this month, the beginning of April. It'll be interesting to see what comes out of that. And, you know, whether or not China and the U.S. can make more progress, you know, on their bilateral relationship. I think that's important for growth in the world and I think it's important for both the U.S. and China. And I think at the moment that's fragile. And so I'm very curious to see, you know, how that progresses. In the meantime, Chinese markets have done very well in the last 12 months. That's increased capital flows, you know, into the region. We obviously participate in that, but we're going to watch those bilateral meetings and progress in the bilateral relationship very closely. What would you like to come out in terms of deliverables from that meeting? I'd like to see, you know, more certainty and clarity around how the bilateral relationship will work going forward. I think there are things that the U.S. wants and things that China wants. I'd like more clarity around what that's going to look like, you know, not just in 2026, but, you know, over the coming years. And I think that's still relatively uncertain. What are we not talking about enough? I know we've talked a little bit about private credit. You don't think it's sort of a systemic risk at this point? I think credit formation around the world is really correlated to, you know, economic growth and economic activity. I do think that we've gone, if I just look at the U.S. market, which is obviously, you know, when you talk about private credit, a very, very large market in the context of private credit, we've gone a long time without a credit cycle. We've gone a long time without a recession. I do think when you have these long-dated cycles, there are a variety of things that happen. One, credit spreads narrow. Two, lending standards, people have more capital to deploy, they get aggressive. Lending standards deteriorate a little bit. Diligent standards deteriorate. And so we're watching very closely to see if there's been a little bit too much aggression, frothiness in those markets. But fundamentally, when you look at the underlying credit portfolios, particularly below-investment-grade credit, while there have been a bunch of idiosyncratic events where there have been problems, the broad portfolios are performing reasonably well. Why are they performing reasonably well? Because the economy's doing fine. And it's very hard to have broad underperformance in a broad, diversified credit portfolio if the economy's doing well. When we do have a slowdown in the economy, you will see it. I think because of the length of the cycle, you probably will find places where the losses are higher than people expect. We're very, very focused on back leverage and things that could affect or amplify, in a more difficult economic environment, you know, credit deployment. But at the moment, when you look broadly across portfolios, we're not seeing things that are super concerning. That's a completely different issue than retail participation and retail investors wanting liquidity from what are fundamentally illiquid products. And so that's getting a lot of attention, but that's different than the underlying credit portfolios. But I do think that when there is a slowdown in the economy or we do get to a place where we have, you know, a recession, you're going to see losses in credit portfolios. And, you know, those losses could be meaningful. But, you know, we'll watch that closely while the economy's chugging along. You know, that's not the primary focus.