Private Markets at an Inflection Point
Episode publishedPodcast: Goldman Sachs ExchangesGoldman Sachs Exchanges
Transcript preview
Preview only
Think we're in the middle of a market structure change. Just like we had in public equity domain, where we had decimalization of equities and ETFs of equities and increased liquidity across the curve, we have a situation here in alternatives where market structures are evolving very quickly.
Are private markets at an inflection point? Interest rates are elevated, liquidity is tightening, and cracks are beginning to surface, especially in private credit. So what does the shifting landscape mean for investors in private markets and for the companies that rely on them for capital? Welcome to Exchanges, the weekly show where we unpack how Goldman Sachs is making sense of the most consequential forces shaping markets and economies. I'm Allison Nathan. My guests today are Pete Lyon, global co head of the Capital Solutions Group within our global banking and market business, and Michael
Thank you. Thank you. Thanks for having us.
So let me start by taking a step back. When you both look across the private equity and credit markets today, what do you see as single biggest shift in the landscape over the past twelve to eighteen months? Mike, maybe you can start us off.
Sure. We are at a big inflection point right now, and there's certainly a lot of stuff going on. But first, let me put it into context. So if you look between 2010, right after the GFC, right through 2022 when the Fed increased interest rates, you had a period of unprecedented growth in private markets. Private markets actually over that period of time were up six times. So just a massive period of growth. Then the Fed increased interest rates, and everything came to a halt. And so as we sit here today, now four years later, there are these big questions that are looming over the market. Numbe
So maybe I'll build a little bit, Allison, on what Mike has said, even taking a further step back. I think we're in the middle of a market structure change. Just like we had in public equity domain, where we had decimalization of equities and ETFs of equities and increased liquidity across the curve, we have a situation here in alternatives where market structures are evolving very quickly. I think, to your question, we are at an inflection point. I think if you look at private credit, for example, it's been much maligned in the press in certain aspects of it. But if you look at any historical
Right. So we are not particularly worried about private credit as an asset class. But let's talk a little bit more and dig in on that private equity sidebike. So what will be the catalyst, not for a tsunami, but to see normalization in that area?
So let's talk about why are we in this period of indigestion right now. Why is the circulatory system not working? It's relatively simple, and it just goes back to the math of private equity. If you go back to 2022 after that period of massive growth, what happened? The economy didn't go into recession. Capital markets were open. There was plenty of dry powder. Pete said, on average, about 20% of market value realizes on average every year. So why have we been stuck down to eight, nine, ten percent over the last three years? Well, the reason is relatively simple. The Fed increased rates by rou
Right. And of course, the pressure on rates, which has not been what we all expected to see, at least at this point, because, as you said, primarily because of the war. But when we think about how the sponsors are actually dealing with some of this and some things going in the right direction and some things not going as as well as I think we had expected, how are you seeing
Keep exploring with a free account.
A free account preserves the short preview. Upgrade to Pro for the full transcript and episode chat.