The study from the US firm examines what investors (limited partners) think about the outlook for private markets. A difficult period for the global economy has coincided with a fall in fundraising activity and volume. The study found that LPs are, however, remaining allocated to the sector as a whole.

A global poll of more than 200 limited partners and general partners in the private market sector finds that they are cheerier about prospects than a year ago, suggesting certain economic dark clouds might be lifting.

The Goldman Sachs Private Markets Survey, covering views in June and July, found that 64 per cent of respondents saw investment conditions improving, while 22 per cent said they were stabilizing.

Despite widespread concerns about over-allocation, a higher share of LPs surveyed are under-allocated to alternatives, the report said.

The US firm’s report comes at a time when US interest rates have been raised to curb inflation, geopolitical worries, and risks of recession in certain countries have thrown a bucket of cold water on the private markets sector. For example, Bloomberg noted (September 25) that “Across the $12 trillion industry, hundreds of private equity firms are lumbering on years after their funds’ intended twilight with no new fundraising in sight – a cohort that investors and regulators have dubbed `zombies.’”

Figures in the private markets sector have told this news service that the pace and volume of fundraising in private markets has slowed sharply in 2023, although the prospect that central bank interest rate rises may have at last peaked is a positive sign for the future.

In any event, the Goldman Sachs survey, which looks at geopolitics, the economic environment, and asset allocation preferences, comes out after what had been more than a decade of rising momentum in private markets. 

Among the report’s findings was that the top non-investment challenge for GPs is fundraising – it has grown more difficult. Also limited partners see a fund’s track record as the main factor when they evaluate general partners’ propositions. This makes it tougher for newbie firms to get a break.

The US firm said its survey shows most LPs are “under-allocated” in most strategies, but they are increasing exposures.

“Yet even as they return to more normalized investment activity than that in 2022, LPs report wanting deeper relationships with GPs, with fewer commitments and increasing co-investing activity,” Francis Idehen, partner and US head of alternative multi-strategy solutions at Goldman Sachs Asset Management, said. 

Geographically, more than half (59 per cent) of respondents are from the Americas, 13 per cent in Asia-Pacific, and 28 per cent in Europe, the Middle East and Africa.

What keeps folk awake a night?
The top risks, as respondents saw them, were economic recession (48 per cent); geopolitical conflict (46 per cent); inflation (43 per cent); and interest rates (37 per cent).

As for recessionary fears, 77 per cent of respondents expect a US recession in the next two years, with 23 per cent saying it will come in 2023 and 53 per cent during 2024. Eurozone expectations are more pessimistic: 90 per cent report expecting a recession, 42 per cent in 2023 and 44 per cent in 2024.

Asked about what sort of strategies they hold, respondents gave the following: Buyouts (12.2 per cent); private credit (10.1 per cent); real estate (9.6 per cent); infrastructure (6.4 per cent); growth (5.1 per cent); secondaries (5.1 per cent); venture capital (3.9 per cent); and opportunistic/distressed (2.6 per cent).

Real estate is the top choice for decreasing allocations among LPs (28 per cent), followed by growth (16 per cent) and buyouts (15 per cent).

“With real estate assets in the process of repricing, and with a more than $2 trillion wall of maturities over the next three years likely to force more re-valuations, its unsurprising that some LPs remain cautious about their real estate allocations,” Jim Garman, partner and global head of real estate investing at Goldman Sachs, said.