Goldman Sachs – Private Markets Diagnostic Survey, 2023

Goldman Sachs conducted a survey in June and July 2023, involving over 200 limited partners (LPs) and general partners (GPs) in the private market industry. The survey aimed to gather insights on the current market conditions and alternative investment landscape. The private market sector has witnessed record-breaking achievements in recent years, with fundraising, deal activity, and distributions reaching new heights during the recovery from the Covid-19 pandemic. However, the rise in global interest rates to combat inflation has caused a significant decline in deal and financing activity. This has resulted in a surplus of available capital, known as dry powder. Despite these market dynamics, there are positive indications for investment opportunities. The investment outlook is improving, though LPs and GPs are still concerned about macroeconomics and geopolitics, particularly recessions, geopolitical conflicts, inflation, and higher rates. The survey revealed that fundraising has become more challenging for GPs. Many LPs find themselves above their desired allocations in private markets, a phenomenon known as the denominator effect. However, a significant number of LPs are still under-allocated and are increasing their allocations. LPs are also seeking to build stronger relationships with GPs, reducing the number of commitments and focusing on existing relationships. Co-investing activity is also gaining traction. GPs are looking to differentiate themselves through their sourcing and sector expertise, while LPs prioritize track record and operational expertise when evaluating potential GPs. The survey also suggests that GPs may need to develop new capabilities in response to the expected evolution driven by artificial intelligence (AI) and data science in the industry.