The “supercycle” of the private market | financial times

The best in finance is not passive funds, cryptocurrencies or even commodities. It’s private equity, things like venture capital, infrastructure, private equity and direct lending, and it’s absolutely booming.

Last year, the total size of the private equity industry rose to more than $10 trillion, with industry data provider Preqin predicting it will grow to almost $18 trillion by 2026. However, Goldman Sachs forecasts that in reality could rise to as much as $30 billion. by then, if it continues to make inroads from retail investors and interest rates don’t rise as much as feared.

We believe that the future AUM growth dynamics of the private markets industry will be driven by seven key factors over the medium term, including track record versus public markets, interest rates and retail opportunity, among others. Evaluating each of these factors in this report, we see an overall positive backdrop for continued industry AUM growth. Furthermore, we combine this 7-point framework with Preqin’s 2026 industry AUM forecast of $17.8 trillion and cyclical growth since 2000 to assess potential pathways over the next 5 years, including a scenario of $30 trillion+ blue sky for private markets (ie >3x as of today).

Here are the relevant charts from Goldman showing that bullish scenario.

Now, one should always take Big Numbers from the seller’s side with a pinch of salt. Goldman Sachs notes that this is its “blue sky” forecast. His “gray sky” prediction is for a more moderate industry size of just under $15 trillion by 2026, as rising interest rates and weak retail demand weigh on growth.

In a gray sky scenario, we see room for the growth profile of private AUM markets to mirror that achieved between 2008 and 2012, rising at a combined CAGR of c. 8% (which is within one standard deviation of the long-term average). This scenario would result in a 2026 industry AUM of US$14.8 trillion, which is c. 20% smaller than our base case. We believe a bearish view on industry AUM growth could be driven by a faster-than-anticipated rise in interest rates to higher levels compared to historical averages (as if inflation continues to rise due to the wage pressure and geopolitical factors), regulatory headwinds further limiting institutional investment in pensions and endowments, a lack of retail investment in private markets, and an inability to close the gap between current and projected allocations.

And here are the charts of how that scenario would play out:

However, the fact that Goldman Sachs expects private equity to rise to nearly $15 trillion in less than five years even in its gloomy setting underscores how mental things are in space right now.

This is why almost all the big traditional asset managers have rushed to snap up private equity specialists in recent years, whether they operate in more competitive areas like private debt or less glamorous infrastructure.

At the top of Alphaville’s head, only the most recent deals (sort of) are, deep breath, Schroders buying Greencoat and Cairn Real Estate; AllianceBernstein buys CarVal Investors; Franklin Templeton buys Lexington Partners, Benefit Street Partners and Clarion Partners; T Rowe Price buying Oak Hill; and JPMorgan Asset Management buying Campbell Global.

There are many we have forgotten and no doubt more will come in what looks like a private equity gold rush. Anyway, for fans of sellside charts, here’s Goldman’s seven-factor framework for private equity.

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