The private market “supercycle”
Goldman Sachs reckons that the boom in private capital has much, much further to run.
The hottest thing in finance is not passive funds, crypto or even commodities. It is private capital — things like venture capital, infrastructure, private equity and direct lending — and it is absolutely booming.
Last year, the overall size of the private capital industry rose to over $10tn, and industry data provider Preqin predicted that this will grow to almost $18bn by 2026. However, Goldman Sachs forecasts that it could actually swell to as big as $30tn by then, if it continues to make retail investor inroads and interest rates don’t go up as much as feared.
We believe future industry AUM growth dynamics of private markets will be driven by seven key factors over the medium term, including track record vs. public markets, interest rates, and the retail opportunity, among others. Assessing each of these factors in this report, we see an overall positive backdrop for industry AUM growth to continue. Moreover, we combine this 7-point framework with Preqin’s 2026 industry AUM forecast of $17.8tn and through-cycle growth since 2000 to assess the potential pathways over the next 5Y, including a blue-sky $30tn+ scenario for private markets (ie >3x from today).
Here are the relevant Goldman charts showing that upside scenario.
Now, one should always take sellside Big Numbers with a pinch of salt. Goldman Sachs stresses that this is its “blue sky” forecast. Its “grey sky” prediction is for more moderate industry size of just under $15tn by 2026, as rising interest rates and limp retail demand weigh on growth.
In a grey-sky scenario, we see scope for the growth profile of private markets AUM to reflect the one achieved between 2008 and 2012, rising at a blended CAGR of c. 8% (which is within one standard deviation of the long-term average). This scenario would result in 2026 industry AUM of US$14.8tn, 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 hike in interest rates to higher levels vs. historical averages (such as if inflation were to continue rising due to wage pressure and geopolitical factors), regulatory headwinds constraining further institutional investment from pensions and endowments, a lack of retail investment in private markets, and a failure to close the gap between current and target allocations.
And here are the charts for how that scenario would shake out:
However, the fact that Goldman Sachs expects private capital to jump to almost $15tn in less than five years even in its gloomy scenario underscores just how mental things are in the space right now.
This is why there has been a mad dash by pretty much every big traditional asset manager to snap up private capital specialists in recent years, whether they operate in racier areas like private debt or less-glamorous infrastructure.
Off the top of Alphaville’s head, just the most recent (ish) deals are — deep breath — Schroders buying Greencoat and Cairn Real Estate; AllianceBernstein buying CarVal Investors; Franklin Templeton buying 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 there are undoubtedly more coming in what looks like a private capital gold rush. Anyway, for afficionados of sellside graphics, here is Goldman’s seven-factor framework for private capital.