Episode summary
Private Markets at an Inflection Point
Exchanges (Goldman Sachs)
· · 26 min · Guests: Pete Lyon, Michael Brandmeyer
Summary
Private markets are described as being at an inflection point after the sharp reset in rates that began in 2022. Michael Brandmeyer says private markets grew massively from 2010 to 2022, then stalled as higher rates, slower marks, and longer holding periods squeezed distributions and fundraising. Pete Lyon adds that the industry is working through an “indigestion period,” with exits slower, but he expects holding periods to normalize around six or seven years and distributions to recover to 15% to 20% of in-the-ground NAV over time.
Both guests argue that private credit remains resilient despite negative headlines. Lyon says defaults are still near or below 2% in many categories, far from the double-digit stress seen in past cycles, and that even severe underperformance would still imply losses much smaller than peak-to-trough equity declines. Brandmeyer says the recent concern has been more about liquidity mismatches and education around fund structures than a systemic credit problem.
Looking ahead, they see three growth areas: innovation companies staying private longer, the secondary market expanding from about $250 billion last year toward a possible $500 billion, and broader retail access to alternatives. They remain cautious on timing, but both think a more normal deal and distribution environment could return within two to three years, potentially even surpassing 2021 activity if macro conditions improve.
Key takeaways
- Michael Brandmeyer says private markets stalled after the Fed’s roughly 500 basis-point rate increase, which pushed up leverage costs and slowed distributions.
- Pete Lyon expects distributions to normalize to 15% to 20% of in-the-ground NAV, but says the recovery will take time.
- Lyon says private credit is still resilient, with default rates around 2% or below in many subcategories, well under historical crisis levels.
- Brandmeyer estimates the secondary market could grow from about $250 billion last year to as much as $500 billion in three to five years.
- Both guests say the market could see distribution and deal activity above 2021 levels within two to three years if confidence returns.
Notable quotes
“we're in the middle of a market structure change”
“the system is gummed up. The circulatory system is not working”
“we think those will return to normalized levels of 15 to 20 percent”
“private credit holistically is a very solid asset class”
“within two to three years, you could be seeing distribution environments and deal activities that are even above what you saw in 2021”
How the episode opens
I think we're in the middle of a market structure change. Just like we had in public equity domain where we 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 & Markets business. And Michael Brandmeyer, global head and CIO of the External Investing Group within Goldman Sachs Asset Management We'll explore today's opportunities, how private capital is evolving, and the risks coming into focus. Pete, Mike, welcome to Exchanges.
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 the single biggest shift in the landscape over the past 12 to 18 months? Mike, maybe you can start us off?
Sure. We are at a big inflection point right now. And there is 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.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- private markets
- interest rates
- private equity
- private credit
- ai innovation
Companies and tickers mentioned
- GS
- Goldman Sachs
Watch the episode
Watch “Private Markets at an Inflection Point” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Exchanges (Goldman Sachs), this episode and its artwork belong to Goldman Sachs. Octagon is not affiliated with the show; this page is an independent summary.
