Investor Optimism Soars as Private Markets Eye Liquidity Upsurge

Goldman Sachs Asset Management's survey reveals private market investors' optimism about the investment environment, with expectations for increased liquidity across various exit routes. Findings show improved sentiment, particularly in real assets, with strategic sales and IPOs seen as favorable options amidst strong capital markets and lower financing costs.

Private market investors are showing growing optimism regarding the investment environment with expectations of increased liquidity across multiple exit routes, according to a Goldman Sachs Asset Management survey dubbed "Turning the Corner?". The study, involving over 250 General Partners (GPs) and Limited Partners (LPs), indicates steady or improved sentiment across asset classes compared to 2024, with heightened optimism particularly in real assets.

The survey finds that managers anticipate a notable rise in exits, with GPs leaning towards strategic sales and sponsor-to-sponsor deals. Additionally, a greater number of them are now considering initial public offerings in the coming year than in the previous year. Michael Bruun, global co-Head of Private Equity at Goldman Sachs Asset Management, notes, "Valuations remain elevated, but with robust capital markets and lower financing costs, the conditions for dealmaking appear more favorable." The use of continuation vehicles is reportedly on the rise, and LPs are reportedly becoming more active sellers in secondary markets to manage liquidity and rebalance portfolios.

Despite under-allocations in several strategies such as infrastructure, private credit, and private equity, LPs are reportedly expanding and diversifying their programs. James Reynolds, Global Co-Head of Private Credit, emphasizes the ongoing importance of private credit as a financing source while noting that returns are contingent upon origination depth, experience, and scale. The survey highlights optimism for infrastructure and real estate investments, describing infrastructure as benefitting from "strong structural tailwinds" and having a long record of resilience and inflation protection.

Real estate opportunities are reportedly increasing as valuations and transactions stabilize. Meanwhile, investors are maintaining a focus on co-investments and secondaries, which remain the largest under-allocated areas among LPs. Despite slower distributions, LPs plan to maintain or increase deployment by 2025. Harold Hope, Global Head of Vintage Strategies, notes that secondaries offer diversified exposure with shorter duration and potential mitigation of the J-curve, providing liquidity to both GPs and LPs when exits are slower than historical averages.

Furthermore, the respondents are monitoring long-term changes, such as a growing institutional interest in evergreen structures across asset classes and the influence of artificial intelligence as a significant industry catalyst. Geopolitical conflicts are ranked as the highest risk for the second consecutive year, though concerns about recessions and borrowing costs ease amidst expected cuts in major markets, as per the survey findings.

(With inputs from agencies.)