Goldman Sachs: Improved Liquidity Could Drive a Rebound in Private Equity Returns
Miles Bennett
Goldman Sachs expects PE fund distribution rates to recover from 8%-10% to 15%-20%, arguing the exit cycle frozen since 2022's rate hikes is approaching a turning point, with deal activity set to exceed pre-2021 peaks within three years.
What jammed private equity's "circulatory system"?
Since rates rose in 2022, exit channels narrowed. Average holding periods stretched from roughly 5.5 years to nearly 7 years, and distributions as a share of NAV fell in lockstep.
In plain terms = funds can't return cash to investors, so investors won't commit to the next fund — the entire capital cycle stalls.
Goldman's Michael Brandmeyer, global head of external investing, summed it up: "The circulatory system broke down, making fundraising increasingly difficult."
How far can distribution rates recover?
Goldman expects fund distribution rates to climb from today's 8%-10% back to 15%-20%, with deal activity exceeding pre-2021 peaks within three years.
This means → only when exits resume and investors receive cash again can they re-subscribe to new funds, restarting the industry's capital loop.
But Pete Lyon, Goldman's co-head of capital solutions, stressed the rebound won't arrive as a "tsunami" — it will come at a steadier, more measured pace.
Beyond IPOs — what new exit channels are opening?
Beyond traditional IPOs and M&A, PE firms are tapping NAV lending, GP-led cash-flow financing, secondary-market transfers, and structured transactions to widen liquidity paths.
The secondary market — where investors trade existing fund stakes among themselves — hit roughly $250 billion in volume last year. Brandmeyer expects it to reach $500 billion within five years.
This reflects an industry no longer dependent on public listings alone, actively building diversified liquidity infrastructure.
Three years of underperformance vs. public markets — does the PE thesis still hold?
Strong public-market rallies have pushed PE's excess return over public equities into negative territory for the past three years.
Brandmeyer pointed to a historical pattern: when public markets gain more than 10%, PE typically struggles to outperform — but during public-market downturns, PE's relative performance tends to be significantly stronger.
This means → today's relative weakness does not invalidate PE's long-term case. The key test is whether distribution rates actually recover to the 15%-20% target range.
Content is for reference only, not financial advice.