‘The circulatory system isn’t working.’ Goldman on what’s really wrong with private markets

Private markets are showing clear strain: buyout holding periods have stretched to nearly 7 years from 5.5 years a decade ago, venture-backed companies now take 14 years to go public, and private credit default rates have risen to 7.0% in Fitch’s latest U.S. measure. Goldman Sachs argues the system is “gummed up” rather than broken, pointing to a likely normalization in secondary markets and IPO activity over the next 1-3 years. The near-term implications are slower fundraising, more consolidation, and ongoing liquidity pressure across private equity, venture, and private credit.

Analysis

The near-term winner is not private equity itself but the plumbing around it. If exit capacity stays constrained, secondary buyers, continuation vehicles, fund finance, and restructuring advisers should capture fee pool expansion while traditional buyout GPs face longer J-curves, weaker fundraising, and more GP-led pressure to mark assets down. That dynamic also favors the largest multi-product platforms with captive distribution and capital solutions businesses, because LPs will increasingly pay for balance-sheet liquidity rather than for top-quartile sticker returns.

The first-order loser is any levered software-heavy sponsor exposure that underwrote 2021-22 at peak multiples and now depends on refinancing windows that may stay narrow for several quarters. The second-order loser is public small/mid-cap IPO-adjacent ecosystem names: underwriter fees, exchange listings, and pre-IPO service providers can all be delayed if exits remain gated, even if eventual backlog eventually clears. In other words, “normalization” helps later, but the path runs through more restructuring and more secondary transfers first.

Goldman’s framing is subtly bullish for capital-markets revenues but not necessarily for realized carry. The market seems to be underappreciating how long the lag can persist when both sellers and buyers anchor to stale marks; the re-rating of private assets often happens through extensions, amendments, and structured solutions rather than clean sales. That means the pain can last longer than headline default rates suggest, while reported loss rates remain deceptively tame until maturity walls force recognition.

The contrarian takeaway is that the consensus may be too dismissive of the retail liquidity issue and too optimistic on IPO reopening. If rates stay elevated and public comps remain strong, sponsors may prefer to wait rather than clear deals at lower prices, which pushes the release valve further out. The better trade is to own the intermediaries that monetize complexity, not the asset class that needs normalization to realize value.

Key Decisions for Investors

• Long GS vs short a basket of pure-play alt managers with higher redemption/fundraising sensitivity for 3-6 months; the thesis is that platform breadth and capital-solutions exposure monetize the dislocation faster than single-line fee engines.
• Buy secondary-market and restructuring beneficiaries on weakness: GS (incremental credit/solutions revenue), and if accessible via public comps, focus on advisory-heavy banks over sponsor-dependent underwriters for the next 2 quarters.
• Short the most levered private-credit/BDC exposures with heavy software and sponsor concentration into any rally; use a 6-12 month horizon because defaults and amendments should keep creeping higher before they become fully visible in reported NAVs.
• Pair trade: long AMZN / short IPO-sensitive software or pre-revenue growth proxies for 6-18 months; the market is overestimating how quickly private innovation needs public markets, which delays the re-rating of unprofitable new listings.
• For event-driven accounts, accumulate exposure to restructuring/fees-on-fees via option structures on GS into any liquidity scare headline: the risk/reward favors upside optionality because stress increases solution demand even if headline default rates stay contained.