Private Markets Face Valuation Reckoning as Exit Window Opens | GSAM Outlook

What's New

Goldman Sachs Asset Management's Investment Outlook 2026 reveals that private market valuations have reached record highs across buyout holdings and exits, yet the data masks significant underlying dispersion. While median multiples suggest elevated pricing, recent transaction activity has been skewed toward higher-quality companies commanding premiums. The firm indicates that approximately one-quarter of general partners are now willing to accept 11-20% discounts to exit long-held assets, signaling a pragmatic shift as the exit environment gradually improves after years of stagnation.

Why It Matters

This outlook marks a critical inflection point for allocators and fund managers navigating the post-2021 vintage landscape. With equity beta expected to decline across both public and private markets relative to the prior cycle, manager alpha becomes the essential differentiator in portfolio construction. The improving exit environment will finally expose dispersion in track records, giving limited partners concrete data to evaluate relationships—separating operational excellence from market timing luck and creating clear winners and losers among private equity sponsors.

Big Picture Drivers

• Return requirements: Private equity now requires 10-15% annualized EBITDA growth to achieve historical returns, above long-term averages, as multiple expansion potential diminishes.

• Vintage vulnerability: The 2021-early 2022 cohort faces the greatest headwinds, having been underwritten at peak valuations with fundamentals that may require extended hold periods or reduced return targets.

• Credit pressure points: Approximately 15% of private credit borrowers cannot cover interest payments with operating profits, while another 25-30% face elevated but managed stress that may surface at loan maturity.

• Real estate rebound: Stabilizing cap rates, positive rent growth, and declining construction starts position commercial real estate for recovery after three years of muted activity.

• Infrastructure demand: Energy transition requirements exceed $12 trillion by 2030, with middle-market infrastructure offering more attractive valuations than the large-cap digital space.

By The Numbers

• $850B+ in commercial real estate debt due for refinancing by year-end 2026

• 43% year-over-year increase in M&A deal volumes, driven by larger transactions

• 65% historical recovery rate in private credit defaults, implying mid-single-digit ultimate losses

• 11.7x median EV/EBITDA for digital infrastructure assets versus 10.2x for broader infrastructure

• 40 years average age of US power grid assets, creating structural mismatch with AI-era demands

Key Trends to Watch

• Exit dispersion accelerates: The 2018-2020 vintage dominates current exit activity, while pre-2015 holdings still on books likely represent lower-quality assets that missed favorable selling windows.

• Private credit segments expand: Direct lending in Asia, real estate credit, private asset-backed finance, and credit secondaries represent under-accessed markets with meaningful growth potential.

• AI reshapes infrastructure: Data center power demand could represent 90% of EU28 electricity consumption at full potential, driving investment in distributed generation and grid resiliency.

• Flight to quality intensifies: Prime real estate assets with modern amenities and energy efficiency continue bifurcating from commodity properties across rent growth, occupancy, and liquidity metrics.

The Wrap

The 2026 outlook crystallizes a new operating reality for private markets: elevated valuations demand operational excellence rather than financial engineering, and manager selection has never mattered more. Allocators should scrutinize vintage exposure, particularly 2021-era commitments, while recognizing that disciplined capital deployment into higher-growth sectors, middle-market infrastructure, and under-penetrated credit segments offers the clearest path to differentiated returns in a beta-compressed environment.