Private equity's inflection point

Automated, flexible US labor # # --------------------------------------------------------------- The key takeaways today: - A change in the offing for private equity - Weighing the market for obesity drugs - The more automated, flexible US labor market - One country offers a "stronger for longer" growth story - Briefings Brainteaser: What will the 10-year US Treasury yield at the end of 2024? Was this newsletter forwarded to you? [Sign up now](. --------------------------------------------------------------- Private equity's inflection point After a subdued year for dealmaking in 2023, during which private equity M&A volumes dropped to a 10-year low, a change is in the offing, [according to a whitepaper]( from Goldman Sachs Global Banking & Markets. Interest rates are expected to stabilize, reducing the cost of borrowing, and company balance sheets are strong. The volume of “dry powder” – capital raised but not spent – has resulted in pent-up demand. Alternatives dry powder is estimated at $3.9 trillion, with PE and private credit hovering at $1.2 trillion and $443 billion respectively, as of March 28, 2024, according to Preqin. This dry powder is among factors that have begun driving dealmaking, with M&A volumes up 34% in the first quarter, year-on-year. The continued desire by private equity firms to monetize their portfolios and return capital to limited partners (LPs) is generating both urgency and risk appetite. In the US, there is also an eagerness to complete deals ahead of the presidential election. The rebound in M&A activity will likely borrow from some of the nontraditional deal structures and flexible financing solutions seen during the slowdown in 2022 and 2023. Already, in the first quarter of the year, “we saw a series of interesting sponsor M&A transactions including public-to-private, sponsor-to-sponsor, and strategic acquisitions of portfolio companies,” says Rob Pulford, Head of Americas Financial and Strategic Investors Group. Meanwhile, the GS IPO Issuance Barometer, tracked by Goldman Sachs Research and updated monthly, rose to 137 (scaled at 100 as the typical IPO frequency) in March, the highest level since February 2022. The barometer measures how conducive the macro environment is for new IPOs. Although outlier risks remain, baseline macro forecasts suggest IPO momentum will continue. --------------------------------------------------------------- Weighing the GLP-1 market The newest generation of GLP-1 drugs, including Novo Nordisk's Wegovy and Eli Lilly's Zepbound, are being hailed by some as “miracle drugs” for the treatment of obesity. Goldman Sachs Research expects the global GLP-1 market to grow from around $10 billion today to $100 billion in 2030, and perhaps further if more insurers cover the costs of these drugs. But many hurdles may constrain the market for GLP-1s for the time being, according to [Goldman Sachs Research's latest Top of Mind report](. These drugs are expensive, insurance coverage is limited, and not everyone with obesity can or wants to take them. “GLP-1s are definitely a promising tool, but once you start looking at all of the issues, the addressable market dwindles down from the 1 billion people worldwide with obesity,” Dr. Fatima Cody Stanford, an obesity medicine physician and a scientist at Massachusetts General Hospital and Harvard Medical School, [says on Goldman Sachs Exchanges](. In some cases, patients experience little to no weight loss on GLP-1s while others aren't medically able or even willing to take them. One of the biggest obstacles to usage is the lack of insurance coverage by both private insurers and Medicare, which currently doesn't cover GLP-1s solely for obesity, she explains. Providing insurance coverage for GLP-1s to even less than half the US population with obesity, at current prices, would cost the US government a staggering sum — almost as much as the government spends on the entire Medicare program today, says Jonathan Gruber, professor of economics and chair of MIT's economics department. To address this issue, Gruber argues that the US should follow the lead of most other developed countries: regulate drug prices. “Every other country recognizes that and regulates both the price and the use of things like GLP-1s, and we should as well,” he says. While the costs of expanding insurance coverage for GLP-1s may be high, this isn't necessarily an argument against expanding coverage, says Alec Phillips, Goldman Sachs' Chief US Political Economist. Phillips notes that, until 2006, Medicare didn't cover prescription drugs at all, but Congress expanded coverage for the benefit of the senior population. Similar arguments for expanding coverage for GLP-1s exist today. Indeed, Joseph Briggs, Goldman Sachs' Senior Global Economist, finds that the widespread adoption of GLP-1s and the associated improvements in health outcomes could meaningfully boost US economic growth, since a healthier workforce is a more productive one. In case you missed it: Read [our previous article]( about how obesity drugs are expected to boost GDP. --------------------------------------------------------------- The US labor market is automating and becoming more flexible Generative artificial intelligence is poised to automate nearly a quarter of jobs across all industries. The effects of AI will be felt on a workforce that is already “fractionalized,” in which part-time roles supplement or replace full-time ones. [Those two megatrends are feeding into a slowing job market.]( Goldman Sachs Research expects US unemployment to rise and non-farm employment to decline over the next 12 months. The AI factor. At present, around 4% of all US firms have adopted generative AI, but Goldman Sachs Research expects that figure to rise to 7% over the next six months. The rapid clip will be led by some sectors more than others; in information services, for instance, the adoption rate is forecast to rise from 16% to 23% in that half-year period. More temps and part-timers. Companies are finding value in a more flexible workforce, turning to freelancers, gig workers, and temps to supplement or replace their full-time employees. The share of US professionals who freelance increased from 34% in 2014 to 38% in 2023. Meanwhile, temp workers, typically brought on for short-term assignments at a single client, have seen their penetration rise in the US from 1.06% in January 1990 to 1.74% in March 2024. This “fractionalization” of the labor force is likely to continue, Goldman Sachs Research predicts. The unemployment cycle. Since the start of the year, job postings as a percentage of pre-Covid levels declined 18 percentage points in construction, 15 percentage points in manufacturing, and 12 percentage points in retail. The number of job openings declined 11% year-on-year in February 2024, with year-on-year declines appearing since August 2022. On the job platform Indeed, total job posting volumes year-to-date pulled back the most for blue-collar and clerical verticals, including construction, manufacturing, and retail. Volumes in white-collar and highly skilled verticals, including software development, banking, finance, and marketing showed some signs of stability after declining sharply over the past two years. --------------------------------------------------------------- India's economy offers a “stronger-for-longer” growth story Economic reforms, a young population, and maturing public and private capital markets make India's business environment a promising one — but there are also complexities, as [Goldman Sachs Asset Management finds]( in its latest issue of Asset Management Perspectives. - The home advantage. India's largely domestically driven growth provides a cushion against external shocks. In particular, among Asia Pacific economies, India has the least economic linkage to China's end demand (through consumption and investment channels). But external factors such as the strength of the US dollar and geopolitical uncertainty warrant some caution. Spikes in crude prices may have adverse impacts on the rupee, given India's status as a net oil importer, although India's ample currency reserves should allow its central bank to keep the rupee stable. - Capital market momentum. While rich public equity valuations are a concern for some investors, India has historically commanded a premium over other emerging equity markets. “India is home to a diverse mix of large blue chips and small caps, and growing number of domestic retail investors add depth to the market,” writes Hiren Dasani, co-head of Emerging Markets Equity and Lead Portfolio Manager, India Equity Strategy. In bond markets, India's upcoming inclusion in the JPM GBI-EM Global Diversified Index — a flagship local currency bond index widely followed by emerging market investors — is another example of the country's increasing international economic relevance. Relatively high yields, lower volatility, low correlation with other bond markets and a deep local investor base makes Indian bonds somewhat resilient to sudden shifts in global sentiment. - Purchasing power. India's middle-class is expected to account for 80% of the country's population and 75% of consumer spending by 2030. "We expect consumption stories related to millennials — especially in e-commerce, food delivery, and the fintech space — to be a driving force in India's growth," Dasani says. Residential property demand in cities is also expected grow over the next decade, due to talent migration to urban areas. - The hurdles ahead. India also has significant challenges. While relatively lower wages may help support the economics of global corporations' supply chain expansion into India, low pay remains a serious challenge to achieving decent working conditions and inclusive growth. Only one in five Indian women are in the formal workforce, among the lowest rates anywhere. India is also trying to balance growth with its decarbonization goals, given that it still relies heavily on coal, oil, and gas for energy. In case you missed it: Read [our previous article]( about India's affluent class and its projected growth to 100 million people by 2027. --------------------------------------------------------------- Briefings Brainteaser: Security blanket In its Global Insurance Survey, Goldman Sachs asked 359 CIOs and CFOs at insurance companies about their expectations for the 10-year US Treasury yield at the end of 2024. The majority — 43% — opted for what range as the most probable yield? A) 2.75–3.25% B) 3.25–3.75% C) 3.75–4.25% D) 4.25–4.75% [Check the answer here](. --------------------------------------------------------------- Goldman Sachs in the news By clicking on these links, you will redirected to external websites that Goldman Sachs does not own or operate. Goldman Sachs is not responsible for the products, services, or content provided on those sites. Please refer to each external website's terms, privacy and security policies for details. [CNBC]( April 16 Goldman Sachs' Andrew Tilton: China is ‘a tale of two economies' (3:51) --------------------------------------------------------------- --------------------------------------------------------------- Some of the images used in this newsletter are sourced via Getty Images. The opinions and views expressed in this newsletter may not necessarily reflect the institutional views of Goldman Sachs or its affiliates. The information provided in this newsletter is for informational purposes only and does not constitute a recommendation from any Goldman Sachs entity to the recipient. Goldman Sachs is not providing any financial, economic, legal, investment, accounting, or tax advice through this newsletter or to its recipient. Certain information contained in this program constitutes “forward-looking statements,” and there is no guarantee that these results will be achieved. Goldman Sachs has no obligation to provide any updates or changes to the information in this newsletter. Past performance does not guarantee future results, which may vary. Each logo used in this newsletter is the property of the company to which it relates, is used here strictly for informational and identification purposes only, and is not used to imply any sponsorship, affiliation, endorsement, ownership, or license rights between any such company and Goldman Sachs. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this newsletter and any liability therefore (including in respect of direct, indirect, or consequential loss or damage) is expressly disclaimed. The Investment Strategy Group, part of the Asset & Wealth Management business (“AWM”) of GS, focuses on asset allocation strategy formation and market analysis for GS Wealth Management. Any information that references ISG, including their model portfolios, represents the views of ISG, is not financial research and is not a product of GS Global Investment Research and may vary significantly from views expressed by individual portfolio management teams within AWM, or other groups at GS. Past performance is not indicative of future results. ISG projections are based on assumptions and are subject to significant revision and may change materially as economic and market conditions change. To the extent this newsletter includes material from the Goldman Sachs Securities Division, please click [here]( for information relating to Global Markets material and your reliance on it. To the extent this newsletter includes material from Goldman Sachs Asset Management, please click [here]( for additional disclosures. [Click here]( to unsubscribe. © 2024 Goldman Sachs, All rights reserved. 200 West Street, New York, NY 10282, USA --------------------------------------------------------------- [GS.com]( | [Careers Blog]( | [Privacy and Security]( | [Terms of Use]( [Twitter](