A 'Seismic' Shift in Private Markets

[Goldman Sachs]( [BRIEFINGS] June 9, 2022 A ‘Seismic’ Shift in Private Markets Private financial markets have grown sharply in recent years as easy monetary policies drove investors towards illiquid markets offering higher yields. But private markets are also facing fresh challenges with rising interest rates and greater regulatory scrutiny, explains Mike Koester, co-president of the Alternatives business in Goldman Sachs’ Asset Management Division, on the latest episode of [Exchanges at Goldman Sachs](. Private assets, like public assets, are affected by cyclical headwinds and the equity sell-off. “This pace of investment, I think, is going to slow down, which will slow the fundraising,” Koester tells host Allison Nathan of Goldman Sachs Research. “So we're going to go from frenetic to a fast pace — faster than, let's call it, average. But I do believe the fundraising pace is going to slow during the course of this year and into next year.” A changing investor base. Individual investors are becoming a larger part of the investor base due to the democratization of alternatives, says Koester. “What we see from some of the very large public alternative investors out there is that they’re expecting to raise 20% to 30% of their next round of funds from the individual investor,” he says. “That is a huge change from the 5% to 8%” that it had been historically. Despite the headwinds, private equity is healthier today. “Financial engineering was a very important feature of the first few decades of the private markets, and in particular private equity,” Koester says. “That recipe no longer works…So what you really have to do now is you have to work hard for your money. You actually have to make what you buy better.” Subscribe wherever you get your podcasts [Spotify]( | [Apple]( | [Google]( | [Stitcher]( [Listen to podcast]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=A%20%E2%80%98Seismic%E2%80%99%20Shift%20in%20Private%20Markets&body=https%3A%2F%2Fyoutu.be%2FLgNHdkrM73E) The ECB Is Ready for Liftoff The European Central Bank is preparing for a series of rate hikes: President Christine Lagarde highlighted on Thursday that the economy is geared to continue growing, but the Governing Council also stressed that inflation is running too hot. As a result, the ECB will end asset purchases on July 1 and hike the policy rate by 25 basis points that month. Economists at Goldman Sachs now forecast hikes of 50 basis points in September (compared with an earlier forecast of 25 basis points) and in October, followed by a slowdown in the pace of increases to 25 basis points in December. Goldman Sachs Research expects the ECB to reach a terminal rate of 1.75% in June 2023. The Narrow Path to a Soft Landing The U.S. still has a shot at a soft landing, according to Goldman Sachs Chief Economist Jan Hatzius. As the Federal Reserve taps the brakes by [tightening monetary policy]( there are signs that the [overheated labor market]( is cooling: The increase in average hourly earnings last month was benign, and the Job Openings and Labor Turnover Survey (JOLTS) shows openings fell sharply in April. The decline in openings likely continued in May, private-sector measures show. Moreover, the rise in prices is also showing signs of slowing. Inflation has eased in recent months, according to statistical measures of personal consumption, and broad measures of supply-chain functioning have improved. Financial conditions have also tightened. Avoiding a downturn is far from certain — Goldman Sachs Research still estimates there’s a 35% risk of a U.S. recession in the next two years. But taken together, the data suggest that pressures on wages and prices may ease enough that the Fed can avoid clamping down so tightly on policy that the economy goes into reverse. [Read article]( [Read report]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=The%20Narrow%20Path%20to%20a%20Soft%20Landing&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Fseries%2Farticles%2Findex.html) The War in Ukraine Stokes Global Food Inflation Russia’s invasion of Ukraine has heightened the uncertainty over food supply, a global market that was already feeling the effects of COVID-19 and the ongoing impact of climate change. At this year’s World Economic Forum, the head of the World Trade Organization Ngozi Okonjo-Iweala warned that a food crisis could last two years unless safe corridors are created to move Ukrainian food stocks. We sat down with Yulia Zhestkova, who has analyzed global food inflation for Goldman Sachs Research, to look at the regions most affected by surging food prices and the increasing cost of agricultural commodities and products. Zhestkova notes that key drivers of food inflation — including unfavorable weather conditions, higher input costs and pandemic-driven disruption — were already in place before Russia’s invasion of Ukraine in February 2022. Zhestkova says that the shocks are concerning for emerging markets, which are more susceptible to threats on food security. In these markets, a high proportion of consumer income is spent on food, so even a marginal increase in food inflation might hit households particularly hard. “Food inflation is definitely being felt in a lot of countries in the CEEMEA (Central and Eastern Europe, Middle East and Africa) region, like Turkey, but also in eastern Europe, in nations including Romania, Poland and Hungary. All of them are enduring meaningful surprises to the upside,” Zhestkova explains. “We have also seen a significant surge in prices in the big LATAM countries, like Brazil, Argentina and Mexico.” [Read the full article]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=The%20War%20in%20Ukraine%20Stokes%20Global%20Food%20Inflation&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Fpages%2Fthe-war-in-ukraine-stokes-global-food-inflation.html) Small Businesses in the UK are running on empty, 10KSB survey shows As U.K. entrepreneurs recover from pandemic-related headwinds, they are now facing an ever-growing list of new economic challenges. To understand these obstacles for growth, Goldman Sachs surveyed a diverse group of small-business owners across the U.K. on the challenges they’re facing and their outlook for the year ahead. Key findings include: Economic headwinds. 47% of entrepreneurs believe the economic outlook is worse for small businesses than at the height of the COVID-19 pandemic in 2021. Rising cost of doing business. With U.K. inflation reaching a 40-year high, small businesses are feeling the squeeze, with 78% of small-business owners reporting that they have been hurt by inflation since the start of the year. The great resignation. 54% of small businesses have been negatively impacted by staff shortages since the start of the year. Support for small businesses. When asked what support they most need from the government over the next 12 months, the three key things small-business leaders identified were capping energy prices, acting to curb inflation and increasing support for innovation, such as expanding R&D tax credits. [View the infographic]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Small%20Businesses%20in%20the%20UK%20are%20running%20on%20empty%2C%2010KSB%20survey%20shows&body=www.gs.com) BRIEFINGS Brainteaser: Rise of the Machines Much has changed since the first video game console converted a television into an interactive machine in 1972. These days gaming is [estimated]( to be a $200 billion industry with more than 3 billion gamers around the world and more than half of them in Asia. For this week’s BRIEFINGS brainteaser, do you know which company made the first commercial home console? A) Sony B) Commodore C) Atari D) Magnavox [Check answer here](. [Take Quiz]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=BRIEFINGS%20Brainteaser%3A%20The%20Original%20Gaming%20Console&body=https%3A%2F%2Fonegs.iad1.qualtrics.com%2Fjfe%2Fpreview%2FSV_eKE1ZVhKkYm8W6G%3FQ_CHL%3Dpreview%26Q_SurveyVersionID%3Dcurrent) Goldman Sachs Media Highlights CNBC - June 3 [A pause in rate hikes is very unlikely, says Goldman’s Hatzius]( (2:10) CNBC - June 3 [We are faced with structural shortages in oil, says Goldman Sachs’ Damien Courvalin]( (3:35) Bloomberg - June 2 [Goldman Sachs says yen is safest currency in current market volatility]( (7:10) USA Today - June 1 [Going beyond a rainbow flag at your desk: Here's the business impact of LGBTQ inclusion in the workplace]( [Subscribe]( [Unsubscribe]( The data provided in this newsletter is for information purposes only and should not be construed as investment or tax advice nor as a recommendation to buy, sell, or hold any particular security. 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