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

Goldman Sachs has identified a fundamental structural dysfunction in private markets, framing it as a failure of the "circulatory system"—a metaphor reflecting the sector's inability to efficiently distribute capital and manage investor liquidity expectations. According to Goldman Sachs leadership, including insights from Kristin Olson, Head of Alternatives for Wealth, the private markets complex has become operationally constrained despite years of robust asset growth.

The roots of this dysfunction trace to the era of accommodative monetary policy, which drove institutional and wealth investors toward illiquid private market strategies in pursuit of higher yields. This capital influx accelerated growth in private equity, private credit, and other alternative assets, but created structural misalignments. A persistent challenge facing many sophisticated investors is the implicit assumption of "cash-flow neutral" private markets strategies—the expectation that annual fund distributions will match annual capital commitments. In practice, distribution schedules often diverge significantly from investor redemption timelines, forcing portfolio managers and family offices into suboptimal rebalancing positions.

The private equity and private credit sectors are simultaneously under pressure. Multiple headlines surrounding private credit quality, combined with deteriorating liquidity metrics and slowing exit activity, suggest that the sector masked underlying performance challenges through easy credit and favorable exit multiples during the low-rate environment. Rob Mullane, co-head of private wealth management in EMEA at Goldman Sachs, notes that liquidity creation mechanisms in private markets are "becoming more nuanced," a euphemism for growing complexity and unpredictability in how capital flows back to investors.

Gaurav Mathur's cautionary statement—that "private markets aren't immune from the volatility" affecting public equities—directly challenges the traditional diversification rationale behind large allocations to alternatives. As the S&P 500 dips into bear market territory, institutional investors are discovering that private valuations, credit spreads, and exit opportunities correlate more closely with public market conditions than historically assumed. The "warehouse versus storefront" framework offered by Farallon Capital's Nicolas Giauque suggests opportunities may exist in private markets, but only for investors with sufficient dry powder and conviction—a luxury unavailable to those caught in distribution shortfalls or forced liquidations.