Key Takeaways
- • Goldman Sachs projects private equity recovery in 2026 driven by declining debt costs, reduced market volatility, and an improving IPO environment following years of constrained exit liquidity.
- • Private credit fundamentals remain resilient despite retail investor withdrawals and media scrutiny; defaults and overdue loans remain at historically low levels with borrowers demonstrating double-digit EBITDA and revenue growth and improving interest coverage ratios.
- • Retail investor outflows from private credit are creating a technical repricing opportunity, with spreads widening relative to risk-free rates as individual investors exit vehicles like BDCs and evergreen structures that previously benefited from illiquidity premium demand.
- • The private markets recovery faces headwinds from balance sheet pressures and lower-quality deal inventory expected to weigh on valuations in late 2025 and into 2026, according to market observers tracking M&A and exit dynamics.
- • Goldman Sachs identifies 2026 as a potential inflection point for private markets, with more favorable financing conditions supporting increased M&A activity and a gradual reopening of capital markets access.
Summary
Goldman Sachs forecasts a recovery in private equity during 2026, underpinned by structural improvements in borrowing costs and market sentiment. According to the firm's outlook, falling debt costs, declining volatility, and a gradually reopening IPO market create conditions for what could mark the beginning of a more durable recovery cycle. Michael Brandmeyer, Goldman Sachs' lead strategist on private equity, expressed optimism about the sector's trajectory, positioning 2026 as a potential inflection point for private markets after years of muted exit activity and constrained liquidity.
The foundation for recovery rests partly on stabilizing credit conditions. Vivek Bantwal, global co-head of private credit at Goldman Sachs Asset Management, emphasized that private credit fundamentals remain fundamentally sound despite recent media attention and investor concerns. Data shows defaults and overdue loans in both public and private credit markets remain at relatively low levels. Borrowers in private credit portfolios are demonstrating double-digit growth in both revenue and EBITDA, with improving interest coverage ratios and expanding margins—metrics suggesting underlying credit quality has not deteriorated despite heightened scrutiny.
Recent volatility in private credit markets has been driven partly by technical factors rather than fundamental deterioration. Retail investor withdrawals, prompted by reports of potential risks in the sector, have created repricing opportunities. Since private credit expanded rapidly through retail-focused vehicles such as business development companies and evergreen drawdown funds, the exit of retail capital is widening yield spreads relative to risk-free rates. This technical adjustment, Bantwal notes, reflects the reversal of narrowed spreads that occurred during the period of strong retail inflows seeking illiquidity premiums relative to public fixed-income alternatives.
Private credit is expected to attract renewed financing demand in a more favorable M&A environment. Goldman Sachs' analysis suggests that attractive yields in private credit, combined with improving merger and acquisition conditions, should stimulate greater institutional financing activity. However, market observers caution that valuations may face pressure through late 2025 and into 2026 as balance sheets come under stress and lower-quality deal inventory comes to market, creating a bifurcated environment where high-quality assets benefit from recovery dynamics while weaker credits face headwinds.
The foundation for recovery rests partly on stabilizing credit conditions. Vivek Bantwal, global co-head of private credit at Goldman Sachs Asset Management, emphasized that private credit fundamentals remain fundamentally sound despite recent media attention and investor concerns. Data shows defaults and overdue loans in both public and private credit markets remain at relatively low levels. Borrowers in private credit portfolios are demonstrating double-digit growth in both revenue and EBITDA, with improving interest coverage ratios and expanding margins—metrics suggesting underlying credit quality has not deteriorated despite heightened scrutiny.
Recent volatility in private credit markets has been driven partly by technical factors rather than fundamental deterioration. Retail investor withdrawals, prompted by reports of potential risks in the sector, have created repricing opportunities. Since private credit expanded rapidly through retail-focused vehicles such as business development companies and evergreen drawdown funds, the exit of retail capital is widening yield spreads relative to risk-free rates. This technical adjustment, Bantwal notes, reflects the reversal of narrowed spreads that occurred during the period of strong retail inflows seeking illiquidity premiums relative to public fixed-income alternatives.
Private credit is expected to attract renewed financing demand in a more favorable M&A environment. Goldman Sachs' analysis suggests that attractive yields in private credit, combined with improving merger and acquisition conditions, should stimulate greater institutional financing activity. However, market observers caution that valuations may face pressure through late 2025 and into 2026 as balance sheets come under stress and lower-quality deal inventory comes to market, creating a bifurcated environment where high-quality assets benefit from recovery dynamics while weaker credits face headwinds.
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