Financial firm leaders who are invested in private markets are more optimistic about investment opportunities than they were a year ago, despite growing concern about a 2024 recession, according to a Goldman Sachs Asset Management survey released today.

In the Goldman Sachs Alternatives Survey, 77% of respondents said they expect a recession in the U.S. within the next two years, with 23% saying it will come in 2023 and 53% during 2024. Nearly half (49%) of the respondents also said interest rates will continue to rise, while 45% said rates will remain flat.

Goldman Sachs surveyed 46 firms with a general partnership structure and 166 firms with a limited partnership structure in June and July and asked about their views of market conditions in general and the alternatives landscape specifically. In a general partnership structure the general partner oversees and runs the business, while limited partners do not partake in managing the business. 

The survey respondents told Goldman Sachs Asset Management that they are most concerned about the risks posed by macro conditions, such as a potential economic recession, geopolitical conflicts, inflation and interest rates, rather than market conditions.

If the country goes into a recession, private market businesses will face more defaults and investors will have to judge their investments with a critical eye, Greg Olafson, president of alternatives at Goldman Sachs Asset Management, said during a press briefing on the survey. Olafson oversees the firm’s private equity, growth equity, private credit, real estate, infrastructure and sustainable investing strategies.

As far as interest rates are concerned, 49% of respondents said they expect higher rates are yet to come, while 45% said rates will stay flat.

For alternative investments, there is talk that many firms are over-allocated to this asset class, but limited partners in particular said they intend to increase allocations to alternatives going forward, the survey said.

One of the most interesting points in the survey revolves around this feeling that there has been an over commitment to alternatives during the last two years, said Suzanne Gauron, managing director in the client solutions group and global head of private equity client solutions at Goldman Sachs Asset Management.

“What we found is that limited partners may be over allocated at the top level asset class, but it is not as frequent as you would expect and it belies the sub-asset class weights that factor into investment decisions. We find that in general, the appetite for alternatives continues to increase even in the face of current headwinds,” she said.

Sustainability issues are being weighed in all asset classes, Michael Brunn, global co-head of private equity at Goldman Sachs Asset Management and a member of firm’s sustainable investing group investment committee, said during the briefing.

“Investments in sustainable businesses and products are no longer a ‘nice to have’ attribute but a ‘need to have’ attribute,” Brunn said. “There is going to be a premium put on sustainable products. Good investments will focus on clean energy and the storage, transport and recycling of sustainable products.”

Sustainability also is becoming increasingly important in private market real estate investments, said Jeffrey Fine, global head of real estate client solutions and a member of the asset and wealth management private real estate investment committee at Goldman Sachs Asset Management.

“Not only do owners want sustainable real estate, but tenants also want buildings that are technologically enabled and sustainably operated,” which creates the favorable investing climate, Fine said.

The press conference participants also addressed the increasing importance of AI in investment decisions.

“General managers in the private equity space will want to get their heads around AI and not lag on this issue,” Olafson said. “What general and limited partners will want to know before they make an investment decision is how AI affects the industries they are investing in.”

Brunn added, “Private market investors should be intensely focused on AI and how it impacts office space needs, and what AI tools tenants may need.”