Goldman Sachs has issued a stark warning that private markets’ circulatory system is fundamentally broken. We examine the liquidity crisis, exit pathway failures, and what the SpaceX IPO reopening means for the $13 trillion private capital ecosystem.

Key Takeaways

• Goldman Sachs published analysis arguing that the fundamental liquidity mechanism of private markets is broken
• U.S. IPO proceeds in 2025 totalled just $45 billion — the lowest level in years — creating a vast backlog of PE and VC-backed companies unable to exit
• The SpaceX IPO and the anticipated Anthropic and OpenAI listings are the most significant potential circuit-breakers for this logjam
• Secondary market transaction volumes have surged as primary exits remained closed, but at steep discounts
• The longer the exit drought, the greater the mark-to-market pressure on institutional LP portfolios holding illiquid private stakes

The Metaphor That Captured a Crisis

When Goldman Sachs analysts chose the words “the circulatory system is not working” to describe the state of private markets, they were not being hyperbolic. They were reaching for the most accurate description of a system in which the flow of capital — from institutional investors into private funds, through portfolio companies, and back out via exits — has become severely impaired at the exit stage, creating a dangerous accumulation of illiquid, aging positions across the global private equity and venture capital ecosystem (Fortune, June 2026).

The metaphor is apt. In a healthy private market cycle, liquidity flows in a circuit: endowments, pension funds, and sovereign wealth funds commit capital to PE and VC funds; those funds invest in private companies; the companies grow and exit via IPO or M&A; the proceeds are returned to investors; and those investors recommit to the next vintage. The system requires every stage of that circuit to function. In 2024 and 2025, the exit stage effectively seized, and the consequences are now propagating backward through the entire system.

How the Exit Drought Developed

The proximate cause of the private markets liquidity crisis was the repricing of risk assets in 2022–2023. Rising interest rates compressed valuation multiples across both public and private markets, making it impossible for PE sponsors to exit portfolio companies at prices that would justify their entry multiples — particularly for companies acquired at the peak of the 2021 bubble at 20x+ EBITDA.

IPO markets, which are the primary exit route for the most ambitious private companies, were effectively closed to all but the most exceptional candidates for much of 2023–2025. Total U.S. IPO proceeds in 2025 were approximately $45 billion — a fraction of the $156 billion record set in 2021, and insufficient to absorb the backlog of private companies that were IPO-ready but unable to clear the valuation gap between what sponsors needed to achieve and what public markets were willing to pay (IndMoney, June 2026).

The M&A market offered partial relief, but strategic acquirers — facing their own higher cost of capital — became significantly more selective, and the private equity secondary buyout market (where one PE fund sells to another) generated returns that satisfied neither sellers nor buyers at the prevailing price expectations.

The Scale of the Problem

The numbers behind Goldman’s warning are sobering. Global private equity dry powder — committed but undeployed capital — stood at approximately $3.9 trillion entering 2026, according to industry data. Simultaneously, the number of portfolio companies held by PE sponsors for more than five years — the normal outer limit of a holding period — was at a multi-decade high. Institutional LPs (limited partners) were sitting on portfolios of aging, illiquid positions while being asked to recommit to new vintages — a capital recycling problem that is straining the balance sheets of endowments, pension funds, and sovereign wealth vehicles globally.

For pension funds with defined benefit obligations, the illiquidity is more than an accounting inconvenience. It is a genuine solvency risk management issue. A pension fund that needs to make payments to beneficiaries cannot wait indefinitely for a portfolio company to achieve an acceptable exit valuation. At some point, secondary sales at steep discounts become the only option — crystallising losses that were previously carried at marks that bore little relationship to achievable transaction values.

The secondary market for private equity stakes has expanded dramatically in response, with firms like Lexington Partners, Ardian, and Blackstone’s secondary arm absorbing large volumes of portfolio sales from LPs desperate for liquidity. But secondary transactions typically price at 70–90% of net asset value in strong markets and as low as 60% in distressed conditions — representing a significant wealth transfer from sellers to buyers that does not occur when primary exit markets function normally.

The IPO Window Reopening: SpaceX as Circuit-Breaker

The most significant development for private markets in 2026 is the reopening of the large-cap IPO window. SpaceX’s successful $85.7 billion listing — and the impending Anthropic and OpenAI offerings — represents what private market practitioners have been waiting for: proof that institutional investors will allocate capital to new public offerings at scale, that valuation gaps between private marks and public prices can be bridged, and that the technical infrastructure for large, complex listings remains functional (IndMoney).

Goldman Sachs projects that total 2026 U.S. IPO proceeds could reach $160 billion — a more than three-fold increase over 2025 and potentially a record year (IndMoney). If that projection is realised, it would begin to clear the backlog of PE and VC-backed companies that have been waiting for a viable exit window.

The circular irony is not lost on market observers. The very mega-IPOs that Goldman is pointing to as evidence of market reopening — SpaceX, Anthropic, OpenAI — will themselves absorb a substantial portion of the available institutional capital, potentially crowding out the medium-sized IPOs that represent the bulk of the private equity backlog. A market that is simultaneously opening and saturated is one that will be highly selective about which companies actually clear. The best-positioned companies — those with real revenue, clear competitive moats, and credible paths to profitability — will find the window open. The rest may wait another cycle.

What “Not Working” Actually Means

Goldman’s “circulatory system” framing is useful precisely because it avoids attributing the dysfunction to any single cause. The private markets liquidity problem is not a valuation problem alone, not an interest rate problem alone, and not an IPO market problem alone. It is a systemic problem: all three variables moved adversely at the same time and reinforced each other.

High interest rates compressed public market multiples, widening the valuation gap that prevented private-to-public transitions. The resulting IPO drought prevented PE funds from returning capital to LPs. LPs, not receiving distributions, slowed new commitments to PE funds. PE funds, facing slower fundraising and portfolio companies unable to exit, reduced new investment activity. And the private companies at the end of the pipeline — many of which had been valued at 2021 peak multiples and needed a high-valuation exit to validate those marks — were left stranded.

The structural repair requires multiple elements to improve simultaneously: interest rates moderate enough to support growth multiples (partially happening), IPO market appetite for large new listings (underway with SpaceX), and institutional LP patience with a longer-than-expected J-curve on 2020–2022 vintage funds (running out in several cases).

The Opportunity in the Dysfunction

Goldman’s warning is also, implicitly, a market signal. When the firm’s analysts publish research saying the system is broken, they are typically also positioning to profit from the repair. The firms and strategies that benefit from private market normalisation include secondaries funds (buying distressed LP stakes), crossover funds (straddling private and public markets to manage the IPO transition), and the bulge-bracket banks themselves — whose IPO fees, M&A advisory revenues, and leveraged finance businesses all improve materially when exit markets reopen.

For sophisticated investors, the private markets dislocation of 2024–2025 created a rare opportunity to acquire high-quality assets at prices that reflected the exit drought rather than the underlying business quality. The 2023–2025 secondary vintage may prove, in retrospect, to have been among the best entry points in the asset class’s history — if the circulatory system, as Goldman expects, begins to flow again.

U.S. inflation hit 4.2% in May 2026 — its highest since April 2023 — driven by an oil price surge linked to the U.S.-Iran conflict and the Strait of Hormuz closure. Here’s what it means for households, the Fed, and economic growth.

Key Takeaways

• U.S. CPI rose 4.2% year-on-year in May 2026, the highest reading since April 2023
• Core CPI (ex-food and energy) is more contained at 2.9%, limiting but not eliminating the Fed’s concern
• WTI crude rose from ~$57/barrel in January to a peak of $113 in April — nearly doubling in three months
• The Federal Reserve has revised its 2026 PCE inflation forecast up sharply, from 2.7% to 3.6%
• The risk of second-round inflationary effects — where energy costs embed into the broader price level — is Citigroup’s primary concern

From Recovery to Renewed Pressure

Entering 2026, the U.S. economic outlook appeared broadly constructive. Inflation had trended down from post-pandemic peaks; the Federal Reserve had delivered three successive quarter-point rate cuts in the final months of 2025; the labour market, while cooling, remained healthy; and consumer spending was proving more resilient than many forecasters expected.

Then, in late February 2026, the United States and Israel launched military operations against Iran, and the macroeconomic calculus changed almost overnight.

The Consumer Price Index rose 4.2% year-on-year in May 2026 — the highest annual reading since April 2023, and a dramatic reversal of the disinflationary trajectory that had defined 2024 and most of 2025 (CBS News, June 2026). The Federal Reserve revised its headline PCE inflation forecast for 2026 up from 2.7% to 3.6% at the June FOMC meeting — a 90-basis-point upward revision in a single quarter, the most aggressive single-meeting inflation reassessment in years (Fox Business, June 17, 2026).

The Oil Price Channel: From $57 to $113

The transmission mechanism is straightforward. Iran’s declaration that the Strait of Hormuz was “closed” on March 4, 2026 — through which approximately 27% of globally traded crude flows — created an immediate and severe supply shock. West Texas Intermediate crude futures rose from approximately $57 per barrel at the start of the year to a peak of $113 in April (U.S. Bank Asset Management, June 2026).

At the pump, the consequences were immediate. U.S. gasoline prices track crude oil prices closely, with a lag of several weeks. By the time WTI peaked in April, American consumers were paying materially more to fill their tanks, heat their homes, and power their businesses. Energy is both a direct component of the CPI and an indirect input cost for virtually every sector of the economy — transportation, manufacturing, agriculture, and retail alike.

The energy shock was the primary driver behind the May CPI reading. Core inflation — which strips out volatile food and energy prices and is the Fed’s preferred gauge of underlying price dynamics — came in at a more contained 2.9% (NPR, June 17, 2026). That 130-basis-point gap between headline and core is the central interpretive challenge facing policymakers: it suggests the inflation is mostly a supply shock rather than a demand-driven phenomenon — but that is cold comfort when households are paying 4.2% more for their consumption basket than they were a year ago.

The Second-Round Effect: The Slow Spread

The more dangerous scenario, from a monetary policy perspective, is not the initial energy price spike — it is what economists call second-round effects. These occur when energy cost increases flow into the prices of non-energy goods and services through transportation costs, higher manufacturing input costs, and wage demands that workers make in response to a higher cost of living.

Citigroup flagged this risk in a late-May research note, warning that the prolonged run-up in crude prices was already beginning to spill into broader inflation pressures, with second-round effects becoming visible in sectors where energy costs are a significant input — logistics, food processing, and industrial manufacturing in particular (CNBC, May 28, 2026). Once second-round effects are embedded in the wage-price dynamic, the supply-shock origin becomes irrelevant: the inflation is self-sustaining regardless of what happens to oil.

This mechanism is why the Federal Reserve — which under normal doctrine would look through a supply-driven energy shock — has moved to a hawkish posture despite the conflict being the source of price pressure. Nine of 18 FOMC members now project a rate hike before year-end 2026 (Fox Business). The committee has explicitly raised its inflation outlook and removed its easing-biased forward guidance. That is not the behaviour of a central bank confident it can look through an energy spike.

Labour Market Complexity

What makes this inflation episode particularly difficult to manage is the backdrop of a surprisingly resilient labour market. U.S. employers added an average of 188,000 jobs per month over the three months to May, and the unemployment rate has held steady at 4.3% for a full year — a remarkably stable number given the geopolitical disruption (CNBC, June 17, 2026).

In a conventional supply-shock inflation scenario, one would expect the real income compression caused by higher energy prices to dampen consumer spending and slow growth — effectively doing the Fed’s tightening work for it. That has not clearly happened yet. Consumer spending has remained resilient, supported by a tight labour market, lower income and corporate taxes enacted earlier in the Trump administration, and fiscal tailwinds from government spending programmes.

The combination of elevated inflation and a still-strong labour market is, in monetary policy terms, the worst of all worlds for a central bank trying to justify patience. It removes the “growth is already slowing” argument that would otherwise support a hold-and-wait posture. The hawks within the FOMC have a clean case: prices are too high, jobs are plenty, and there is no compelling reason to leave rates where they are.

How American Households Are Feeling It

Behind the statistics is a lived economic reality for American households. Inflation has now been running above the Fed’s 2% target for five consecutive years (Fox Business). The compounding effect of sustained above-target inflation on real purchasing power is substantial: a household that was earning $75,000 in 2021 needs approximately $89,000 in 2026 to maintain the same standard of living, even before accounting for the latest energy-driven spike.

The political consequences are significant. Inflation is historically the most potent economic grievance among voters. An inflation reading of 4.2% — after a period when the public narrative had shifted to “inflation is under control” — represents a reputational setback for the administration and a genuine hardship for lower- and middle-income households, who spend a disproportionate share of their income on energy and food.

SNAP benefit restrictions — under active congressional consideration — would compound the impact on the most vulnerable households. Food companies and grocery chains are watching the policy debate closely, as changes to SNAP purchasing rules could meaningfully alter demand patterns for staple goods (CNBC, June 20, 2026).

The Path Forward

The good news — and it is significant — is that the primary driver of the inflation surge is now partially reversing. Brent crude has retreated from its April peak of approximately $113 to approximately $78 by mid-June, as the U.S.-Iran peace framework reduces near-term supply disruption fears (Al Jazeera, June 17, 2026). If Brent settles in the $70–80 range and the Strait reopening is durable, the energy component of CPI should provide disinflationary relief in the June, July, and August prints.

The lagged second-round effects will take longer to unwind. Wage growth that has been pulled higher by workers’ cost-of-living concerns does not retreat immediately when pump prices fall. Transportation costs embedded in goods pricing take months to work out of supply chain contracts. Services inflation — already running hot before the conflict — has limited sensitivity to oil prices in either direction.

The base case, shared by most economists surveyed ahead of the June FOMC meeting, is that inflation moderates back toward 3% by year-end as energy effects dissipate — but that the Fed holds rates steady at best, and hikes once at worst. The stagflationary risk — where growth slows meaningfully while inflation remains above target — is not the central scenario but is no longer a tail risk.

Karachi’s fintech corridor produced another paper trail this week. ABHI Microfinance Bank has signed a memorandum of understanding with NADRA Technologies Limited (NTL), the commercial arm of Pakistan’s national identity authority, to explore digital financial solutions built on the country’s biometric backbone. It’s the bank’s fifth public MoU since January, a pace that says as much about Pakistan’s digital transformation push as the deal itself.

A Partnership Born From Pattern, Not Surprise

Anyone tracking ABHI Microfinance Bank’s communications over the past five months will recognize the shape of this announcement before reading past the headline. In January, it was Daira, a SECP-licensed digital lender, on Buy Now, Pay Later infrastructure. In February, Jaffer Business Systems on AI-enabled banking and TouchPoint on ATM and self-service hardware. By the following month, Knowledge Platform brought education financing into the fold. NADRA Technologies is simply the latest signature on a strategy that’s becoming impossible to miss.

That repetition matters. ABHI Microfinance Bank, formed in 2025 when fintech firm ABHI and TPL Corp Limited acquired and relaunched FINCA Microfinance Bank, has been explicit about its ambition: transform from a traditional lender into what its leadership calls a technology-led, customer-centric digital platform. Partnering with NADRA’s commercial wing — the entity behind Pakistan’s biometric passports, e-Sahulat network, and identity verification rails used across 200-plus global projects — gives that ambition a concrete identity-verification spine.

• State Bank of Pakistan data shows digital channels now handle roughly 88% of retail payment transactions, up from 78% two years prior — a structural shift that rewards banks who can onboard customers without paper.
• Branchless banking agents nationwide have crossed 731,000, yet rural penetration still lags, leaving a financial-inclusion gap that biometric-backed digital onboarding is designed to close.

Section 1 — What Was Actually Signed

The MoU follows a template ABHI Microfinance Bank has used with each of its recent technology partners: a non-binding framework establishing the intent to jointly explore use cases before either side commits to commercial terms. Based on the structure of ABHI’s other 2026 agreements — with JBS, TouchPoint, and Pathfinder Group — the NADRA Technologies arrangement most plausibly centers on integrating NTL’s identity-verification and biometric authentication infrastructure into ABHI’s customer onboarding and digital account-opening workflows.

That focus tracks with what NADRA Technologies has been building elsewhere. The company recently signed a separate MoU with Identity360 Global to develop AI-based digital identity and biometric onboarding tools aimed squarely at financial services, telecommunications, and government platforms — naming banking explicitly as a target sector. NTL has also rolled out live biometric verification for professional registration bodies like the Pakistan Medical and Dental Council, demonstrating the same eSahulat-based verification rails a microfinance bank would need for paperless account opening.

A few data points anchor why this matters operationally:

1. ABHI Microfinance Bank already requires CNIC, NADRA token, or NICOP verification for digital account opening under its existing onboarding terms — meaning identity infrastructure isn’t a new dependency, it’s a deepening one.
2. NADRA Technologies launched a Bug Bounty Challenge in February 2026 specifically to stress-test its digital identity systems ahead of wider private-sector integrations — a signal the agency is preparing its rails for exactly this kind of commercial banking traffic.
3. The bank’s branch footprint — 110-plus branches across 100-plus cities — gives any biometric integration immediate physical reach beyond app-only fintech competitors.

Analytical Layer — Why Every Pakistani Microfinance Bank Wants a NADRA Deal

What does NADRA Technologies actually do for banks?

NADRA Technologies provides biometric identity verification, e-KYC infrastructure, and secure authentication services that let banks confirm a customer’s identity electronically using NADRA’s national database — replacing in-branch paperwork with instant digital verification through the eSahulat network and related biometric rails.

The deeper story isn’t this single MoU — it’s the identity-as-infrastructure model Pakistani fintech has quietly adopted. Where European neobanks lean on third-party KYC vendors and American fintechs stitch together credit-bureau APIs, Pakistani digital banks increasingly route through one sovereign chokepoint: NADRA. That’s a structural advantage no private vendor can replicate, because NADRA’s database covers essentially the entire adult population.

Still, concentration cuts both ways. A bank that ties its onboarding funnel to a single state-linked identity provider inherits that provider’s operational risk. NADRA’s own bug-bounty initiative this year is a tacit admission that its rails, now handling commercial-sector integrations at scale, face a widening attack surface. ABHI Microfinance Bank’s decision to formalize this dependency through an MoU — rather than a basic API contract — suggests its leadership wants governance terms, not just technical access, written into the relationship from the outset.

That’s consistent with the pattern across ABHI’s other recent agreements, which the bank has structured with explicit confidentiality, intellectual-property, and dispute-resolution clauses governed under Pakistani law with Islamabad jurisdiction. It reads less like opportunistic press-release diplomacy and more like a bank methodically assembling a technology stack — hardware from TouchPoint, AI capability from JBS, agent interoperability from Pathfinder, and now identity infrastructure from NADRA — one MoU at a time.

Implications — Who Feels This Beyond the Signing Room

For Pakistan’s roughly 91 million holders of formal financial-institution accounts, the near-term effect is invisible: faster account opening, fewer in-branch verification steps, lower friction for the two-fifths of adults the Asian Development Bank estimates still sit outside formal banking. Microfinance banks live or die on acquisition cost per customer, and biometric onboarding strips out exactly the paperwork-heavy steps that make rural and semi-urban account opening expensive.

For policymakers, the deal reinforces a direction Pakistan’s National Steering Committee on Cashless Pakistan has already set: digitizing government and retail payments fully by 2026, with digital financial inclusion targeted above 70% of adults by 2030. Every bank that wires itself into NADRA’s identity rails advances that target without the state spending a rupee on the integration.

For SMEs and informal merchants — the segment ABHI has targeted with prior financing partnerships covering Daraz, Foodpanda, and similar platforms — easier digital onboarding through NADRA verification could shorten the path from informal cash transactions to documented, creditworthy banking relationships. That matters for a sector where the SBP’s own 2026 payments review flagged a “sticky cash culture” as the single largest drag on digital migration, with ATMs still overwhelmingly used for cash withdrawal rather than deposit.

The risk runs the other direction too: as more banks plug into the same identity backbone, a single vulnerability in NADRA’s systems becomes a systemic one. NADRA Technologies’ decision to run a public bug bounty ahead of these integrations suggests the agency understands that concentration risk, even if it hasn’t said so explicitly.

Competing Perspectives — Not Everyone Reads This as Progress

Critics of Pakistan’s identity-centralization model — voiced periodically by privacy researchers and some technology-policy commentators — argue that funneling an expanding share of commercial banking traffic through a single state-linked identity authority creates exactly the kind of single point of failure that cybersecurity practitioners warn against. A breach or outage at NADRA’s commercial layer wouldn’t just disrupt one bank’s app; it could simultaneously degrade onboarding across every institution that has wired itself into the same rails.

There’s also a competitive argument worth airing: smaller fintechs without ABHI’s scale or TPL Corp’s backing may struggle to negotiate the same MoU-based, governance-rich access NADRA Technologies has extended to larger players, potentially entrenching an advantage for banks that can afford dedicated technology-partnership teams. ABHI’s pace — five MoUs in roughly five months — is itself evidence of the resources such relationship-building demands.

That said, NADRA’s own public materials lean toward optimism, framing collaborative partnerships and “ongoing change” as necessary preconditions for closing Pakistan’s institutional and infrastructure gaps in digital governance. Whether that optimism survives the operational reality of scaling biometric verification across dozens of bank integrations simultaneously is the genuine open question here — not whether the technology works, but whether the institution managing it can absorb the load without becoming the system’s weakest link.

The Bigger Picture

Strip away the press-release language and what’s left is a quieter, more consequential trend: Pakistan’s microfinance sector is rebuilding itself around a handful of shared digital chokepoints — NADRA for identity, Raast for payments, a thinning list of infrastructure vendors for everything else. ABHI Microfinance Bank’s MoU with NADRA Technologies is one data point in that consolidation, not an isolated announcement. Whether it produces the frictionless onboarding both parties are promising, or simply adds another dependency to an already concentrated stack, will show up in account-opening numbers long before it shows up in another press statement.

Pakistan’s banks are betting their growth on infrastructure they don’t fully control. That bet is either the fastest route to financial inclusion the country has tried, or the quiet construction of a single point of failure — and right now, nobody outside NADRA’s own bug-bounty reports can say which.