Goldman Sachs: “The Circulatory System Is Not Working”

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.