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Here’s a quick question for you: Can you guess how many Goldman Sachs private equity clients are
preparing for a recession?
Well, all of them!
In a statement, the chairman of the investment bank Alison Mass said: “Every one of our clients is
focused on being prepared for a recession.”
During an interview with Bloomberg, Mass confirmed that earlier this fall, she “visited Asia and spoke to
a global private equity firm head. He had issued all his CEOs with a checklist containing nine critical
items that needed to be worked on.”
The recession checklist, according to Mass, contained three main items that stood out for her: the first
was a request to suppliers to stretch term limits, capping capital expenditures, and lastly, taking on only
crucial staff.
But a section of Goldman’s team doesn’t see a cause for alarm just yet, at least not according to the
firm’s economists. In their view, the economy will grow as we approach 2020, at a rate between 2.25%
and 2.5%, and unemployment will register a new low. They added that the chance of a recession next
year was one in five.
A note by the bank highlighting its 2020 main themes stated that the firm sees the global central bank
policies positively but limitedly impacting the markets next year, including the European Central Bank
and the Federal Reserve.
The firm’s investment bank head remained confident that 2020 would bring its fair share of mega deals.
Sources indicate that Goldman’s large-scale deals account for about 23% of its total investment
transactions.
On the matter, Mass said: “Our clients are looking to put large amounts of capital to work, so we at
Goldman Sachs are looking through our industry teams as well as around the globe at large
transactions.”
Recently, the National Association for Business Economics released a survey that stated that 72% of
economists globally foresee a recession by 2021. And seeing as that percentage is higher among
Goldman Sachs deep-pocketed investors, the market could largely be bracing itself for a downturn.
Preparing for a downturn
Now, while no one precisely knows when the recession will take place, PE firms have been at the
forefront of preparing their investor interests for a possible downturn, this is according to a study by
financial advisory firm BDO USA.
The research gathered viewed from 200 venture capitalists and private equity firms.
Close to 75% of the interviewees firmly believe that the recession will occur within the next two years.
However, according to Scott Hendon, co-leader of global private equity at BDO, the percentage dropped
from last year’s 89%.
As PE firms continue to prepare for a downturn, most of them are getting into selective deals, with only
46% going it long term.
“Nobody wants to get caught on a downturn overpaying. They have been a lot more selective,” Hendon
said.
In addition to the selective assessment of deals, PE firms are also keen on building up a strong capital
base in anticipation of lucrative deals during the recession period. Out of the interviewed firms, 41% are
said to be raising more funds to prepare for tougher times ahead.
Companies are also looking to channel a decent portion of their funds toward strengthening their
existing investments, with the survey revealing close to a third of the interviewed respondents are
warming up to this strategy. But the number of firms planning to put their money in new deals
plummeted to about 50%, down from 89% last year.
While favorable credit terms have reduced the level of distressed investments, firms expect distressed
assets to influence deals next year. Nearly 40% of the interviewed firms are confident that distressed
entities will present viable investment opportunities in 2020.