The exit ramp is blocked. Interest rates stayed higher for longer than the spreadsheets predicted. Now the giants are pivoting. On May 28, Michael Bruun, Goldman Sachs Alternatives global PE co-head, signaled a narrative of resilience. He described the private equity market as constructive. This is the language of survival. Beneath the surface, the industry is grappling with a liquidity drought that has lasted nearly three years. The resilience Bruun references is not a sign of health, but a testament to the opacity of unlisted assets.
The Liquidity Trap of the Unlisted
Valuations are stuck. Sellers refuse to mark down assets to reality. Buyers cannot make the math work at current borrowing costs. This standoff has created a massive backlog of aging portfolio companies. According to recent data from Bloomberg, the gap between bid and ask prices in the mid-market remains at its widest point since the 2008 financial crisis. Private equity firms are increasingly turning to financial engineering to provide the illusion of liquidity. We are seeing a surge in Net Asset Value (NAV) loans and GP-led secondaries. These are not exits. They are sophisticated ways to kick the can down the road while keeping the fee machine running.
Global Private Equity Dry Powder Accumulation (Trillions USD)
The dry powder is a mountain. It currently sits at a record $3.2 trillion. This capital is not being deployed because the hurdle rates have shifted. When risk-free rates are at 4 percent, a 15 percent internal rate of return (IRR) is no longer impressive. It is barely adequate. Bruun’s optimism relies on the belief that this capital must eventually find a home. But the home it is finding is increasingly narrow.
Artificial Intelligence as the Universal Solvent
Capital is flowing into one pipe. Everything else is secondary. Goldman Sachs is doubling down on AI infrastructure as the primary sector idea. This is not about the software layer anymore. The focus has shifted to the physical reality of compute. As reported by Reuters, the capital expenditure required for data centers and energy grid stabilization is the new frontier for private equity. The industry is moving from ‘growth’ to ‘infrastructure’ because infrastructure allows for longer duration and more leverage.
The technical mechanism is simple. Private equity firms are acquiring legacy energy assets and repurposing them to feed power-hungry GPU clusters. This is the ‘constructive’ play Bruun mentions. It allows firms to claim they are part of the AI revolution without having to bet on the volatile valuations of AI startups. They are the landlords of the digital age. They are betting on the shovels, not the gold. This shift is a defensive move disguised as an offensive strategy. It provides a predictable cash flow in a world where traditional consumer and industrial sectors are flagging under the weight of inflation and geopolitical tension.
Geopolitical Volatility as a Smokescreen
The world is fracturing. Trade corridors are being redrawn. Michael Bruun noted that the market stayed resilient despite geopolitical vol. This is a polite way of saying that capital has nowhere else to go. When the public markets are volatile, the ‘locked-in’ nature of private equity looks like stability. It is an accounting trick. Because these assets are not traded on an exchange, their values do not fluctuate with the daily news cycle. This creates a false sense of security for institutional investors like pension funds and endowments.
However, the real-world impact of these tensions is appearing in the supply chains. The cost of building the very AI infrastructure Goldman prizes is rising. Copper, silicon, and specialized cooling systems are becoming geopolitical pawns. The SEC has recently increased its scrutiny on how private funds disclose these geopolitical risks. The ‘resilience’ Bruun speaks of will be tested when the first major fund is forced to liquidate a large position in a distressed environment. Until then, the narrative remains constructive because the participants have no choice but to build.
The focus now shifts to the upcoming June 12 Federal Reserve dot plot. This data point will determine if the ‘constructive’ environment Bruun describes can survive another quarter of restrictive monetary policy. If the projected path for rates remains elevated into 2027, the private equity mirage may finally begin to evaporate, leaving only the AI infrastructure plays standing in the heat.
