Sponsors sit out M&A recovery in Q3 results

The start of earnings season saw strong overall results for Wall Street, but a muted performance for private markets. While AI capex is providing a meaningful boost, public market instability could be signs of challenges to come.

By Jack Arrowsmith, London

The M&A recovery continues to gather pace, but not to the benefit of private markets.

Speaking on the Goldman Sachs earnings call, CEO David Solomon said that “Year to date, sponsor share of announced M&A remains below historical averages.” Goldman Sachs reported a record $1.65bn in advisory fees for its Q3 results, up 18% YoY.

Solomon acknowledged that more activity had been expected by now, as private-equity firms look to exit the older vintages, but didn’t see renewed rises in interest rates as a significant headwind.

“I think the bigger constraint is that a lot of this stuff is still marked higher than where it can be monetized in the market, and the sponsors are taking the optionality to wait longer because that’s the way the incentive system works,” he said.

Until GPs are able to return capital, LPs are reluctant to make further private-equity commitments, instead favouring infrastructure and private credit.

That was evident at BlackRock, which reported quarterly net inflows into private markets of $15.3bn, with $7.6bn and $5bn going into infrastructure and private credit respectively. Private equity lagged far behind at $710m, while the remaining $1.9bn went into real estate.

The first of the major private-equity firms to report, EQT had €10.9bn of net inflows into its key funds, but €10.3bn of that came from its acquisition of secondaries investor Coller Capital.

It is continuing to consolidate, recently announcing an acquisition of US real estate manager Stockbridge for up to $550m. EQT also reported €3bn in exit volumes, which it attributed to a “seasonally slow quarter for deal activity”. Volume was up from about €2bn a year earlier.

Man Group reported $1.9bn of net alternative inflows, but that was driven by liquid assets. Its private markets holding was flat, with total AUM edging down from $17.6bn to $17.4bn.

Despite the challenges, asset managers remain committed to the growth of their alternatives platforms. Wells Fargo reported that the number of alternative product offerings on its platform has grown by over 30% this year.

At State Street, CEO Ron O’Hanley reported that its alternative servicing fees grew at “a double-digit rate” YoY in the third quarter, which he attributed to “solid growth across private markets and strong client activity”.

The bank also said it was on track to deliver a tokenised fund servicing capability by the end of 2026, although it is not yet clear whether private markets will be part of this offering.

Another regular flashpoint on earnings calls this year is private credit. Solomon said that despite “noise in the media” around the asset class, “institutional allocators have thought this is a more attractive time in the last 3 to 6 months to bring capital into experienced private credit managers”.

The Capex Boom

There remained significant confidence on digital infrastructure. Morgan Stanley CEO Ted Pick put current hyperscaler capex at $1tn, adding that this could conceivably be sustained over 5–10 years. Meanwhile Charlie Scharf put AI infrastructure as one of the “strong positive forces” outweighing risks in the current economy.

There were also signs of caution, however, with Solomon noting that higher rates could erode returns on individual projects, while Scharf flagged the risk from the significant leverage used to finance the buildout.

That scrutiny could take a step up, as investors reevaluate whether the returns from AI infrastructure can justify high levels of capex.

Data centre operator CoreWeave, which has had significant financing from private credit, has seen its bonds fall to distressed levels this week, amid a market selloff in AI stocks.

With the public and private becoming increasingly intertwined, shocks can easily jump between them. With private capital so deeply committed to the AI buildout, that could be a major headwind in the months ahead.