Private Equity Firms See Their Clients Bracing for the Worst

It’s no secret there are storm clouds on the horizon for the global economy. Even though many are touting all the good currently going on, many economists are forecasting a significant downturn in the coming months and years.

The National Association for Business Economics recently released a survey where they reported that 72% of economists expect a recession in the next 24-months. Bloomberg analysts put the chance of a 2020 recession at 30%. Goldman Sachs is the most optimistic of the bunch putting the percentage around 20% for 2020.

Even though the analysts at Goldman have a slightly rosier outlook than some of their peers, that is not based on the signals they are getting from their private equity clients.

You may ask--what’s so important about the opinion of private equity clients? Unlike economists, financial advisors/consultants, and research firms, private equity clients actually have money at stake. They have “skin in the game” with regard to their wealth. And that difference, essentially night and day, makes ALL the difference in the world.

Top executives at Goldman have recently been saying that almost all their clients are bracing for an upcoming recession. They are focusing on the fact that they believe it’s coming. And instead of just waiting passively, most are coming up with strategies to hedge against it.

In a recent interview with Bloomberg TV, Goldman exec Alison Mass said that at a recent meeting in Asia she spoke with a private equity firm head who had given a “recession checklist” to his CEOs. This checklist included things such as asking certain suppliers to extend terms, limiting capital expenditure and hiring only essential staff.

There are mixed signals coming from Goldman overall though. On the one hand, they do skew more bullish than other analysts with that 20% recession number. They also have reported that they believe next year could actually show growth of somewhere between 2.25% and 2.5%. they also expect the current record-low unemployment to stay around the current 3.5% or so or drop even further. However, they also think that market upside in the coming year will be relatively limited due to global central bank policy, most of this concern pointing directly to the US Federal Reserve and the European Central Bank.

The point of this all is, exactly when and how a recession will hit in the next few years is uncertain. But, almost all the experts believe it will at some point soon. Economic downturns can never be precisely predicted.

But think about it: the wealthiest of the wealthy see this and are doing everything in their power to be prepared. This level of proactiveness may be one critical factor that separates them from the average investor. Having the keen foresight to detect the possibility of severe risk and doing something about it is what often distinguishes the winners from losers.

The lesson that should be learned is that everyone, regardless of wealth or means, should also be taking steps to recession-proof themselves as well. And gold is what most central banks and many wealthy investors around the world have been accumulating to do so. Perhaps not so much the Fed--but again, the US holds the world’s largest pot of gold.