Key Takeaways

  • Goldman Sachs Asset Management hedges base rates, foreign exchange, and supply chain exposures three to five years forward to isolate business execution from macro fluctuations.
  • Michael Bruun views current interest rates and credit spreads as a historical baseline rather than a passing peak, removing multiple expansion from base-case underwriting.
  • The firm deploys a bench of over 110 operating partners to drive returns strictly through EBITDA growth and cash flow compounding.
  • David Weisburd argues that sponsor underwriting must treat high capital costs as permanent and build balance sheets to withstand rate increases.

Stripping Out Macro Externalities

Bruun makes it clear that the zero-rate period was the historical anomaly, not the present market. Private equity sponsors spent a decade benefiting from cheap debt and rising exit multiples. Those tailwinds have ended. Buying an asset today while assuming benchmark rates will fall or valuation multiples will expand is balance sheet negligence.

To protect performance from broader market swings, Goldman Sachs systematically hedges macro variables across its portfolio. “Right now we on our side are hitching a lot,” Bruun explains. “So we are hitching base rates for many years out in the future because we want to remove as many externalities from the return equation as possible.” By locking down borrowing rates, currency exposure, and supply chain inputs for three to five years, the deal team eliminates macro excuses.

Weisburd reinforces this disciplined approach to capital structure. “You should be ready for the interest rates to go up and make your business antifragile to that,” Weisburd notes. “You should never price in the interest rates going down.” When debt servicing costs remain predictable, portfolio returns track pure commercial and operational results.

The Return to Raw EBITDA Compounding

Without multiple expansion or cheap debt to inflate internal rate of return numbers, private equity math returns to its core engine: organic revenue growth paired with operating margin expansion.

“We're kind of going back to basics, going back to you drive value by compounding EBTA and cash flows,” Bruun says. In this environment, fund performance mirrors operational gains dollar for dollar. Goldman Sachs backs this mandate with an operating bench of over 110 dedicated partners. These operators embed within portfolio companies to adjust commercial pricing, refine cost structures, and integrate modern software across daily operations.

This operational priority changes how LPs assess fund managers. Financial engineering can no longer mask flat sales or decaying margins. As Bruun observes: “one of the things that you couldn't rely on was multiple expansion and rely on very low funding costs in the debt market. So what we're left with and what investors in our strategies are paying for is kind of our raw value creation capability and our raw strategy capability.”

Why It Matters

Institutional LPs are shifting capital toward general partners who generate returns through operational margin expansion rather than market timing. The combination of multi-year rate hedges and large internal operator teams signals a sharp market split: firms with dedicated operational capabilities will continue compounding cash flow, while sponsors dependent on financial engineering will miss hurdle rates.