Goldman Combines Private-Investing Units in Fundraising Push
The new unit’s exact structure will be determined in the next few months and it will have about $140 billion of assets.
(Bloomberg) -- Goldman Sachs Group Inc. is finally embracing its status as a private equity giant.
The firm’s top executives in recent months have laid out plans to raise more client funds for private investing and rely less on its own balance sheet. As part of that effort, the bank will consolidate the investing activities of multiple units across the firm to add more heft to its merchant banking division, the firm said Monday in a memo to staff.
Goldman’s special situations group, a trading unit which made investments in everything from equity stakes in private companies to middle-market loans and illiquid debt, will combine with the merchant banking division. They’ll be joined by a pair of real estate units and principal strategic investment group, which makes fintech wagers, according to the memo. Julian Salisbury, head of SSG, will join Andrew Wolff and Sumit Rajpal as co-head of merchant banking.
“There actually is a very, very significant alternatives asset manager inside Goldman Sachs,” which has operated from a number of different units in the past, Chief Executive Officer David Solomon told Bloomberg Television in April, when asked whether he aimed to create something akin to Blackstone Group LP. “We see opportunities to expand what we’re doing for clients in that business and be a little more focused on growing our client franchise around those activities.”
Under Solomon, who rose to CEO in October, the firm has been honing its strategy for the private investing business, looking to make it operate more efficiently and profitably, while relying more on fees than investment gains. Rich Friedman, who led the merchant banking unit for 21 years, handed off leadership in April to Wolff and Rajpal. The shakeup also gave Salisbury, head of the special situations group, oversight of real estate across the firm.
Goldman Sachs has long been unique among Wall Street banks in the size of investments it makes with its own funds -- the firm had $20 billion in private equity investments at the end of 2018. While the company’s status as a major investor has raised conflicts for its investment bankers, it’s also been hugely profitable. Investing and lending, the reporting segment that includes the merchant bank division, contributed higher pretax profit than the firm’s trading or investment banking businesses last year.
John Waldron, the firm’s president, said at an industry conference last month that the bank will look to court institutional investors with its ability to offer private equity deals and public market strategies.
“This is going to be a long-term journey,” he said at the Bernstein Strategic Decisions Conference. “We’re not going to turn this battleship from balance sheet investing to fee income overnight.”
Goldman shares have fallen 18% in the past year, compared with the 1.3% decline in the Standard and Poor’s 500 Financials Index. The broader S&P 500 Index climbed 3.8%.
--With assistance from Zoya Khan, Gillian Tan and David Scheer.
To contact the reporter on this story: Sridhar Natarajan in New York at snatarajan15@bloomberg.net
To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Daniel Taub
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