Goldman Cash Cow Opened to Investors -- WSJ
13 March 2019 - 6:02PM
Dow Jones News
By Liz Hoffman
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (March 13, 2019).
A Goldman Sachs Group Inc. profit machine that has invested the
bank's own money in Asian property, African startups and troubled
U.S. retailers, among other ventures, is opening up to outside
investors.
Goldman plans to raise outside money for its special-situations
group, according to people familiar with the matter. Also under
discussion is a broader reorganization of the firm's various
private investing activities into a new unit that would seek to
raise new funds across a variety of strategies, the people
said.
The special-situations group has been run since 2013 by Julian
Salisbury, a detail-oriented Brit who joined the firm's management
committee two years ago. It has grown from about $20 billion on the
eve of the crisis to about $30 billion today, people familiar with
the matter said.
In the early 2000s it pioneered the sort of go-anywhere
investing that has caught on at private-equity firms such as TPG
and Blackstone Group LP, and it remains one of the most profitable
businesses at Goldman.
It will likely be combined with Goldman's merchant-banking
group, the historical home of the bank's private-equity
investing.
"Based on our track record, there is an opportunity to raise
additional third-party funds across equity, credit and real
estate," Goldman Chief Executive David Solomon told analysts
earlier this year. "We have a world-class alternative investing
franchise, which has generated strong returns over three decades
[and] presents us with extraordinary opportunities to partner with
clients to invest their capital alongside our own."
In a memo to employees last week entitled "Our Forward
Strategy," Mr. Solomon said growing the bank's alternative
asset-management business is a priority.
The discussions show how much has changed on Wall Street since
the financial crisis. In Goldman's last big push into private
equity, in the 2000s, it put billions of dollars of its own money
into megabuyouts. Now it seeks raise money from outside investors
like pension funds and clip steady fees for managing it.
Shareholders today value steady, low-risk businesses like money
management, setting off an asset-gathering race across Wall
Street.
The reorganization also shows Mr. Solomon busting up silos in an
effort to modernize and streamline the firm. Under a "One Goldman"
banner, he has launched a firmwide effort to better cover top
clients.
Scattered across Goldman are at least a half-dozen units tasked
with making investments, built over decades of ad hoc planning and
guarded jealously by their owners. Their results are comingled in
an "investing and lending" reporting segment that shareholders tend
to dismiss as opaque and unpredictable.
Merging them will create a unit resembling a smaller version of
KKR & Co. or Blackstone that executives hope will be better
understood and more richly valued by shareholders. The move may
eventually change how Goldman publicly reports its earnings, some
of the people said.
The firm weighed such a combination once before, in 2008 as the
crisis deepened, but the endeavor fell apart due to personality
clashes, a person familiar with the matter said.
Most banks spun off their private-equity arms after the 2010
passage of the Dodd-Frank financial law, which banned banks from
investing their own money into buyout funds and slapped heavy
capital charges on illiquid portfolios. Goldman held on more
tightly, betting that it could navigate the new rules.
It started doing deals straight off its balance sheet,
sidestepping the ban on funds. Successful investments of that
vintage included credit bureau TransUnion and financial-data firm
Ipreo. In 2017 Goldman raised its first buyout fund since the
crisis, a $7 billion pool that includes only a small amount of the
bank's own money.
The special-situations group has wide leeway to invest wherever
it sees an opportunity. In the late 1990s, it made a killing in the
wake of the Asian financial crisis. These days it is more of a
middle-market lender, serving midsize companies that have trouble
borrowing elsewhere. It has invested in a Nigerian e-commerce
startup, bought troubled commercial real-estate loans in New
Zealand and backed Mexico's fastest-growing fintech lender.
It commonly lends to distressed companies, exacting terms that
boost its profits and limit its potential losses. A recent loan to
a struggling California turbine maker carries a 13% interest rate
and requires the company to set aside $12 million in cash as
collateral -- 40% of the value of the loan.
Write to Liz Hoffman at liz.hoffman@wsj.com
(END) Dow Jones Newswires
March 13, 2019 02:47 ET (06:47 GMT)
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