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Goldman Sachs said it will build a new unit to expand its financing operations, as the bank looks to fight rising competition from private debt funds and better position itself to lend to the alternative investment behemoths that dominate Wall Street.
The newly created Capital Solutions Group will be made up of bankers who specialize in working with private debt and private equity funds, as well as others who directly formulate the types of transactions – often benefiting from acquisitions – financed by those investors.
“There is significant demand from our clients who invest in private debt and private equity – from investment level and borrowing to mixed funds and asset-backed financing and equity,” said chief executive David Solomon, adding that the bank will seek “a growing relationship channel between our clients in global banking and markets and those in asset and wealth management”.
The growth of private credit firms has created a complex problem for banks that serve clients but compete with them for financing. Several major lenders, including Citigroup and Wells Fargo, have inked partnerships with private equity firms to raise their capital.
Goldman So far it has avoided similar restrictions as it competes against funds that are increasingly successful in the business of capitalizing on large transactions, as well as other areas of lending. At the same time, Goldman is trying to lure similar firms to clients, including offering them financing deals.
Goldman said the new team will be led by Peter Lyon, who was previously the group's top New York banker to other financial firms, and Mahesh Saireddy, who led the credit and finance division. The two executives were added to the firm's management committee.
Goldman has already increased its borrowing from private equity and credit funds. The group's loans to non-bank financial firms totaled $86 billion at the end of the third quarter, up nearly a third a year earlier from $65 billion. Loans to these companies now make up nearly half of all Goldman loans.
Regulations after the 2008 financial crisis made it difficult for banks like Goldman to fund risky purchases on their portfolios. However, banks mostly have the green light to give power to funds that want to finance those same deals – exposing the bank to the risk of funding against each company.
Goldman's asset management arm has been a major player in private debt for many years, managing similar funds even before the start of the era. Formerly known as a merchant bank, the company has raised tens of billions of dollars to make private loans to businesses, in many cases through transactions facilitated by the firm's investment arm.