Big banks sound and act a lot more like private equity.
The latest example came last week as Goldman Sachs (GS).
The salary component came on Friday as Goldman transferred CEO David Solomon retention package of $80 million to wait another five years and an increase of $8 million for performance in 2024.
Some of that rise came from a decision by Goldman's board to introduce a retention tool long used by private equity giants: carried interest. Solomon and other executives can now get a slice of the interest carried on private funds within Goldman's wealth and asset management division.
The board did so after considering “the unique competitive threats to talent that Goldman Sachs faces, including from alternative management firms and others beyond the traditional banking sector,” the company said in a filing.
Goldman Sachs chairman and CEO David Solomon, in 2023. REUTERS/Brendan McDermid ·REUTERS / Reuters
Another reminder of the importance of private markets at Goldman came last Monday when it announced it had done so combining several groups into one “capital solutions group” which will seek to capitalize on the recent surge across Wall Street in so-called private credit, a reference to debt that is not publicly issued or traded.
Private credit is a broadly defined market that includes a variety of exotic lending activities. It has swelled over the past decade largely due to higher interest rates and regulation that forced banks to shy away from their own leveraged loans. Private equity firms have stepped in to fill that gap by giving loans directly to companies, thereby competing with banks.
Solomon said during an analyst call on Wednesday that Goldman's new combined group positions it “to operate at the fulcrum of one of the most important structural trends occurring in finance, the emergence and growth of private credit and other consumable asset classes.” n private. “
The Goldman method follows a a series of leagues obtained last year between traditional banks and alternative asset managers also angling for a bigger bet in the $1.6 trillion private credit market.
One prominent private equity chief, Apollo Global Management CEO Marc Rowan, has argued that public and private markets are converging. Both private and public assets have risks and rewards, he told Yahoo Finance last November, with more companies choosing to go private than public. (Disclosure: Yahoo Finance is owned by Apollo Global Management.)
“The biggest trend in our industry is investors, individual investors, and institutional investors looking at their fixed income bucket and saying to themselves, why is this 100% public?” he said in November.
Solomon, the head of Goldman, sounded a lot like Rowan this past week — especially when he spoke to an audience of startup founders and entrepreneurs last Wednesday, following the release of the firm's fourth-quarter earnings.
Apollo Global Management CEO Marc Rowan, and Goldman Sachs CEO David Solomon, third from right and second from right, stand next to each other at the 2023 Hong Kong Global Financial Leaders Investment Summit. (Photo by Vernon Yuen/NurPhoto via Getty Images) ·NurPhoto via Getty Images
“The reasons to go public, when you really get to incredible scale, are pushed out,” he told the audience of startup founders and entrepreneurs, according to a report in the Financial Times.
“If you run a working and growing company, if you take it public, it will force you to change the way you run it and you should do that carefully right,” he added.
The comments were notable because Goldman remains one of the world's biggest IPO bookrunners. Last year, his equity capital markets business earned over $5 billion from helping clients go public.
Goldman also has a significant wealth and asset management division, which handles $145 billion in private alternative assets.
That entire division attracted twice as much in fees as the IPO business, and for years Goldman executives have said that growing that business is their company's best chance for more consistent returns.
What's more, the number of companies choosing to go private in the US has been shrinking in recent years, despite some signs of new life in 2024.
Everything from higher reporting requirements and litigation costs to increased public scrutiny and non-stop quarterly earnings have been cited as reasons why companies might choose to stay private longer.
“It's not fun being a public company,” Solomon said at the event on Wednesday. “Who would want to be a public company?”
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas of finance.
