Goldman Sachs to deepen productivity in the growing private debt industry

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Goldman Sachs has said it will create a new unit to expand its financial operations, as the bank looks to fend off growing competition from private equity funds and become better positioned to lend. other behemoths that now dominate Wall Street.

The newly formed Capital Solutions Group will be made up of bankers with expertise in working with private debt and private equity funds, as well as others who directly arrange these types of transactions – often buyout – financed by those investors.

“There is a huge demand from our investment clients for private credit and private equity – from investment grade and leveraged loans to hybrids and asset-backed funds as well as equity,” said chief executive David Solomon, adding that the bank will seek to “facilitate the growing relationships between our clients in global banking and markets and those in asset management and wealth”.

The rise of private credit firms has created a difficult problem for the banks that serve them as customers but also compete with them for financing. Many major lenders, including Citigroup and Wells Fargo, have entered into partnerships with private equity firms to expand their lending.

Goldman it has so far avoided similar splashy connections as it competes with funds that continue to capture more of the business backing large businesses, and other lending segments. At the same time, Goldman is trying to attract the same firms as clients, including offering them financing for deals.

Goldman said the new team will be led by Peter Lyon, who was previously the managing director of the New York group at other financial firms, and Mahesh Saireddy, who led the mortgage division. and organized finance. These two executives are being added to the firm’s management committee.

Goldman has since expanded its lending to private equity and debt funds. The group’s loans to non-bank financial firms reached $86bn at the end of the third quarter, nearly a third a year earlier from $65bn. Loans to these firms now make up nearly half of all Goldman loans.

Rules after the 2008 financial crisis made it difficult for banks like Goldman to finance risky purchases from their balance sheets. However, banks often have the green light to provide financing that seeks to finance those transactions – exposing the bank to the risk of the fund rather than the individual company.

Goldman’s asset management arm has been a major player in private equity for years, having managed similar funds since its inception. The firm, formerly known as a broker-dealer, raised billions of dollars in financing to make private loans to businesses, often in deals arranged by the firm’s investment banking arm.