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Goldman Sachs said it will build a new unit to expand its financing operations, as the bank looks to combat growing competition from private credit funds and better position itself to lend to the giant alternative investment firms that now dominate Wall Street.
The newly created Capital Solutions Group will consist of bankers who specialize in working with private credit and private equity funds, as well as others who directly structure the types of transactions — often leveraged buyouts — that these investors finance.
“There is significant demand from our investor clients for private credit and private equity – from investment grade and highly leveraged lending to hybrid equity and asset-backed financing as well as equity,” said CEO David Solomon, adding that the bank will seek to “drive the growing synergies between our clients in… The field of banking, global markets and those working in asset and wealth management.
The emergence of private credit companies has created a complex problem for banks that serve them as clients but also compete with them for financing. Several major lenders, including Citigroup and Wells Fargo, have signed partnerships with private credit companies to boost their lending.
Goldman It has so far avoided similar dramatic tie-ups, as it competes against funds that increasingly win more business financing large corporate transactions and other lending areas. Meanwhile, Goldman is also trying to attract those same companies as clients, including providing them with financing for deals.
The new group will be led by Peter Lyon, who was previously the New York group's chief banker for other financial companies, and Mahesh Saireddy, who headed its mortgage and structured finance division, Goldman said. Executives are added to the company's management committee.
Goldman has already expanded its lending to include private equity and credit funds. The group's loans to non-banking financial companies totaled $86 billion at the end of the third quarter, up about a third a year earlier from $65 billion. Loans to these companies now make up nearly half of Goldman's total loans.
Regulations imposed in the wake of the 2008 financial crisis made it difficult for banks like Goldman Sachs to finance particularly risky acquisitions from their balance sheets. However, banks often have the green light to provide leverage to funds that want to finance those same deals – exposing the bank to the risks of the fund rather than an individual company.
Goldman's asset management arm has for many years been a major player in private credit, managing similar funds even before the term was coined. The company, formerly known as Merchant Banking, has raised tens of billions of dollars for funds to make private loans to companies, in many cases through transactions arranged by the company's investment banking arm.
