Goldman Sachs amassed over $20bn in private credit to invest, giving it the firepower to move ahead in one the fastest-growing sectors of the asset management sector.
The group announced on Wednesday that its asset management arm raised $13.1bn to create its largest direct lending fund. This will be among the largest funds dedicated to writing loans to businesses around the world. A growing number of companies are turning to non-bank lenders to raise capital.
Goldman raised $13.1bn from investors externally, and also from bank loans. The group has also backed the sum with its own balance sheet. The fund has also raised $7bn more from investors to invest in separately managed accounts with the same strategy, and $550mn for co-investment vehicles which will lend alongside the Fund.
Goldman Sachs led the way in private credit management, an asset class that has become increasingly popular as pensions, insurers and sovereign wealth funds increase their investments. This has led to a new group of leaders in the alternative asset industry. Ares Management is one of them. HPS Investment Partners and Blue Owl are also amongst the others.
Goldman tries to increase its outside money to generate more stable revenue based on fees that will complement the more volatile trading and investment banking business.
The group wants to maintain its position in Private Credit, and gain market share while its traditional competitors are trying to formulate their own strategies. Goldman Sachs, JPMorgan Chase, and Bank of America do not have large amounts of money to invest in private credit.
Barclays, Wells Fargo and other banks have formed partnerships with asset managers in order to expand their reach into the private credit market. Other banks, like JPMorgan are actively in dialogue with potential partners.
Private credit’s rapid growth has alarmed global financial regulators, policymakers and others who are concerned about the possible risks that private lenders could pose to the banking sector. Many credit funds borrow money from traditional banks in order to increase the capital available to lend.
Goldman Sachs, based in New York, hopes to double its private-credit business to $300 billion over the next five to ten years. It is currently at $130 billion. In the past year, its private credit funds have funded Macquarie Capital’s acquisition of Swedish construction software firm Byggfakta by private equity group TPG and Classic Collision’s purchase by auto repair shop Classic Collision.
Greg Olafson who runs Goldman’s private credit business said that the bank’s ambitions in private equity were impacted by the fund-raising.
He said, “We’ve been lending to [private equity] sponsors and companies for decades before private credit became a thing.” It allows us to continue serving this client base which is one of the largest in the firm. . . “Private equity is the core of the business for this firm.”
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