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Goldman Sachs is conducting a firmwide review of its alternative investing businesses and may decide to combine them or otherwise bring them closer together, according to people with knowledge of the matter.
The Wall Street firm manages private equity, private credit, real estate and infrastructure funds in its merchant banking division. It also manages a host of alternative investments out of its asset management arm, including private equity and private credit strategies, as well as commodities and hedge funds.
Though there is already some coordination between the two divisions, the review is considering if more can be done. The businesses take money from outside investors like pensions and endowments, as well as wealthy individuals, typically placing this cash into a series of funds. In some cases, Goldman Sachs also places its money alongside clients, as do some senior employees.
The review is part of the front-to-back business reviews being conducted by new CEO David Solomon, president John Waldron and CFO Stephen Scherr as they look to potentially simplify the bank’s investing businesses. The executives are also reviewing the fixed-income trading unit, as well as the investment banking division, among others.
Solomon highlighted the growth opportunities in the alternatives arena in January, saying that “based on our track record, there is an opportunity to raise additional third-party funds across equity, credit and real estate, thereby, augmenting fee income.”
The idea is that Goldman’s stock price may benefit if investors can better understand the heft and durability of the firm’s alternative investing activities.
The review is in the early stages and the management team may ultimately decide to keep the structure as is, according to one of the people.
In his first few months as CEO, Solomon has taken a hard look at the firm’s strategy and sought ways to break down silos or find better ways to serve clients, no matter the division. Under prior CEO Lloyd Blankfein, Goldman operated more like a collection of fiefdoms that didn’t always work together as well as they could have.
Before being named CEO, Solomon helped push for the creation of a commodities joint venture between the sales and trading unit and the investment banking division for corporate clients. That partnership is considered a success, according to executives’ public comments.
When it comes to the review of the alternatives business, one part of the analysis is focused on reducing the duplication that occurs by having similar businesses housed in different areas of the firm, one of the people said.
In some cases, there may be investment teams from different parts of the bank looking at similar investments. In others, fundraising or sales teams from different areas may be overlapping. By combining them or better aligning the alternative investment businesses, the firm might be able to find efficiencies, one of the people said.
Another part of the review is focused on growth opportunities, and thinking through how best to grow the alternative investment despite limited resources, another person said. Since the Volcker Rule went into effect, capping the company’s investments in certain funds at 3%, the merchant banking division has grown its private credit and real estate offerings, for example.
Goldman Sachs has managed private equity funds since the late 1980s, its earliest foray into offering alternative investment strategies.