Goldman Sachs Asset Management, a key division of the broader Goldman Sachs Group, is undertaking a significant expansion of its private loan portfolio. The current goal is to nearly triple the size of the portfolio, raising it from $130 billion to an ambitious $300 billion within the next five years. This strategy was outlined by Marc Nachmann, the global head of Goldman's asset and wealth management, who sees this expansion as a substantial opportunity.
In comparison to its competitors, Goldman Sachs' ambitions in private lending are particularly high. While Morgan Stanley is looking to double its private loan portfolio to $50 billion over a medium-term horizon, other major financial institutions like JPMorgan Chase, Wells Fargo, and Citigroup are also actively investing in the private lending space. JPMorgan Chase, for example, has allocated at least $10 billion towards this sector as we read in Reuters.
Goldman Sachs plans to raise a significant amount of funds, between $40 billion to $50 billion, for alternative investments within the current year. A major portion of these funds, at least one-third, is intended for private credit strategies.
This focus on private lending is part of a larger trend where non-traditional lenders, often referred to as shadow banks, have been able to expand their lending operations, benefiting from relatively fewer regulatory hurdles than traditional banks.
The company has a longstanding presence in the private credit market, being active for nearly three decades. Goldman Sachs has also formed alliances with various private equity firms and asset managers to further expand its private lending operations.
Within its asset management division, Goldman Sachs employs diverse private credit strategies, targeting different investor segments in companies, with repayments structured according to the type of debt or equity held.
As part of its strategic shift, Goldman Sachs has emphasized asset and wealth management as a key growth area, especially following its retreat from a less successful venture into consumer banking. Currently, this division is responsible for a substantial portion, approximately 70%, of the company's total revenue.
Marc Nachmann, a longtime Goldman Sachs veteran, has been overseeing the asset and wealth management division since it was restructured and consolidated under CEO David Solomon's direction in 2022.
However, this period of transition has not been without challenges. Goldman Sachs Asset Management (GSAM) has witnessed the departure of several high-profile executives, including Julian Salisbury and Katie Koch. Despite these changes, Nachmann maintains that morale within the division remains high and that the team is deeply committed to the company's strategic goals. He also notes that the division is actively recruiting to strengthen its team.
A crucial objective for Nachmann is to improve GSAM's return on equity. The strategy to achieve this includes reducing the bank's own investments held on its balance sheet, which have historically been a drag on returns.
Notably, legacy investments have decreased significantly, from about $30 billion to $16.3 billion within a year, and this trend of selling down these investments is expected to continue for the next few years.
Moreover, Goldman Sachs is also looking to grow its wealth management business, which is currently valued at $1 trillion. The focus is particularly on attracting ultra-high-net-worth clients in international markets like Europe and Asia, a strategy that includes hiring more advisors and increasing private bank lending.
At present, a majority of Goldman's wealth management operations are based in the U.S. Goldman also sees potential in increasing its lending in wealth management, which currently represents a small percentage of its client assets compared to the industry average. Nachmann is optimistic about the prospects of lending to affluent clients, viewing it as a lucrative aspect of the business.
12.03.2024
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