(Bloomberg) — Goldman Sachs Group Inc . has raised $21 billion in private credit bets, the biggest scramble yet for Wall Street's buzziest asset class.
The firm just closed the latest iteration of its direct lending fund, amassing firepower that includes new equity, borrowed funds and co-investments. This, along with separately managed accounts, will be put to use for more directly negotiated senior loans.
For money managers looking to expand, the private loan has become one of their favorite cards. For Goldman, it takes on added importance as it must prove it can quickly raise mountains of money from outside investors, demanding steady fees on top of the huge bursts of income it once generated by betting its own money.
Marc Nachmann, in charge of Goldman's money management operations, has logged flying hours to funnel money around the globe – from pension funds and insurance companies to sovereign wealth funds.
“I will go anywhere in the world that people want to talk to me,” Nachmann said in an interview. “They all see this as a super interesting asset class. “When you go back 10 years, none of them had large allocations for direct lending.”
The latest fundraise marks the fifth iteration of the firm's Loan Partners fund, a series that began in 2008. That amount includes $13.1 billion in equity capital, long-term financing as well as some of Goldman's own balance sheet placed alongside commitments.
The firm also committed $500 million in co-investment vehicles that will distribute money alongside the fund and $7 billion in separately managed accounts for the same senior-secured direct lending strategy. Such accounts have gained popularity as they typically offer large capital allocators better terms and more tailored services.
It's a chance for Goldman to show more clients that the firm known for its willingness to freeze some of its own money when it spots an opportunity will now do so with other people's money — similar to a Blackstone Inc.
“We haven't had as much time with some of these investors as some other alternative players have,” Nachmann said. “You're asking people to trust you that I'm going to spend the next three to five years investing your money. It's a very long-term commitment and gaining that trust takes time.”
“Unnatural Partnerships”
But compared to many other banks, Goldman is a veteran in the field of private lending. Its current goal is to double those assets to $300 billion within the next five years. Investors shouldn't assume new entrants will have the same expertise when tackling such a complex market, said Greg Olafson, head of Goldman's private credit business.
“This is like a high-touch business, it's touchy at origin, it's touchy if anything happens,” he said. “They have no teams and no experience. And what will they do?”
A new trend among banks has been to team up with money managers. “There are unnatural partnerships that are forming,” Olafson said.
“They're trying to mimic what we have over a 30-year period,” he said. “They will find it challenging.”
JPMorgan Chase & Co. has earmarked more than $10 billion of the firm's balance sheet for direct lending and is trying to partner with asset managers to join it in private credit deals. Meanwhile, its asset management unit is on the hunt to buy a firm that operates in space.
Others, such as Wells Fargo & Co. AND Barclays Plchave also created connections in the hope of creating agreements that their partners can reach.
Ultra rich
Beyond institutional investors, Goldman also found ready buyers in third-party wealth channels as well as among the ultra-wealthy it already serves, with an average account size of about $70 million.
These high-net-worth individuals are in some ways “acting, from an asset allocation perspective, very similar to some of the institutions,” Nachmann said. “They have continued to increase their allocation to alternatives.”
Ultimately, outcomes among money managers will vary, as borrowers who have long enjoyed low interest rates face the burden of higher borrowing costs.
“The last 10 years have been a very good environment, you haven't seen a lot of dispersion in the returns of people with loans, because everything worked out,” Nachmann said. “It's going to be more interesting going forward.”