GOLDMAN SACHS SET TO AMPLIFY PRIVATE CREDIT PORTFOLIO TO $300 BILLION WITHIN FIVE YEARS

Goldman Sachs Asset Management, a division of the Goldman Sachs Group, has set a goal to increase its private credit portfolio to $300 billion within five years, up from the current $130 billion, as outlined by a senior executive, revealing an ambitious expansion strategy.

According to Marc Nachann, global head of asset and wealth management at Goldman, he stated, “It’s a tremendous opportunity.” Goldman’s private credit ambitions surpass those of its counterparts, including Morgan Stanley, which aims to double its private credit portfolio to $50 billion in the medium term, gathering funds from significant investors.

JPMorgan Chase has allocated at least $10 billion for private credit, while Wells Fargo and Citigroup have formed partnerships to delve deeper into the market.

Of the $40 billion to $50 billion Goldman plans to raise for alternative investments this year, at least one-third will be allocated to financing private credit strategies, he noted.

Consequently, non-bank lenders, or shadow banks, have expanded their lending in recent years due to facing fewer regulatory hurdles than traditional lenders.

Wall Street banks have also collaborated with private equity giants and asset managers to expand their private credit businesses. Goldman Sachs has been actively involved in private credit for almost three decades.

The asset management arm employs various strategies for private credit targeting different tiers of investors in companies, where repayments depend on the type of debt or equity they hold, Nachmann explained.

Goldman Sachs has highlighted asset and wealth management as a growth area, retracting from its unsuccessful venture into consumer banking. The investment banking and trading division contribute to around 70% of the firm’s revenue.

Nachmann, a Goldman veteran of three decades, assumed leadership of asset and wealth management after CEO David Solomon merged the businesses in 2022.

While Goldman Sachs Asset Management (GSAM) has witnessed the departure of some high-profile managers, morale remains strong, despite the anticipated staff turnover with business integration, according to Nachmann.

He emphasized ongoing hiring across asset and wealth management.

Nachmann’s goal is to enhance GSAM’s return on equity to mid-teens percentage in the medium term by reducing the bank’s investments held on its balance sheet, which have been impacting returns negatively.

The legacy investments decreased to $16.3 billion at the end of the fourth quarter of 2023 from approximately $30 billion at the end of 2022, surpassing an internal target.

“We will keep selling down over the next three to four years,” Nachmann stated. “We will get to a place where it is not material from a financial impact.”

He also identified opportunities to expand the $1 trillion wealth management business, with a focus on ultra-high-net-worth clients in overseas markets in Europe and Asia, achieved by adding advisers and increasing lending to private bank clients. Presently, 80% of Goldman’s wealth business is in the U.S.

“We believe we can double the business internationally over the next few years,” he asserted.

Goldman’s lending in wealth management, as a percentage of its wealth client assets, stands at 3%, considerably below the average of 9% among its peers, according to a report by Autonomous Research.

“We can do more there – lending to wealthy people is a good business,” Nachmann expressed.

From the News Source: Techeconomy