Goldman Sachs to deepen exposure to booming private credit industry

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Goldman Sachs said it will create a new unit to expand its financing operations, as the bank looks to better position itself to counter growing competition from private credit funds and lending to the alternative investment behemoths that now dominate Wall Street.

The newly created Capital Solutions Group will be comprised of bankers who specialize in working with private credit and private equity funds, as well as others who structure the types of direct transactions — often leveraged buyouts — that are funded by investors.

“Our investor clients have significant demand for private credit and private equity – from investment grade and leveraged lending to hybrid capital and asset-backed finance as well as equity,” Chief Executive David Solomon said, adding that the bank will strive “to provide global banking and markets and wealth and asset management. Increasing synergy among our clients”.

The rise of private credit firms has created a complex problem for banks that serve them as clients but compete with them for financing. Several major lenders, including Citigroup and Wells Fargo, have signed partnerships with private credit firms to grow their loans.

Goldman So far it has avoided similar splashy tie-ups as it competes against funds that are increasingly winning more in large corporate transactions and other areas of lending by financing businesses. At the same time, Goldman is trying to attract those same firms as clients, including financing their deals.

Goldman said the new group will be led by Peter Lyon, who was previously the New York group’s top banker for other financial institutions, and Mahesh Saireddy, who headed the mortgage and structured finance division. Two executives are being added to the firm’s management committee.

Goldman has already expanded its lending to private equity and credit funds. The group’s loans to non-bank financial institutions stood at $86 billion at the end of the third quarter, up nearly a third from $65 billion a year earlier. Loans to these firms now account for nearly half of all Goldman loans.

Regulations after the 2008 financial crisis made it difficult for banks like Goldman to finance particularly risky purchases from their own balance sheets. However, most banks have the green light to leverage funds that want to finance the same deal – exposing the bank to the risk of a fund as opposed to an individual company.

Goldman’s asset management arm has been a major player in private credit for years, managing similar funds even before the term was coined. Formerly known as Merchant Banking, the firm raised billions of dollars in funds to provide personal loans to businesses, in many cases through transactions orchestrated by the firm’s investment banking arm.