Finance & Economics

Goldman Sachs Reportedly Plans Expansion of Its Private Credit Portfolio

The media reports that Goldman Sachs Asset Management intends to significantly expand its private credit portfolio.

Goldman Sachs Reportedly Plans Expansion of Its Private Credit Portfolio

The mentioned unit of the Wall Street giant plans to increase the specified portfolio to mark $300 billion. It is expected that this goal will be achieved within the next five years. Currently, the volume of the private credit portfolio is $130 billion. In this case, Goldman Sachs Asset Management intends to act within the framework of an approach that provides for somewhat aggressive methods of moving toward the planned result.

Marc Nachmann, Goldman Sachs’ global head of asset and wealth management, described the expansion of the private credit portfolio as a huge opportunity. It is worth noting that the corresponding aspiration of this Wall Street giant significantly exceeds the concept of activity in a similar segment of the finance service system inherent in its competitors. In this case, it means comparing the scale of private lending, which financial organizations define for themselves as targeted. For example, Morgan Stanley aims to double the volume of the corresponding portfolio to $50 billion. The bank holding company plans to achieve this goal in the medium term. Morgan Stanley is currently raising funds from large investors. JPMorgan Chase has earmarked at least $10 billion in private credits. Wells Fargo and Citigroup have formed a partnership system to scale their presence in the market of corresponding financial services.

Marc Nachmann said that of the $40 billion to $50 billion that Goldman Sachs intends to raise for alternative investments in 2024, at least a third will be dedicated to finance private credit strategies.

Non-bank lenders, sometimes referred to as shadow banks, have expanded their lending activities in recent years. This trend is explained by the fact that such organizations face fewer regulatory barriers of various kinds than traditional financial institutions. The corresponding trend was confirmed by the results of a survey conducted in January by the Federal Reserve System. Senior loan officers at banks participated in this survey. They reported that in the fourth quarter of last year, tight standards and weak demand for commercial and industrial loans to companies of all sizes were recorded.

The survey conducted by the Federal Reserve System also found that between October and December 2023, financial institutions tightened most of the requested terms for C&I loans. These requirements apply to companies of all sizes. Respondents also noted that in the fourth quarter of 2023, there were higher premiums charged on the cost of funds on credit lines. Separately, they reported more stringent collateralization requirements.

Currently, many lenders, against the background of macroeconomic uncertainty, have some concerns about their own liquidity.

It is worth noting that in recent weeks, shadow banks have come under the scrutiny of regulators. For example, the Deputy Governor of the Bank of England, Sarah Breeden, called for additional research on organizations belonging to the relevant category, noting that these measures are necessary to prevent a credit crunch.

Michael Hsu, acting Comptroller of the Currency in the United States, said that lenders subject to limited regulation are forcing traditional financial institutions to make loans of lower quality, characterized by higher risk. According to him, part of the way to solve this problem is to pay due attention to non-banking organizations.

Wall Street banks are partnering with private equity giants and asset managers to scale up their activities in the private credit sector. Goldman Sachs has been operating in this segment of the financial services system for almost 30 years. The asset management arm offers consumers a variety of private credit strategies for various tiers of investors in companies who get paid back depending on the type of debt or equity. This was reported by Marc Nachmann.

Goldman Sachs sees asset and wealth management as a kind of growth area. The corresponding approach was formed after the Wall Street giant stepped back from an ill-fated foray into the sphere of consumer banking.

Currently, about 70% of Goldman Sachs’ revenue is provided by its investment banking unit and trading arm.

Marc Nachmann was appointed in charge of asset and wealth management after CEO David Solomon merged the businesses in 2022. Since then, Goldman Sachs Asset Management has lost several high-profile managers, including former chief investment officer Julian Salisbury, who went on to a career at the Sixth Street investment firm, and Katie Koch, who became CEO of TCW Group.

Marc Nachmann stated that when combining businesses, staff turnover is a standard pattern, but morale is still at a high level. According to him, employees are very much focused on implementing a strategy for two large businesses and feel very comfortable around the direction of the company.

Mr. Nachmann said that the bank hires employees to manage assets and wealth. He aims to increase the return on equity of Goldman Sachs Asset Management to an average level. The achievement of this goal is expected in the medium term. As part of the relevant intentions, measures will be taken to reduce the bank’s investments held on its balance sheet, which have been a factor in restraining profitability.

At the end of the fourth quarter of 2023, the volume of legacy investments decreased to $16.3 billion. In December 2022, this figure was approximately $30 billion. The specified indicator is higher than the internal target.

Marc Nachmann announced his intention to continue reducing selling over the next three to four years. According to him, the financial consequences of these actions will be insignificant.

Marc Nachmann also sees opportunities to increase the $1 trillion financial volume wealth management business. He noted that in this case, efforts will be focused on intensifying interaction with ultra-high capital in the markets in Europe and Asia. According to him, within the framework of the mentioned activities, consultants will be gained and the volume of lending to clients of the private financial institution will be increased.

Currently, 80% of Goldman Sachs’ wealth management business is based in the United States. Marc Nachmann is confident that the mentioned business can be doubled internationally over the next few years.

The share of Goldman Sachs loans in wealth management as a percentage of the assets of its wealthy clients is 3%. This figure is significantly lower than the average of 9% among similar companies, as evidenced by data from Autonomous Research.

Marc Nachmann says that lending to wealthy people is a good business.

As we have reported earlier, Goldman Sachs and BNY Mellon Reportedly Join Blockchain Project.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.