GS Goldman Sachs Group Inc

By Liz Hoffman 

A Goldman Sachs Group Inc. profit machine that has invested the bank's own money in Asian property, African startups and troubled U.S. retailers, among other ventures, is opening up to outside investors.

Goldman plans to raise outside money for its special-situations group, according to people familiar with the matter. Also under discussion is a broader reorganization of the firm's various private investing activities into a new unit that would seek to raise new funds across a variety of strategies, the people said.

The special-situations group has been run since 2013 by Julian Salisbury, a detail-oriented Brit who joined the firm's management committee two years ago. It has grown from about $20 billion on the eve of the crisis to about $30 billion today, people familiar with the matter said.

In the early 2000s it pioneered the sort of go-anywhere investing that has caught on at private-equity firms such as TPG and Blackstone Group LP, and it remains one of the most profitable businesses at Goldman.

It will likely be combined with Goldman's merchant-banking group, the historical home of the bank's private-equity investing.

"Based on our track record, there is an opportunity to raise additional third-party funds across equity, credit and real estate," Goldman Chief Executive David Solomon told analysts earlier this year. "We have a world-class alternative investing franchise, which has generated strong returns over three decades [and] presents us with extraordinary opportunities to partner with clients to invest their capital alongside our own."

In a memo to employees last week entitled "Our Forward Strategy," Mr. Solomon said growing the bank's alternative asset-management business is a priority.

The discussions show how much has changed on Wall Street since the financial crisis. In Goldman's last big push into private equity, in the 2000s, it put billions of dollars of its own money into megabuyouts. Now it seeks raise money from outside investors like pension funds and clip steady fees for managing it. Shareholders today value steady, low-risk businesses like money management, setting off an asset-gathering race across Wall Street.

The reorganization also shows Mr. Solomon busting up silos in an effort to modernize and streamline the firm. Under a "One Goldman" banner, he has launched a firmwide effort to better cover top clients.

Scattered across Goldman are at least a half-dozen units tasked with making investments, built over decades of ad hoc planning and guarded jealously by their owners. Their results are comingled in an "investing and lending" reporting segment that shareholders tend to dismiss as opaque and unpredictable.

Merging them will create a unit resembling a smaller version of KKR & Co. or Blackstone that executives hope will be better understood and more richly valued by shareholders. The move may eventually change how Goldman publicly reports its earnings, some of the people said.

The firm weighed such a combination once before, in 2008 as the crisis deepened, but the endeavor fell apart due to personality clashes, a person familiar with the matter said.

Most banks spun off their private-equity arms after the 2010 passage of the Dodd-Frank financial law, which banned banks from investing their own money into buyout funds and slapped heavy capital charges on illiquid portfolios. Goldman held on more tightly, betting that it could navigate the new rules.

It started doing deals straight off its balance sheet, sidestepping the ban on funds. Successful investments of that vintage included credit bureau TransUnion and financial-data firm Ipreo. In 2017 Goldman raised its first buyout fund since the crisis, a $7 billion pool that includes only a small amount of the bank's own money.

The special-situations group has wide leeway to invest wherever it sees an opportunity. In the late 1990s, it made a killing in the wake of the Asian financial crisis. These days it is more of a middle-market lender, serving midsize companies that have trouble borrowing elsewhere. It has invested in a Nigerian e-commerce startup, bought troubled commercial real-estate loans in New Zealand and backed Mexico's fastest-growing fintech lender.

It commonly lends to distressed companies, exacting terms that boost its profits and limit its potential losses. A recent loan to a struggling California turbine maker carries a 13% interest rate and requires the company to set aside $12 million in cash as collateral -- 40% of the value of the loan.

Write to Liz Hoffman at liz.hoffman@wsj.com

(END) Dow Jones Newswires

March 12, 2019 15:58 ET (19:58 GMT)

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