Goldman Sachs Group Inc. (GS) is following Berkshire Hathaway Inc.’s (BRK.A) approach, doubling down on taking minority stakes in private equity firms, reported The Wall Street Journal on Friday. A freshly raised $2.5 billion by the investment bank's Petershill group, a segment of Goldman's asset management business, reflects a larger industry trend in which firms are choosing to stay private longer. (See also: Expect More Global Volatility: GS, Bridgewater.)
In the recent years, private equity firms have scored record amounts in funding from pensions and endowments to buy out companies and lend money to growth businesses. Last year, U.S. private equity firms landed over $362 billion, setting a record not seen in over a decade, according to data firm LP Source. Goldman had originally targeted $2 billion for its new fund, set to focus on passive stakes in midsized targets with assets between $5 billion and $20 billion.
The private equity space has been particularly attractive to longer-term investors, as funds typically hold money of major institutions for at least a decade in return for a cut of the profits and management fees throughout the period.
New Fund Could Open Up Private Equity
Goldman's new strategy, which includes Petershill Private Equity LP and other related funds, mirrors the approach of billionaire investor Warren Buffett's Berkshire Hathaway, which does not set deadlines to exit its investments. The WSJ suggests that over time, the bank could cash in on its positions by selling off stakes to investment managers and other buyers, or take a portion of the portfolio public. The latter would mark a milestone for the industry as it could open up the market to buyers outside of traditional investors in the asset class, including large institutions and the ultra-rich.
“If you’re a public investor, there are not a lot of ways to invest in private equity through the public markets,” said Michael Brandmeyer, the co-chief investment officer of Goldman’s alternative investments and manager selection group. “We think there could be a potentially enthusiastic audience for a listing.” (See also: Don’t Overreact to Higher Interest Rates: JPMorgan.)