Goldman Sachs Expands Into Private Equity Lending Market, Targets Global Growth

Goldman acquired a $15 billion loan portfolio from the failed Signature Bank during an FDIC auction last year.

Goldman Sachs (GS.N) is making a significant move into the lending market for private equity and asset managers, aiming for international growth as it steps in to fill gaps left by regional bank upheavals and the sale of Credit Suisse.

This initiative, alongside efforts by JPMorgan Chase (JPM.N) and PNC Financial Services (PNC.N), targets the $800 billion to $1 trillion market.

With private equity deal activity poised to increase due to record-high fundraising, asset-based, short-term loans are becoming more appealing due to their lower risk.

Goldman acquired a $15 billion loan portfolio from the failed Signature Bank during an FDIC auction last year.

Maheshwar Saireddy, Goldman Sachs’ global head of mortgage and structured products, emphasized, “The focus is to lend to large alternate asset managers, private equity sponsors.”

He added, “One of the big initiatives we’ve been working on is to create more stable revenue in our global banking and markets businesses.”

Following the strengthening of its U.S. operations, Goldman plans to extend its reach to Europe, the UK, and Asia, and has expanded its teams in Dallas and Bangalore for this purpose.

The Signature portfolio included loans to private-equity firms and venture capital funds to manage their working capital, known as capital call facilities or subscription line loans.

These loans, secured against the commitments of a fund’s investors, are essential for managing short-term financial needs and must be repaid within a defined period.

Saireddy noted that asset-secured lending is pivotal for building Goldman’s financing business in fixed income, currency, commodities (FICC), and equities.

“We’ve grown our deposit base tremendously over the past five to seven years,” he stated, linking the growth of deposits to the need for matching assets.

In the first quarter, Goldman posted record FICC financing revenues of $852 million.

However, loans to private equity firms can decline during periods of reduced activity, such as in 2022 and 2023 due to the Federal Reserve’s monetary tightening. Citigroup (C.N) also reduced lending in this market to improve returns.

The market for subscription line financing saw a shortfall after the collapse of lenders like Silicon Valley Bank and Signature, as well as Credit Suisse’s sale to UBS, creating opportunities for new entrants.

“Given the supply and demand dynamics where demand has grown significantly, supply hasn’t kept up in the last two years, we’re seeing some additional banks coming into this space,” said Greg Fayvilevich, Fitch’s global head of funds group.

JPMorgan Chase increased its lending following the acquisition of First Republic Bank.

Jeff Kaveney of JPMorgan Private Bank affirmed, “We are committed to being the leading financial partner to funds of varying stages and their principals as they fuel the world of high-growth investments.”

PNC also acquired a portfolio of capital commitments facilities from Signature last year.

According to Rory Callagy of Moody’s Private Credit team, capital constraints at some banks are attracting new players, including non-bank lenders.

Additionally, Ares, an alternative investment manager, is collaborating with banks to help increase their capacity for providing subscription line loans.