Goldman to merge four units to create a larger entity to invest in private companies, real estates and other deals

Goldman Sachs is finally embracing its status as a private equity giant.

The firm’s top executives in recent months have laid out plans to raise more client funds for private investing and rely less on its own balance sheet. As part of that effort, the bank is looking to consolidate the investing activities of multiple units across the firm to add more heft to its merchant banking division, according to people briefed on the matter. A related announcement was set for as soon as Monday.

The Wall Street Journal reported Sunday that Goldman is pulling together four separate units, including the special situations group from its trading division, to create a larger entity that will invest in private companies, real estate and other deals. Leslie Shribman, a Goldman Sachs spokeswoman, declined to comment on the move.

“There actually is a very, very significant alternatives asset manager inside Goldman Sachs,” which has operated from a number of different units in the past, Chief Executive Officer David Solomon told Bloomberg Television in April, when asked whether he aimed to create something akin to Blackstone Group. “We see opportunities to expand what we’re doing for clients in that business and be a little more focused on growing our client franchise around those activities.”

Under Solomon, who rose to CEO in October, the firm has been honing its strategy for the private investing business, looking to make it operate more efficiently and profitably, while relying more on fees than investment gains. Rich Friedman, who led the merchant banking unit for 21 years, handed off leadership in April to Andrew Wolff and Sumit Rajpal, who have principal responsibility for the private equity business. The shake-up also gave Julian Salisbury, head of the special situations group, oversight of real estate across the firm.

Goldman Sachs has long been unique among Wall Street banks in the size of investments it makes with its own funds – the firm had US$20 billion in private equity investments at the end of 2018. While the company’s status as a major investor has raised conflicts for its investment bankers, it’s also been hugely profitable. Investing and lending, the reporting segment that includes the merchant bank division, contributed higher pretax profit than the firm’s trading or investment banking businesses last year.

John Waldron, the firm’s president, said at an industry conference last month that the bank will look to court institutional investors with its ability to offer private equity deals and public market strategies.

“This is going to be a long-term journey,” he said at the Bernstein Strategic Decisions Conference. “We’re not going to turn this battleship from balance sheet investing to fee income overnight.”

Goldman shares have fallen 18 per cent in the past year, compared with the 1.3 per cent decline in the Standard and Poor’s 500 Financials Index. The broader S&P 500 Index climbed 3.8 per cent.