Let the doubters be damned. When Goldman Sachs Asset Management hit the market for its latest private equity fund-of-funds, some onlookers predicted the firm would have trouble hitting its target. It’s not that Goldman Sachs was overly ambitious, but the detractors were quick to point to a rash of defections at the firm as well as an ultra-competitive market that could have served to hinder its effort. Goldman responded by exceeding the target on not just its private equity fund of funds but also a distressed fund of funds that closed last May and a secondaries fund that was capped off this past December.
Even if the firm was at all worried about being able to raise these vehicles, the sweat has long since dried off. “Relative to our initial targets for these funds, we exceeded all of those, and we’re quite pleased with the results,” Goldman Managing Director Michael Miele said. GS Private Equity Partners 2004, the firm’s seventh primary fund of funds, closed with $1.2 billion in committed capital; GS Vintage III, the secondaries fund, corralled $1.5 billion, and GS Distressed Opportunities Fund II was capped off in May at $386 million.
The questions surrounding the firm’s fundraising centered around a management shakeup among the private equity group. The firm lost three mainstays, including Philip Cooper to retirement, Elizabeth Varley-Camp to Ewing Management Group and Geoff Clark, who reportedly left for personal reasons. While nobody from the firm would comment on their departures, Miele credited a “very deep team” and a “broad base of support institutionally” for helping the firm regroup soon after.
Some firms approach their fund of funds offerings with one all-encompassing product, but Goldman’s tactic is to differentiate the offerings and let the investors choose where they want their exposure. “There’s a clear overlap between these three funds, yet there’s also a reasonable amount of diversity,” Miele said, identifying that it gives Goldman’s investors the opportunity to pick and choose. “We’ve always had them split up in order to give our investors the pure exposure to any one of these asset classes. As a result, we have a number of investors that participate in multiple products.”
Goldman and its employees are supporting each of the new funds, and make up roughly 10% of the total capital. Other investors were not identified, but Miele noted that the usual suspects-pension funds, high-net-worth individuals and endowments-make up the remainder of the investor base.
Goldman’s investment approach to its private equity fund of funds does not stray from its original concept developed in 1997 through its first such vehicle. “From the beginning we’ve tried to create a diversified portfolio of different fund types ranging from venture capital and buyouts to growth capital and distressed situations. We also diversify globally. If anything the last couple years has shown us, it’s that you can’t time the market… In the past when it has appeared the worst time to invest in private equity it turned out to be the best and vice versa,” said Miele.
However, despite the consistency from fund to fund, Goldman does not have an allocation model that it follows regarding the four asset classes the firm will invest in. “It starts out as a clean sheet of paper and the idea is to invest in 18 to 25 funds that are different in their strategies, industry focus, sizes and general approach to the business,” Miele said.
With Goldman’s secondaries fund, the firm will look to buy either a limited partner interest in an existing fund or the firm will buy a firm’s portfolio of direct investments. “It’s an approach that tries to provide liquidity and capital solutions to both limited partners and GPs,” Goldman Managing Director Christopher Kojima said. “There is definitely intense competition in the secondaries market. We try to mitigate and avoid this by focusing on areas where we have a competitive advantage, and that comes in the form of broad sourcing relationships worldwide, extensive due diligence resources and unusual access to general partners through our substantial fund of funds business.”
Meanwhile, the firm’s distressed fund of funds, in the roughly 10 months since its final close, has already committed more than 70% of its capital. Goldman couldn’t comment on its fundraising activity, but given the pace of investment, it stands to reason that the firm will soon begin raising a new vehicle. Additionally, according to a Securities and Exchange Commission, Goldman has filed a private placement memorandum for a new hedge fund of funds, The Goldman Sachs Hedge Fund Partners Registered Master Fund LLC. That fund, the filing says, will look to gain exposure to long and short equity, event driven, relative value and tactical trading hedge funds. However, the hedge fund is not part of the Goldman Sachs private equity group.