Goldman Sachs offers reduced fees for larger LPs on new buyout fund

Goldman Sachs is offering management-fee discounts to limited partners who commit $250 million or more to West Street Capital Partners VII, the bank’s first buyout fund since its $20.3 billion 2007 vintage.

Larger LPs will pay 12 percent to 16 percent less than smaller investors at various points in the vehicle’s fund life, according to Minnesota State Board of Investment documents Buyouts obtained through a public-records request. Minnesota committed as much as $150 million to West Street Capital Partners VII at its Dec. 1 board meeting.

LPs that commit $250 million or more will pay a 1.25 percent management fee on committed capital during the fund’s investment period. The annual fee falls to 0.875 percent of net invested capital during the final two years of the fund’s five-year investment period. LPs are charged 0.75 percent of net invested capital thereafter.

Goldman Sachs also will reduce the management fee for smaller LPs over the life of the fund, the Minnesota documents show. Investors who commit less than $250 million will pay the firm a 1.5 percent annual management fee on their committed capital. The fee falls to 1 percent of their net invested capital during the final two years of the investment period and 0.75 percent for the rest of the fund.

Goldman Sachs is targeting $5 billion to $8 billion for West Street Capital Partners VII. The vehicle is expected to hold a first close in 2016.

Fund VII marks Goldman’s first dedicated buyout fund since before the global financial crisis. The previous fund, GS Capital Partners VI, invested in several of the major club deals that characterized PE M&A in the lead-up to the economic collapse.

Fund VI’s portfolio includes a stake in the $45 billion acquisition of TXU, which later went bankrupt. The fund was netting a 6 percent internal rate of return and 1.2x multiple on invested capital as of June 30, Minnesota documents show.

Goldman Sachs improved its track record since Fund VI’s investment period wrapped in 2012, the investment memo says. From 2012 to 2014, the buyout team invested $3.8 billion in new deals using balance-sheet capital and separately managed accounts. Those deals were netting a 14 percent net IRR and 1.3x multiple in aggregate as of June 30, according to Minnesota documents.

At its current target size, West Street Capital Partners VII will be considerably smaller than the $20.3 billion raised through Fund VI. The firm is also investing in smaller deals, typically $100 million to $500 million in size, the Minnesota memo shows.

The investment team is led by Chief Investment Officers Sumit Rajpal and Andrew Wolff, according to Minnesota documents. Rich Friedman chairs the fund’s investment committee.

Fund VII will include at least $500 million of commitments from Goldman Sachs employees, according to the memo.

Goldman Sachs could not be reached for comment.

Action Item: More about Goldman Sachs: www.goldmansachs.com

Goldman Sachs CEO Lloyd Blankfein takes part in a panel discussion on Nov. 26, 2013. Photo courtesy Reuters/Rebecca Cook