Goldman Sachs Seeks To Set Record With New Mezz Fund

Firm: GS Mezzanine Partners (Goldman Sachs)

Fund: GS Mezzanine Partners V

Initial Target: $12.5 billion

Placement Agent: None

Predecessor Fund: GS Mezzanine Partners 2006 ($9.25 billion)

GS Mezzanine Partners, the mezzanine lending arm of Goldman Sachs, is in the market to raise a new subordinated debt fund that could grow to as large as $18 billion, a source close to the situation told Buyouts. Such a vehicle would be the largest mezzanine fund in the world, vastly eclipsing the record-setting $9.25 billion mezz fund that the firm raised just last year.

GS Mezzanine Partners V has an equity capitalization target of $7 billion, and an additional leverage target of $5.5 billion, giving the fund a total target of $12.5 billion. However, according to our source, Goldman Sachs is confident that it can raise all $12.5 billion in equity, which, with the addition of leverage, could bring the fund size up to $18 billion.

Fundraising for Fund V began in June, and will likely wrap up later this summer or early in the fall, according to our source, who noted that internal commitments to the fund from Goldman Sachs employees and the firm itself are expected to total $3 billion to $4 billion. Internal commitments accounted for about $2.5 billion of the $9.25 billion GS Mezzanine Partners 2006, our source noted.

No placement agent has been tapped for the fundraising initiative, our source said. Goldman Sachs declined to comment for this story.

The fifth fund is being positioned as a “private high-yield” vehicle capable of helping its portfolio companies achieve significant amounts of leverage while remaining free of the quarterly reporting requirements that come with taking on publicly traded debt, according to our source. Recent resistance to high-yield bond deals may also help GS Mezzanine Partners find a receptive audience for its new subordinated debt fund.

“I think they’ll make a nice little niche for themselves with this strategy, and they’ll probably be able to raise the fund without breaking too much of a sweat,” our source added. “They can become their very own little high-yield market.”

GS Mezzanine Partners 2006 has the ability to invest $40 million to $500 million in a single deal. Its predecessor, the $3.5 billion GS Mezzanine Partners III, had an investment window of $24 million to $215 million per deal. If Goldman does indeed close Fund V at the $18 billion mark and adjusts its investment window accordingly, the new fund could potentially make individual debt placements of up to $1 billion.

The fund is targeting returns in the high teens, according to our source.

Goldman Sachs has recently made a name for itself as one of the biggest fundraisers in the private equity world. On April 23, the firm closed a $20.3 billion pool of dry powder for its buyout arm GS Capital Partners’s sixth fund. That fund is the largest buyout fund in history.—A.N.