While many of Goldman Sachs’ I-banking peers have slowly recused themselves from participating directly in private equity, Goldman has reaffirmed its dedication to the asset class by raising what currently stands as the largest fund to date, the $8.5 billion GS Capital Partners V, LP. The fund is one of a handful that have pushed the envelope in terms of redefining just what exactly is a mega fund.
Carlyle Group just raised more than $10 billion (through two funds), Blackstone Group is seeking $10 billion as well, and Thomas H. Lee Partners and Warburg Pincus are each targeting more than $7.5 billion.
Even as most investment banks have withdrawn from the space so as not to step on the toes of some of their best clients (namely the large buyout shops mentioned above), Goldman’s new fund would seem to put the firm directly in the path of its mega-fund rivals.
However, in a period when consortium deals have become the norm, at least in the large market, Goldman has been able to embrace the clubbing trend, which allows it to work with as opposed to against its LBO peers and potential clients. Richard Friedman, a managing director at the firm, noted, “More than 80% of the capital we’ve invested in the past five years has been invested in transactions with other private equity firms. It’s the underlying strategy-to be a partner of choice as opposed to being an individual LBO group.” But, he added, “We do have to navigate very carefully.”
Goldman originally launched a $6 billion targeted fund last October with the bank, and its employees signed up to contribute 30% of the capital. But investor enthusiasm forced the firm to push its target up to $8.5 billion, and the bank was still able to contribute $2.5 billion of that, maintaining its 30% commitment level. The fund held two closes within 30 days of each other, with the final close occurring in early April.
The terms of the vehicle stayed true to industry standards, with an 80%/20% carried interest split, although Friedman did specify that Goldman will only charge management fees on capital that the firm invests. This variation largely stems from Goldman’s investor base, which is largely made up of the bank’s high-net-worth clients rather than the normal institutional limited partners most mega-funds pursue.
“We didn’t want to raise more than we can invest,” Friedman said. “During the marketing period we observed that the size of opportunities was growing… Most other funds have the big state and corporate pension plans backing them, but our fund is made up of a larger and more diverse group of smaller investors.”
According to a Form D filing submitted to the SEC, the minimum investment level was set at $5 million, although the firm reserved the right to accept lesser amounts. Friedman did not indicate whether the firm did in fact take in investments below $5 million.
The fund will be a global vehicle and will not stray from the firm’s previous strategy. Goldman’s preceding fund committed roughly 50% of its capital in the U.S., 30% to 35% in Western Europe, and the balance went toward Asia. Friedman said he anticipates Goldman will commit the capital within the next four to five years.