Goldman Sachs Group, Inc. (NYSE:GS) has another $11.7 billion to put to work in private equity. Most of that money, around $9.6 billion, went into West Street Capital Partners IX, the ninth vintage of Goldman’s flagship buyout strategy, while another $1.6 billion was raised for West Street Asia Equity Partners I, and related co-investment vehicles brought in $500 million.
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Goldman Sachs has been trying to build a larger, more durable asset-management business alongside the trading and investment-banking operations for which it is better known, and the latest fundraising gives that strategy more capital to work with.
Bull Case
Goldman Sachs is attracting billions of dollars from outside investors at a time when alternatives have become an increasingly important part of its Asset & Wealth Management business. West Street Capital Partners IX drew money from institutional and high-net-worth investors across North America, Europe and the Middle East, alongside significant commitments from Goldman Sachs and its employees.
And the money isn’t simply sitting on the sidelines. Michael Bruun, global co-head of private equity at Goldman Sachs Alternatives, told Reuters that more than one-third of the flagship fund has already been invested. Goldman Sachs expects to deploy the capital over roughly four to four-and-a-half years. Its investments so far include U.S. cybersecurity audit firm Schellman, European medical-device maker Numantec, and U.S. sports representation and marketing agency Excel Sports Management.
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The fundraising also fits into a much bigger expansion already underway. Goldman Sachs reported $459 billion in alternative investment assets under supervision at the end of the second quarter, up $30 billion during the quarter, with gross third-party alternatives fundraising across strategies reaching a record $59 billion in fiscal Q2. That scale is also beginning to show up in fees, as management and other fees from alternative investments reached $725 million in Q2, up 22% from a year earlier.
Goldman Sachs has set a longer-term goal of reaching $750 billion in fee-paying alternative assets under supervision by the end of 2030. The latest private-equity raise gives the firm another pool of capital to deploy as it works toward that target.
Bear Case
There is an important difference between raising $11.7 billion and earning attractive returns on it. Bruun said that Goldman Sachs typically looks at companies with enterprise values ranging from about $500 million to $2 billion or $3 billion and expects to hold investments for four to five years. He also stressed that the firm needs to create value and facilitate exits during that period. That puts the next challenge beyond fundraising, since more than one-third of West Street Capital Partners IX has already been invested, but much of the capital still needs to be deployed, and the investments ultimately need viable exit routes.
Goldman’s $750 billion alternatives target also remains a target, not an achieved level. The firm has made considerable progress, but reaching it will require continued fundraising, deployment, and growth over the next several years.
Conclusion
The $11.7 billion raise says something useful about Goldman Sachs’ (NYSE:GS) alternatives strategy, which is that investors are still willing to hand the firm large amounts of capital, and the company is already putting a meaningful portion of its newest flagship fund to work. The harder part comes next, as private equity is ultimately judged on what happens between buying and selling a company. Goldman Sachs expects to own many of these investments for four or five years, which means today’s fundraising won’t tell shareholders how successful the latest vintage will be.
What it does show is that the company’s attempt to build a larger alternatives franchise has plenty of momentum behind it. With $459 billion in alternative investment assets under supervision at the end of fiscal Q2 and a $750 billion target for 2030, the question now shifts from how much Goldman Sachs can raise to what it can do with the money.
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This article is originally published at Insider Monkey.