Goldman Sachs Embraces Private Markets for Growth and Executive Compensation
Goldman Sachs (GS), a prominent investment bank, is increasingly aligning with private equity firms, recognizing the critical role of private markets in its future expansion. This shift is evident in both strategic initiatives and executive compensation.
Executive Compensation Aligns with Private Equity Practices
CEO David Solomon received an $80 million retention package and an $8 million performance raise, including carried interest, a compensation structure typically used in private equity. This move reflects Goldman's efforts to retain talent amidst competition from alternative asset management firms.
Combination of Groups Targets Private Credit
Goldman has merged three groups into a "capital solutions group" focused on leveraging the surge in private credit, which has emerged as a key area for investment banks due to regulatory changes and high interest rates. This aligns with the trend of private equity firms providing loans to companies, competing with traditional banks.
Convergence of Public and Private Markets
Apollo Global Management CEO Marc Rowan argues that public and private markets are converging, as more companies choose to stay private due to factors such as regulatory burdens and investor scrutiny. Goldman CEO Solomon echoed this sentiment, emphasizing the cautious approach required when going public.
Dependence on Private Credit and Alternative Assets
Goldman's asset and wealth management division manages $145 billion in private alternative assets, generating higher fees than its equity capital markets business. The firm views growth in this area as crucial for steadier returns.
Decline in IPOs and Shift Towards Private Companies
The number of companies choosing to go public has declined in recent years, as private companies benefit from less stringent reporting requirements, lower litigation risks, and reduced public scrutiny. This trend has contributed to Goldman's focus on private markets.