Goldman sees financing as the future. It is rearranging itself to reflect that.

Goldman Sachs bets that a large amount of its growth will come from arranging financing.  (Bloomberg)
Goldman Sachs bets that a large amount of its growth will come from arranging financing. (Bloomberg)

Summary

The Wall Street giant’s new group will capitalize on a private-credit surge and anticipated private-equity deal boom.

Goldman Sachs has ambitions to be one of the biggest players in the increasingly competitive world of financing. Its new structure will make that clearer.

The Wall Street giant plans to combine three key groups in its global banking and markets division that work on finding or facilitating various types of financing deals, according to people familiar with the matter. Goldman plans to call the new group the Capital Solutions Group and unveil plans for it Monday.

It will include the financial-sponsors team that provides investment-banking services to private-equity firms, the global financing group that finds investors to provide capital for deals and a big chunk of what the company calls its FICC financing team that makes loans tied to collateral to other lenders, including private-credit funds.

It is also creating a team within Capital Solutions that will focus on finding alternative sources of financing, especially for its corporate clients.

The combined group will remain part of global banking and markets, one of Goldman’s two major divisions alongside asset and wealth management.

The move is a bet by the firm that a large amount of its growth will come from arranging financing, both by facilitating deals through its investment-banking arm and its asset-management business and using its own money to make loans. The unit will also offer other capital-markets services, including equity underwriting.

Private credit, or lending typically done by nonbanks, has exploded in recent years thanks in part to a regulatory push to remove risks from banks and a ravenous investor appetite for such loans. That shift has forced banks including Goldman and JPMorgan Chase to rethink their approaches and find more ways to participate.

Goldman expects the surge in demand for capital to continue. Many on Wall Street anticipate a dealmaking rebound, bringing with it a rush of private-equity activity. Corporate clients are also expected to continue investing in technology and other infrastructure at a rapid clip.

The bank’s top brass believes a handful of private-credit firms and similar institutions will soon dominate the debt landscape, some of the people said. Some of Goldman’s fiercest competitors are increasingly sprawling alternative-investment firms such as Apollo Global Management and Ares Management rather than other large banks. At the same time, the bank expects to continue partnering on even more deals with these same firms.

Unlike most banks, Goldman has both an investment-banking arm and a decades-old private-credit arm. For years, its global financing team has either turned to the public markets to provide financing for investment-banking deals or gone through its asset-management division to fund those deals.

Goldman has been seeing a convergence of public and private markets in financing and executives believe the new structure will better position the firm to serve this type of demand.

One particularly fast-growing area is asset-backed lending in its FICC financing unit. Goldman intends to continue to do more of this lending on its balance sheet but could be limited by regulatory constraints. That makes its ability to source capital from the asset-management side of its business even more important.

The new group will help with Goldman’s plans to create more funds for insurance companies, pension funds and other clients to invest in those loans.

The Capital Solutions Group will be led by Pete Lyon, who heads the financial institutions and financial sponsors groups in investment banking, and Mahesh Saireddy, who heads mortgages and structured products as part of FICC, the people familiar with the matter said. In a sign of the importance of the new initiative, Lyon and Saireddy will also join Goldman’s management committee, a selective group of the firm’s most senior executives that helps set its strategy.

Goldman’s top executives have been weighing changes to the committee for more than a year, with the goal of adding executives from top revenue-producing teams, some of the people said.

Vivek Bantwal, the current head of the global financing group, will move to asset and wealth management where he will co-head private credit along with James Reynolds, who is the head of direct lending, the people said.

Miriam Gottfried contributed to this article.

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com

Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
more

topics

MINT SPECIALS