Wall Street giant Goldman Sachs Group is doubling down on the high flying private equity space with the announcement of a new $2.5 billion effort to take minority stakes in private equity firms. While the deal is significant as it reflects a larger industry trend wherein firms are choosing to stay on the private market longer, it could also open up the once exclusive private equity market to the larger public.
The newly raised multi-billion-dollars by the investment bank's Petershill group, a segment of Goldman's asset management business, will be deployed similar to how Warren Buffet's Berkshire Hathaway approaches its investments. Goldman's new strategy, including Petershill Private Equity LP and other related funds, will not set deadlines to exit its investments. This type of investing has been particularly attractive to long-term investors, given funds typically hold money of major institutions for at least a decade, in return for a cut of the profits and management fees.
The bank had initially targeted $2 billion for its latest fund, which will take mostly passive stakes in mid-sized firms with assets between $5 billion and $20 billion.
Over time, the bank could decide to cash in on its positions by selling off stakes to investment managers and other buyers, or take a portion of the portfolio public, as reported by Wall Street Journal. If the bank acted on the latter, it could open up the high-growth private equity space, once only accessible to largest institutions and the ultra-rich, to mom-and-pop investors.
"If you're a public investor, there are not a lot of ways to invest in private equity through the public markets," said Michael Brandmeyer, the co-chief investment officer of Goldman's alternative investments and manager selection group. "We think there could be a potentially enthusiastic audience for a listing."
The new fund could further boost the private equity space as firms ink record amounts of funding from pensions and endowments to buy out companies and back growth businesses. In 2017 alone, U.S. private equity firms scored more than $362 billion, marking a milestone not seen in over a decade, according to data firm LP Source.