Goldman Sachs Targets Private Equity After Credit Suisse Shakeup

In an attempt to fill the hole left by unrest at regional banks and the sale of Credit Suisse, American investment bank Goldman Sachs is pushing its way into the lending market for asset managers and private equity. The company is also looking to expand internationally.

In this $800 billion to $1 trillion sector, the Wall Street bank is ramping up in competition with competitors JPMorgan Chase and PNC Financial Services, as record-high fund-raising is likely to drive up private equity transaction activity. These loans have a reduced risk because they are short-term and asset-based.

Goldman purchased a $15 billion lending facility portfolio from the defunct Signature Bank last year at an auction held by the Federal Deposit Insurance Corp (FDIC).

Goldman has hired people in Dallas and Bangalore to service these loans and intends to expand in Europe, the UK, and Asia after strengthening its U.S. business. He did not say when the expansion will happen.

Known as capital call facilities or subscription line loans, the Signature portfolio featured loans to venture capital funds and private equity companies, which constituted a significant portion of its clientele, to manage their working capital.

Subscription lines, also known as credit facilities, are loans obtained primarily by closed-end private market funds backed by pledges made by fund participants. They must be paid back over a certain time frame.

The company's expanding finance operations in fixed income, currency and commodities (FICC) and stocks is facilitated by asset-secured lending.

Surge in FICC Revenues and Shifts in Subscription Line Lending Market

Goldman Sachs reported record FICC finance revenues in the first quarter, totaling $852 million. Indeed, when private equity businesses slow down, as they did in 2022 and 2023 due to the Federal Reserve's monetary tightening, loans to these firms stop flowing.

During a July results call, Citigroup stated that it has cut lending in this area, citing an attempt to increase returns. The bank did not want to remark.

However, experts note that the market for financing through subscription lines was underserved following the failure of lenders like Silicon Valley Bank and Signature, as well as the sale of Credit Suisse to UBS last year, which made room for new competitors.

Following its acquisition of First Republic Bank last year, JPMorgan Chase increased lending.

Last year, PNC, a sizable regional lender with headquarters in Pittsburgh, Pennsylvania, purchased a portfolio of capital commitments facilities from Signature.

Non-bank lenders are among the relatively new participants entering the market as a result of capital restrictions at some banks, according to Rory Callagy, assistant managing director of Moody's Private Credit team.

According to someone familiar with the situation, banks and alternative investment manager Ares are collaborating closely to assist banks expand their ability to offer subscription line loans.

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