Big banks are sounding and acting lots more like private equity.
The most recent example got here last week as Goldman Sachs (GS), considered one of the oldest and best-known investment banks on Wall Street, repeatedly made clear with actions and words that non-public markets stand to play a critical role in its future growth — and even how top executives are compensated.
The pay component got here Friday as Goldman handed CEO David Solomon a retention package of $80 million to remain five more years and an $8 million raise for performance in 2024.
A few of that raise got here from a choice by Goldman’s board to introduce a retention tool long utilized by private equity giants: carried interest. Solomon and other executives now can get a chunk of the carried interest earned on private funds inside Goldman’s asset and wealth management division.
The board did so after considering “the unique competitive threats for talent that Goldman Sachs faces, including from alternative management firms and others beyond the standard banking sector,” the firm said in a filing.
One other reminder of the importance of personal markets at Goldman got here last Monday when it announced it had combined several groups into one “capital solutions group” that may look to reap the benefits of the recent surge across Wall Street in so-called private credit, a reference to debt that shouldn’t be issued or traded publicly.
Private credit is a loosely defined market that features a wide range of exotic lending activities. It has mushroomed over the past decade due largely to higher rates of interest and regulation that forced banks to retrench from their very own leveraged lending. Private equity firms have stepped in to fill that gap by making loans on to corporations, thereby competing with banks.
Solomon said during an analyst call Wednesday that Goldman’s recent combined group positions it “to operate on the fulcrum of some of the essential structural trends going down in finance, the emergence and growth of personal credit and other asset classes that may be privately deployed.”
Goldman’s approach follows a series of alliances struck last 12 months between traditional banks and alternative asset managers also angling for greater stakes within the $1.6 trillion private credit market.
One outstanding private equity boss, Apollo Global Management CEO Marc Rowan, has argued that private and non-private markets are converging. Each private and public assets carry risks and rewards, he told Yahoo Finance last November, with more corporations opting to go private than public. (Disclosure: Yahoo Finance is owned by Apollo Global Management.)
