U.S. investment bank Goldman Sachs (GS.N) is muscling into the lending market for private equity and asset managers, planning an overseas expansion as it helps fill a void left by turmoil at regional banks and the sale of Credit Suisse.
The Wall Street bank and rivals JPMorgan Chase (JPM.N) and PNC Financial Services (PNC.N) are stepping up in this $800 billion to $1 trillion market as private equity deal activity is expected to pick up due to record-high fund-raising. Such loans are asset-based and short-term, lowering their risk.
Goldman last year bought a portfolio of loan facilities valued at $15 billion from the failed Signature Bank during an auction by the Federal Deposit Insurance Corp (FDIC).
"The focus is to lend to large alternate asset managers, private equity sponsors," Maheshwar Saireddy, Goldman Sachs' global head of mortgage and structured products, told Reuters.
"One of the big initiatives we've been working on is to create more stable revenue in our global banking and markets businesses," he said.
After bolstering the U.S. business, Goldman plans to expand in Europe, the UK and Asia, and has added staff in Dallas and Bangalore to service these loans, Saireddy said. He did not disclose the expansion's timing.
The Signature portfolio included loans to private-equity firms and venture capital funds, a key part of its client base, to manage their working capital, known as capital call facilities or subscription line loans.
A subscription line, also called a credit facility, is a loan taken out mostly by closed-end private market funds, secured against the commitments of a fund's investors. It must be repaid over a defined period.
Saireddy said asset-secured lending helps the firm build a growing financing business in fixed income, currency and commodities (FICC) and equities.
"We've grown our deposit base tremendously over the past five to seven years," Saireddy said. "And as our deposits are growing so we are trying to line up assets to match those deposits."
In the first quarter, Goldman Sachs posted record FICC financing revenues of $852 million.
PE ACTIVITY
To be sure, loans to private equity firms dry up in years when the firms reduce activity, as in 2022 and 2023 when the Fed's monetary tightening led to a drop-off in dealmaking.
But the market for subscription line financing was under-served after the collapse of lenders such as Silicon Valley Bank and Signature and the sale of Credit Suisse to UBS last year, allowing new players to step in, analysts say.
"Given the supply and demand dynamics where demand has grown significantly, supply hasn't kept up in the last two years, we're seeing some additional banks coming into this space," said Greg Fayvilevich, Fitch's global head of funds group told Reuters.
JPMorgan Chase stepped up lending after its acquisition of First Republic Bank last year.
"We are committed to being the leading financial partner to funds of varying stages and their principals as they fuel the world of high-growth investments," said Jeff Kaveney, head of JPMorgan Private Bank's fund banking group, which services private equity and venture capital funds and their principals.
PNC, a large regional lender based in Pittsburgh, Pennsylvania, acquired last year a portfolio of capital commitments facilities from Signature.
Capital constraints at some banks are attracting relatively new players into the market including non-bank lenders, said Rory Callagy, associate managing director with Moody's Private Credit team.
Alternative investment manager Ares is working closely with banks to help free up their capacity to provide subscription line loans, one source familiar with the matter said.
