Goldman closes $8.5bn co-investment fund

The global investment bank has underlined its determination to remain active as an LBO player with the closure of its fifth co-investment vehicle, the largest buyout fund raised to date.

Goldman Sachs Capital Partners has announced the final close of its fifth global buyout fund on $8.5 billion (€6.6 billion). The fund is expected to mainly invest in large LBOs led by other private equity groups in North America, Europe and Asia.
GS Capital Partners V, which will be managed by the bank’s principal investment arm, received approximately 30 percent of commitments from Goldman Sachs itself and a further $1 billion from its staff. The remainder came from a number of institutional investors and Goldman’s global network of high net worth individuals and wealthy families, according to the firm.

As long as they continue to perform as partners as opposed to competitors, we believe their private equity business will continue to fit with Goldman Sachs

Henry Kravis, managing partner Kohlberg Kravis Roberts

The closing of GS Capital Partners V sends a strong signal to the private equity community about Goldman’s plans in the LBO market. It follows the withdrawal of a number of its investment banking peers, which have closed or scaled back captive buyout operations in order to avoid potential conflicts of interests with private equity firm clients.
According to a report in the Wall Street Journal, Goldman Sachs has been seeking to reassure private equity firms in this regard. Goldman chief executive Henry Paulson and president Lloyd Blankfein have reportedly met private equity firms including Bain Capital and Texas Pacific Group to clarify their intentions.

Apparently, the effort has paid off. Henry Kravis of Kohlberg Kravis Roberts told the WSJ: “We have never run into them where they’ve competed with us. As long as they continue to perform as partners as opposed to competitors, we believe their private equity business will continue to fit with Goldman Sachs.’ 

Late last year, Credit Suisse First Boston announced that it was spinning off DLJ Merchant Banking Partners, amid complaints from its private equity clients. However, in March CSFB said it had decided not to spin off the buyout unit.

Instead, 30 DLJ professionals, led by Steven Rattner and including Colin Taylor and Susan Schnabel, will remain to oversee DLJ’s existing portfolio companies spread over three funds and to try and raise new capital for co-investment. At the same time, Thompson Dean, head of DLJ, said he would leave to set up his own fund.

Henry Kravis – happy with GS as “partners”, not competitors

The move by CSFB came after a number of large leveraged buyouts firms, having lost to DLJ in the auction for pharmaceutical firm Warner Chilcott, reportedly told the investment bank that they did not appreciate being outbid by a CSFB private equity vehicle when they were paying the bank millions of dollars in fees.

Earlier this year, global financial giant JP Morgan Chase also decided to spin out JP Morgan Partners, its large private equity arm with approximately $13 billion of capital under management, into an independent unit once it has finished investing its current $6.5 billion Global Fund.

Morgan Stanley also spun off its in-house merchant banking operation last year.

The Goldman team comprises 100 professionals in New York, San Francisco, London, Hong Kong and Tokyo. Past investments include Allied World Assurance Company, Burger King, Cognis, Deutschland, Messer Griesheim, Nalco, Polo RalphLauren, VoiceStream Wireless and Yankees Entertainment and Sports Network.

Goldman has been actively investing in private equity deals since 1991. The group has raised 11 funds aggregating $26 billion of capital to date.

Other US investment banks to remain active as buyout investors include Lehman Brothers and Bear Stearns.