Goldman Sachs offloads $4bn of PE from balance sheet

The bank is reducing the stress capital intensity of its businesses by selling balance sheet private equity investments, chief executive David Solomon said on the firm's earnings call.

Goldman Sachs offloaded a significant chunk of private equity investments from its balance sheet last year amid a greater focus on third-party management.

The investment banking giant sold or announced the sale of $4 billion of growth equity assets from its balance sheet in 2020, David Solomon said during a Q4 2020 earnings call on Monday. The sales were accompanied by $2 billion of related capital reduction.

The offloaded assets are understood to include life insurance provider Global Atlantic Financial Group, which was acquired by KKR in July; social media software company Sprout Social, which listed in December 2019; and a stake in Chinese insurer Taikang Life that was reportedly sold to Allianz in November of that year.

Goldman’s sell-down will continue into 2021 and beyond, Solomon noted.

“In terms of asset management, this is all about an overall reduction in the balance sheet intensity of that business,” he said. “It is being mindful of revenue in the near term; it is driving down on balance sheet investing and moving that into third-party activity, doing that across more sleeves with more clients of the firm.”

Goldman’s CET1 ratio – a measure of its ability to withstand financial distress – stood at 14.7 percent at year-end, according to its earnings statement. The bank views a 13 percent to 13.5 percent ratio appropriate over the medium term, Solomon said.

“We are encouraged by the results of the recent mid-cycle stress test,” he added. “That said, we will continue to proactively reduce the stress capital intensity of our businesses, including through continued sales of our on-balance sheet private equity investments.”

Goldman raised approximately $40 billion in commitments for the year across asset classes, including private equity, private credit and real estate. It aims to reach $150 billion of gross fundraising over five years and $100 billion of net inflows to alternatives. Priorities this year include growth equity, infrastructure and ESG.

Funds the firm raised last year included its latest flagship private equity secondaries fund, Vintage VIII, which held its final close on $10.3 billion in November, according to PEI data.

Net revenues for the asset management business fell 11 percent year-on-year to about $8 billion due, in part, to significantly lower net gains from investments in private equities. Its $17 billion private equity portfolio generated $775 million of net gains in the fourth quarter, chief financial officer Stephen Scherr noted on the call.

The investment banking business generated record net revenues of $9.4 billion, driven in part by record equity underwriting net revenues. The bank advised on more than 350 transactions representing over $1 trillion of deal volume in Q4 2020, including 120 traditional IPOs, 70 private transactions and a number of special purpose acquisition companies, Scherr added.