News reports that Goldman Sachs is creating a new platform to offer private market opportunities to private wealth clients deserves consideration, and some cautious evaluation. Various other market developments suggest that potential clients may not be receiving a golden opportunity.
According to Reuters, the new platform will be headed by Matthew Doherty, a partner at Goldman Sachs and until recently, the firm’s head of alternative capital markets for Americas and Europe, Middle East and Africa. It will link Goldman Sachs’ family office-focused direct investments business to its fiduciary single-asset investment operations.
In an interview with CNBC, Kristin Olson, global head of alternatives for wealth at Goldman Sachs, said the platform would focus on securing direct investment opportunities for high-net-worth individuals in late stage private companies, citing the recent SpaceX initial public offering. The Goldman Sachs Private Wealth Management unit currently has over $133 billion of assets under management.
This news broke alongside other reports indicating that private markets as a whole are not the guarantors of strong returns that they might once have been. According to The Wall Street Journal, the private equity assets stuck in so-called “zombie” funds over a decade old reached a record high of $348.5 billion at the end of last year, citing PitchBook figures.
Major US investment banks, including Goldman Sachs, all posted strong second-quarter earnings that beat expectations along with strong equity trading revenue. By contrast, major listed private markets firms have seen their share prices slide 20% over the past year.
The issue is the continuing backlog of exits, which has constrained distributions to fund limited partners, in turn constraining their readiness to recommit to new funds. With debt so much pricier than heretofore, private market investors cannot offload assets at the peaky valuations targeted just a few years ago. Hence the pileup of zombie funds.
The Goldman Sachs platform may look to sidestep such issues by curating single-company direct opportunities for private clients. However, given the decline in SpaceX’s share price post-IPO, and continuing controversy over its listing valuation, as well as warnings of a market correction of artificial intelligence stocks, risk factors are stacking up against this proposition too.
All in all, would-be private wealth investors in the new platform would be well advised to assess the proposition carefully, including issues such as fee structure and distribution waterfalls, if relevant. Commentary on the SpaceX IPO has focused on how the listing was structured to reward its bookrunners with lucrative fees, including Goldman Sachs.
