GS Goldman Sachs Group Inc

By Dawn Lim and Laura Kreutzer 

Goldman Sachs Group Inc. raised $2.5 billion to buy minority stakes in private-equity firms, betting on an industry that is commanding increasing influence as more businesses choose to stay private longer.

Petershill, a group within Goldman's asset-management arm, gathered more than the $2 billion it targeted. An announcement is expected as soon as Thursday.

Goldman is zeroing on an industry that has secured a record amount of dollars from pensions and endowments in recent years to buy and lend money to businesses. U.S. private-equity firms in 2017 raised the most money in a year since 2007.

These firms can be attractive targets for investors who want to hold long-term stakes, as the firms' funds typically lock up the money of major institutions for at least a decade, earning fees and a cut of profits along the way. The investment pool Goldman raised for the strategy, which includes Petershill Private Equity LP and other related funds, channels the approach of Warren Buffett's Berkshire Hathaway Inc., in that it doesn't set deadlines to exit its bets.

Over time, Goldman could cash in on the positions by selling stakes to investment managers and other buyers. It also could take a portion of the portfolio public, making it available for retail investors and mutual funds to invest in. There is no guarantee Petershill will make these moves.

If Goldman does list a pool of manager stakes, it would further open up a market that has largely been out of the reach of mom-and-pop investors. The majority of private-equity firms don't list their shares publicly -- and their funds typically don't accept checks from small investors. This means that only large institutions, such as pensions and endowments, as well as the ultrarich have broad exposure to the asset class.

"If you're a public investor, there are not a lot of ways to invest in private equity through the public markets," said Michael Brandmeyer, co-chief investment officer of Goldman's alternative investments and manager selection group, where the Petershill unit is housed. "We think there could be a potentially enthusiastic audience for a listing."

Goldman has already put a chunk of its new fund to work, acquiring minority stakes in private-equity firms. The fund generally will buy passive stakes in midsize firms with assets of $5 billion to $20 billion that Goldman believes have potential to expand.

The latest Petershill pool has taken stakes in technology-focused firm Accel-KKR, energy-infrastructure investor ArcLight Capital Partners and oil-and-gas manager Riverstone Holdings.

These sorts of transactions set a price tag for private-equity firms, allowing founders to put a dollar figure on the wealth they have created and paving the way for some of them to transfer ownership to other executives. Firms that sell a minority stake can use the new cash to fund expansion efforts. The Petershill unit also can act as a sounding board for the firms it backs.

"Many organizations are collections of excellent investors," said Christopher Kojima, who heads Goldman's alternative investments and manager selection group, which oversees more than $200 billion. "But many of them might not be institutions."

The first Petershill fund, which Goldman launched in 2007 to invest in hedge funds, delivered 2.5 times its investor money, even as many hedge funds across the industry delivered disappointing returns and bled investor money. Goldman fully exited all hedge-fund positions in that pool after it struck a deal to sell stakes in five managers to Affiliated Managers Group Inc. for about $800 million in 2016. Goldman is continuing to manage a pool of hedge-fund interests from another $1.5 billion Petershill fund, taking the view that sound firms can deliver returns even as the industry faces challenges.

"Our focus is on firms with their best years ahead of them," said Mr. Kojima.

Goldman made its first direct investment in a private-equity firm in 2016 when it acquired a minority stake in Littlejohn & Co. It joins a number of other investment firms -- including Neuberger Berman Group LLC's Dyal Capital Partners, Blackstone Group LP and Carlyle Group LP -- that are pursuing stakes in private-equity firms as well.

Write to Dawn Lim at dawn.lim@wsj.com and Laura Kreutzer at laura.kreutzer@wsj.com

Write to Dawn Lim at dawn.lim@wsj.com and Laura Kreutzer at laura.kreutzer@wsj.com

(END) Dow Jones Newswires

February 22, 2018 07:14 ET (12:14 GMT)

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