Goldman Sachs Embraces Private Markets for Growth and Executive Compensation

What Happened

Goldman Sachs (GS), one of Wall Street’s most iconic investment banks, is doubling down on private markets as a cornerstone of its growth strategy. Last week, the firm made significant moves to align itself more closely with the private equity world, including changes to its executive compensation and a structural reorganization to capitalize on the booming private credit market.

Why It’s Important

These developments reflect a broader shift in finance, where private markets are increasingly rivaling public markets in terms of scale and significance. Goldman’s adoption of strategies commonly used by private equity firms underscores the changing dynamics of modern finance and the firm’s efforts to remain competitive against both traditional banks and alternative asset managers.

Key Developments

• Executive Retention and Compensation: CEO David Solomon received an $80 million retention package and an $8 million raise for his 2024 performance. Notably, the firm introduced carried interest for Solomon and other executives, a compensation tool long used by private equity firms.
• Capital Solutions Group: Goldman combined several internal teams to form a new “capital solutions group,” positioning itself to take advantage of the growing $1.6 trillion private credit market.

Context

Private credit has expanded significantly over the past decade as higher interest rates and banking regulations have limited traditional lending. Private equity firms have stepped in to fill this void, and now Goldman Sachs aims to strengthen its foothold in this lucrative space.

Goldman’s CEO echoed sentiments shared by Apollo Global Management CEO Marc Rowan, who has emphasized the convergence of public and private markets. Solomon also advised startup founders to approach public listings cautiously, citing the challenges and pressures of being a public company.

By the Numbers

• Goldman’s Asset and Wealth Management Division: Handles $145 billion in private alternative assets.
• IPO Business Fees: Earned over $5 billion in 2024.
• Private Credit Market Size: Estimated at $1.6 trillion.

What’s Next

Goldman Sachs’ pivot towards private markets represents a strategic bet on the future of finance. As companies increasingly opt to stay private longer due to regulatory burdens and public market pressures, Goldman’s focus on private credit and alternative assets could position it as a leader in the evolving financial landscape.