As reported recently, Goldman Sachs Group Inc. is close to getting $19 billion in commitments to setup its latest private equity fund – the Goldman Sachs Capital Partners VI. Once the fund is open for business the Wall Street firm’s fund would rank number one among private equity funds according to a study done by the Dow Jones Private Equity Analyst. The study lists the KKR 2006 Fund (little more than $16 billion) as the largest followed by the Blackstone Capital Partners V fund (nearly $16 billion) and TPG Partners V ($15 billion). Goldman’s private equity division’s largest fund is currently the Goldman Sachs Capital Partners V fund, which manages a little more than $8 billion.
The Wall Street Journal reported that Kohlberg Kravis Roberts & Co and The Blackstone Group will soon close funds in the $20 billion range. Despite the competition, similar funds have grown to become important clients to Goldman, Merrill Lynch, and Morgan Stanley. The Financial Times reported private equity groups paid at least $11 billion in fees to investment banks last year. Kohlberg Kravis Roberts alone paid $838 million in fees to investment banks, followed by Blackstone, which paid $555 million.
Investors are also enjoying the payout these funds provide. According to a study by Venture Economics large funds, such as Goldman’s and KKR’s, have average returns of above 16 percent (based on statistics from October 2003 to September 2006). The Economist reported recently that from 1980 – 2001 the top quartile of private-equity funds produced an annual rate of return of 23 percent. Citing marketing materials that the WSJ obtained, Goldman’s funds have a 42-percent gross realized IRR since 2000.
Aside from its PE funds Goldman has other tools its uses to benefit from the torrid buyout market. The firm has collected huge sums of money as an investor and advisor – at the same time in the same deal. In January, Forbes magazine reported that Goldman’s private equity operation is so well integrated with the rest of the company that last year the investment bankers earned $105 million in fees from the firm’s private-equity buyouts. Consider this: according to the same article, Goldman had advised pipeline operator Kinder Morgan in a $22 billion management buyout deal last year. The firm’s investment bankers were the sole advisors to the buyers, which happened to include the Goldman Sachs Capital Partners fund and a second Goldman entity. Oh yeah, Goldman Sachs Credit Partners also provided the debt financing in the deal.
These are some of the issues that will be discussed at IncreMental Advantage's Private Equity Due Diligence Conferences. More information can be obtained by visiting www.incrementaladvantage.com.
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