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Goldman Sachs buys into private equity funds

Goldman Sachs is diving back into a business most of Wall Street has eschewed in the wake of the global financial crisis.

The bank is buying a stake of less than 10 percent in private equity firm Littlejohn & Co., through its Alternative Investments and Manager Selection group's Petershill fund. The AIMS group manages more than $150 billion, including investments in hedge funds, private equity and other strategies.

"The investment follows a 17-year relationship between AIMS and Littlejohn in which AIMS has been an investor in all of Littlejohn's committed capital private equity funds," a statement issued by Littlejohn this week said.

Traders work at the Goldman Sachs Group booth on the floor of the New York Stock Exchange.
Peter Foley | Bloomberg | Getty Images

That would put Goldman in Littlejohn funds dating back to around 1999, when it raised its Littlejohn Fund II, according to Oregon Public Employees Retirement Fund data. That fund saw an internal rate of return, or return on its investments, of 12 percent, the data state (not bad for a private equity fund, in other words). Littlejohn's next fund went far better — a 2005 fund netted a rate of return of more than 25 percent — outstanding by private equity industry standards.

The 2010 Littlejohn Fund IV netted a rate of return of more than 11 percent. By 2014, when Littlejohn raised Fund V, it took in $2 billion from its investors.

Goldman did not comment and neither side disclosed the sale price. But, its Littlejohn deal is far from its only recent foray back into private equity.

Last month, the bank was reportedly preparing to raise another private equity fund of its own, for the first time since the global financial crisis. The new fund, which will raise between $5 billion and $8 billion, is named West Street Capital Partners (for the address of the bank's new headquarters).

In the case of its latest private equity fund, as well as investing in outside funds like Littlejohn, post-crisis regulations now require that about 97 percent of the funding is drawn from clients not the bank's balance sheet.

That regulation forced many Wall Street banks to spin out their in-house private equity firms, forcing them to raise all their investment capital from outside sources of funding (and leaving some of them unable to match prior fundraising totals). The passive stake Goldman's AIMS picked up in Littlejohn also reflects a vote of confidence for the middle market investor.

Correction: Goldman has not been making other private equity investments in 2016 and it has not invested via the AIMS Platform in Neuberger Berman's Dyal Capital Partners and GP Interests, which both put money in other private equity firms. An earlier version misstated these facts.