Richard A. Friedman, head of Goldman Sachs Group Inc. (GS:US)’s merchant banking division, said he sees opportunities to invest in middle-sized companies as some other private-equity firms sell their investments.
“My peers, I see them at conferences, and they talk about how it’s the greatest selling environment -- I actually think it’s a good investing environment,” Friedman, 56, said today in a CNBC interview. “We have continued improvement in the economy, we have very low interest rates and access to capital, and also for the first time, I’d say, in years, our CEOs can actually put business plans together with more confidence.”
Goldman Sachs’s merchant banking unit makes investments in private-equity and real estate assets using client funds and the company’s own money. The firm’s investments are included in its investing and lending segment, which produced $4.33 billion of pretax earnings in 2013, the most profit of any of Goldman Sachs’s four business units.
The bank has said it’s cutting its own stakes in private-equity funds to comply with the Volcker Rule, which limits such investments. Still, the firm can often make direct investments in debt or equity securities with its own money outside of fund structures.
Goldman Sachs’s merchant banking division has raised more than $82 billion for investment funds in corporate equity and debt since 1986, according to its website. The bank is considering a different strategy than buying large companies to take them private, which was popular before the financial crisis, Friedman said.
“What we’re looking at is actually buying mid-sized companies or making early-stage investments and growing companies, as opposed to what happened in 2005 through 2007, which was a buying spree of taking companies private,” Friedman said. “That’s just not happening anymore.”
Friedman said he doesn’t expect interest rates to rise in the near future. When that happens, it will probably lower valuation multiples on companies, he said.
Friedman has worked at Goldman Sachs for more than 30 years and was named a partner in 1990. He and Chief Executive Officer Lloyd C. Blankfein are the only two executives to sit on the firm’s management committee since it was created in 1999.
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