Goldman Sachs Asset Management’s (GSAM) recent marketing of the Private Market Eltif demonstrates that the firm is keen to broaden the horizon for private investors. Giving the retail segment access to its 420 billion dollar alternatives-platform is not a mere experiment, but part of a “big, bold commitment,” according to Barry Fricke, GSAM’s Head of EMEA Alternatives Distribution Wealth Management. Goldman Sachs AM now wants to launch a new private market Eltif every year.
The Eltif, or European Long Term Investment Fund, was launched in 2015 and is due for revision in 2024. It represents an opportunity for private investors to gain access to alternative investments. In a conversation with Investment Officer, Fricke outlined GSAM’s intention to provide Mifid-retail customers in the EU with comprehensive access to private markets. According to Fricke, this is simply the best way to make private markets widely accessible to Mifid retail clients in the EU. Semi-liquid funds have so far not been accessible to the whole EU.
The timing of this move may seem peculiar, considering the anticipated Eltif 2.0 coming in January 2024, potentially removing the entry threshold of €10,000. However, Fricke emphasizes the pressing current need for such products. “We have been working for years on a fund that is in line with the current rules. Especially now there is a huge need for this kind of product, we didn’t want to wait another nine or ten months.”
Vintage-approach
In contrast to other providers who have just launched new Eltifs, GSAM has decided to adopt a unique approach through a “vintage assortment.” The plan involves introducing a new vintage of the Private Market Eltif approximately once every twelve months, directly investing in around 25 to 40 deals that Goldman does each year. Fricke reflected on decades of significant investment in the six sectors included in their first Eltif. “From our private equity and private credit strategies, we have invested tens of billions for many years.”
While future Eltif vintages may fall under new regulations, Fricke assures that nothing in the current regulation prevents an asset manager from being geographically diversified and spreading capital over private equity and private credit. He stresses: “For the investment strategy we had designed, we did not need to make any significant compromises to comply with the current Eltif rules.”
The first GSAM-Eltif is a closed-end fund, requiring investors to lock in their money for up to nine years in exchange for an estimated 3% to 6% higher annual return than public markets. Fricke anticipates the new rules will provide some ongoing liquidity but asserts that “it is in no one’s interest to bring private investors to private markets if they expect a high degree of liquidity.” He emphasizes the importance of education in this regard, stating, “The risk is that they step into a private investment and only realize at a major life event that they cannot simply access their money.”
Education
To ensure success, GSAM aims to invest first in education, reaching out to all stakeholders from senior management to the end customer. Fricke acknowledges the challenge. Educating all these groups is labor-intensive but also crucial to achieve a good commercial result and to ensure that the end customer has a good experience, he said.
Addressing the current challenges in private equity, Fricke contextualised the noticeable decrease in transaction volumes in recent years. “What we saw in 2021 and 2022 was a very sharp increase in transaction activity, largely as a result of Covid. Compared to that period, deal flow has dropped in 2023. But compared to 2018 and 2019, it is not that bad,” he said.
He also highlights that new deals are now closed with less borrowed capital, making mid-market deals more appealing. This approach is “appropriate, as borrowing costs are higher. But that does mean that you have to focus extra on operational improvement to generate attractive returns.”
Capitalising on radical reform
Goldman’s team, according to Fricke, is looking to capitalise on trends based on the “quite radical reform of the economy” occurring across several themes, such as life sciences, digitalization, renewable energy, AI, and decarbonization. “These are themes that are really shaping the opportunities that come to market. And then private markets offer the chance to invest in the companies that need capital today to focus on some of these themes,” Fricke concluded.