The Australian: Goldman eyes local direct credit plays

June 27, 2024
Originally published in The Australian on 26 June 2024 by Glenda Korporaal. See the original article or download the article.

Goldman Sachs Asset Management is looking to invest more in Australia following a recent $US20bn ($30bn) fund raising, ­according to its global head of direct lending, James Reynolds.

In an interview with The Australian during a visit to Sydney, the London-based Mr Reynolds said Goldman Sachs had already invested some of the money from the $US20bn recently raised for senior debt lending into Australian companies.

The firm’s private credit business provides funding directly to large privately owned companies as well as private equity funds in Australia.

“Our goal is to increase our ­exposure to Australia,” he said. “We have invested close to $5bn in this market. We are one of the largest investors in direct lending in Australia. It continues to represent some very attractive opportunities. We’re very excited about the opportunities we see in the market.”

Goldman Sachs Asset Management, global head of direct lending, James Reynolds

Mr Reynolds said the sectors of interest for the firm in Australia included health care, pharmaceuticals and software businesses.

Goldman Sachs and KKR Credit last year were involved in providing financial backing for a $1bn deal to allow businessman Dennis Bastas to take full control of two pharmaceutical groups, Arrotex, and Juno Pharmaceuticals.

At the time, it was believed to be one of the largest non-private equity debt sponsored deals done in Australia.

Mr Reynolds said he could not discuss specific investments, but he said Goldman Sachs was looking for deals in Australia in “non-cyclical sectors which were stable and defensive”.

He said the investments were mainly in “larger corporates owned by private equity firms”, adding that Goldman Sachs had been in the private credit business since 1996.

The private credit business, which is funded by pooled investments from institutional investors such as superannuation funds and insurance companies, has been growing in recent years in the wake of restrictions on lending by banks in the wake of the global ­financial crisis.

Mr Reynolds said the trend to private credit globally dated back before the GFC, to the early 2000s, as banks changed their roles from writing loans which they held on the balance sheets to writing loans which were then syndicated to other investors.

But he said the GFC had significantly accelerated the trend as global regulators put more restrictions on bank lending.

Mr Reynolds said the growth of the sector worldwide had also ­occurred because it provided more benefits to borrowers who could arrange more bespoke debt ­financing facilities. He said private credit meant that borrowers could make contact directly with their lenders as opposed to lending by banks which was then syndicated out to other lenders.

“We can apply a more bespoke solution for the borrowers,” he said. “Our solutions are confidential. It’s an attractive solution for corporate borrowers and their owners, whether the owners may be individuals or private equity.”

The private debt market in Australia has grown to around $188bn in Australia, according to a recent report by financial services firm EY.

Mr Reynolds said Goldman Sachs now had a long track record in the private credit business globally. “It has been tested through a number of cycles here which resonates with our investors because of our track record,” he said.

He said he expected the rise of private credit would see more companies opting to remain private rather than having to list on the stock exchange.

“One of the key trends over the past few decades – in the US and throughout Europe, is that larger companies are opting to stay private a bit longer. I think it will be more and more true in Australia,” Mr Reynolds said.

“Private capital – both debt and equity- allows a company to stay private longer. It means that companies don’t necessarily need an IPO for liquidity.

“There are a few situations in the US and Europe where there are very large businesses of enterprise value of $15bn to $20bn which are private. Private funding gives an option for companies to list or to stay private.

“Twenty years ago, when I started in the business, when companies reached a certain size the only access to liquidity these companies had was through an IPO. Today at least they have a choice.”

Mr Reynolds said Australia had been a “fertile market” for private credit by Goldman Sachs.

“We have a very good track record here. We have a great team, and it represents a priority for us.”

He said the firm was also seeing increasing interest for investing in private credit by large investors in Australia including superannuation funds.

It has been working with Australian based firm Channel Capital on the launch of a European private credit fund which would be open to Australian investors.

West Street European Private Credit Fund is an open-ended fund which provides senior secured private debt to private equity backed companies, mainly in Europe.

Why European Private Credit is an essential portfolio diversifier

James Reynolds, Global Head of Direct Lending explains why Europe is a compelling destination for private credit investors, how the team approaches origination and structuring, and how the scale and network of Goldman Sachs provides a unique opportunity set for investors.

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