HONG KONG (BLOOMBERG) - Goldman Sachs Group is set to plow at least US$30 billion (S$40.6 billion) into Asian alternative assets over the next five years after revamping its operations and starting an aggressive campaign to raise outside funds in a bid to overtake investment giants such as KKR & Co and Blackstone.
In Asia, that means doubling investments to about US$60 billion, betting on technology start-ups, real estate, consumer and renewable energy, said Ms Stephanie Hui, the bank's co-head of alternative investing in the region.
The challenge for Ms Hui is deploying the money at a time when cashed-up rivals are bidding up valuations. Private equity firms must also navigate a Chinese regime increasingly suspicious of United States investments in its most-sensitive sectors, closing off once attractive targets, as well as a broad crackdown on large parts of its private sector.
Since 2003, Goldman has invested US$6.3 billion in Asian growth companies alone, generating a realised gross return of 35 per cent as at June, according to Ms Hui. The top quartile of funds in Asia had a net return of a bit more than 20 per cent, according to a Bain & Co. report.
Globally, the firm has already pulled in more than half of the US$150 billion it is targeting to raise for the alternatives business under a plan outlined by chief executive David Solomon in 2019. The inflows have helped swell assets under management to US$416 billion, topping firms such as Carlyle Group, but lagging behind KKR and Blackstone.
In an interview in Hong Kong last month, Ms Hui offered a rare insight into how Goldman's alternative investments are decided and what changes the team is making to navigate the political tensions that have stung investors in China.
The past year has brought a blizzard of regulation in Asia's largest economy. Chinese President Xi Jinping's crackdown on the private sector and push for more "common prosperity" has raised risks and put dominant firms under closer scrutiny, forcing Goldman to adjust its approach.
Ms Hui's team is now looking at second-tier firms with leading technology with an ambition to be sector leaders, rather than focusing on the most dominant. On top of investments in the latest enterprise software and financial services technology, it is also betting on consumer and healthcare firms.
Globally, executives are now pushing to make the 3,000 investment bankers, 700 research analysts and 800 wealth managers work better on deal referrals and tending to clients. Goldman has about 160 investment professionals across private equity, credit and real estate in Asia, and may increase that number by as much as 10 per cent next year, said Mr Takashi Murata, who co-heads the group with Ms Hui and is one of the founding members of the firm's Asian special situations group. That is more than Carlyle's about 100 and also tops KKR's headcount of about 130, according to people familiar with the matter.
Goldman's alternatives group typically invests US$50 million to US$100 million equity in start-ups, building significant minority stakes via multiple rounds, with a threshold of US$150 million.
Among standout deals was a recent sale of holdings in South Korea's Woowa Brothers, which generated an almost 30-fold return. Chinese trans-catheter heart valve producer Venus MedTech made it almost eight times the money.
Still, one key Goldman investment was entangled by China's recent crackdown on after-school tutoring, having put US$350 million into education technology start-up Zuoyebang with investors, including Primavera Capital in 2018. The company was considering US initial public offering to raise US$500 million, but that is now largely mothballed.
In real estate, Goldman has deployed US$7.7 billion of its own capital in more than 100 deals, generating a 26 per cent return since 2012, according to Mr Murata. It is also targeting credit investments, such as mezzanine debt, senior loans and structured credit in Asia, he said.
The firm plans to build a bigger presence in real estate in developing markets such as China, South Korea and India, according to Mr Murata. To get closer to the ground in South Korea, it recently moved the Hong Kong-based team to Seoul.