From Goldman and Drexel to the PDI 50

The investment banks – one still arguably the pinnacle of Wall Street and the other a casualty of, among other factors, run-ins with federal regulators – produced some of the biggest names in alternative lending. Andrew Hedlund reports

As investors have flocked to private credit in the past decade, many of the beneficiaries have been those with roots in the industry dating back to the 1980s at some of the most storied firms. Two of these stand out: Goldman Sachs and the defunct investment bank Drexel Burnham Lambert.

Alumni from the two firms include some key figures at the largest alternative asset managers today, including five of the top 10 firms from our annual fundraising ranking, the PDI 50: Apollo Global Management (rank 3), GSO Capital Partners (5), HPS Investment Partners (6), Cerberus Capital Management (8) and Ares Management (10). That’s not to mention Goldman’s own presence in the group at number nine.

We traced the career paths of co-founders, chief executives and chief investment officers and found a large number started at Goldman and Drexel, or worked there early in their careers. All of the firms we outlined fall within the top 25 of the PDI 50 as based on the amount of capital raised over the past five years.

The individuals at each of these firms came from disparate parts of Goldman’s and Drexel’s businesses.

HPS Investment Partners’ Scott Kapnick worked in the investment banking arm of Goldman, while TPG Sixth Street Partners’ Alan Waxman and Joshua Easterly worked in the Goldman Special Situations Group, which also spawned other private credit executives active today.

At Drexel, for instance, Leon Black served as head of the mergers and acquisitions group and co-led the corporate finance group, while Bennett Goodman and Tripp Smith both worked on the firm’s high-yield desk.

Lots and lots of cash

Most of these successor firms were founded before the global financial crisis, and, in doing so, were poised to take early advantage of the capital flowing into private credit. All the firms have regularly closed on mega-funds north of $3 billion.

Indeed, the two largest funds were Ares’ $7.52 billion Ares Capital Europe IV and GSO’s $7.12 billion GSO Capital Solutions Fund III with Goldman’s $4.2 billion Broad Street Real Estate Credit Partners III taking third place.

The successor firms have helped bring the annual average private credit fund size into the 10 digits. In 2017, the number passed that benchmark, with the average fund raising $1.02 billion. There is little reason to believe that this trend will change this year, either.

Notably, the strategies embraced by these massive firms don’t revolve around one method. They include senior debt, junior debt and distressed debt, among others. Each firm has had relative fundraising success in the different strategies, often raising mega-funds for more than one.

In addition, most of them have other investment platforms beyond their credit roots, offering them the opportunity to scale even further. With the massive capital bases and the clout that comes with them, the above firms will likely continue to be key players in the industry for a while.


Look out for the next version of our PDI 50, which will be included in our December/January issue.