As the leveraged-buyout giant Blackstone Group LP rushes to imitate the most powerful securities firms with an improbable initial public offering, Goldman Sachs Group Inc. is leading the drive on Wall Street to embrace Blackstone as the model for making money.
Until Blackstone disclosed last month that it was planning an IPO, it was considered illogical for private-equity partnerships to surrender their secrecy. Most of Blackstone’s earnings come from leveraged buyouts and real estate, and Goldman increasingly is relying on revenue from similar investments to boost profit rather than fees from advising companies on mergers and selling stocks and bonds.
Chief Executive Officer Lloyd Blankfein has about 12 percent of the New York-based firm’s assets dedicated to LBOs, property and customized debt instruments, up from 8 percent two years ago. Revenue from so-called principal investments more than doubled in the past two years, making it Goldman’s fastest- growing business. Morgan Stanley and Merrill Lynch & Co., Goldman’s largest Wall Street rivals, also are trying to mimic Blackstone.
“You’re really being pushed to take more principal risk, and I see that as a long-term trend,” Morgan Stanley CEO John Mack told shareholders last week at the firm’s annual meeting in Purchase, New York. “Having said that, in any risk business, regardless of how smart or good we are, there’ll be times when we lose money, and maybe a fair amount of money.”
Blankfein, 52, declined to comment. At an industry conference in November, he said that while clients “want our skills in managing complex transactions, they also value our long-term involvement as an investor.”