Goldman Sachs’ Principal Strategic Investments (PSI) group is not new to the scene. The venture capitalist-style investment team was formed all the way back in 1999, the same year Goldman went public. But the 28-person group has recently taken on a heightened level of importance as CEO David Solomon attempts to spread the firm’s focus well beyond trading and dealmaking.
A CNBC expose on the “secretive tech fund” reveals one fact that should make traditional VCs take notice. Goldman’s PSI team, which has invested $1.5 billion in 76 companies, has generated returns north of 25% for each of the last seven years. The unit, led by partner Darren Cohen, is 50% female and combines to speak 14 different languages. They are safely tucked away behind locked doors on the sixth floor of Goldman’s Manhattan headquarters.
The focus of PSI gives credence to its newfound status within the company. The team invests mostly in early-stage technology companies, particularly fintech startups. What makes the unit different than traditional VCs is that it looks for more than just opportunities for strong returns; it also targets companies and technologies that can help Goldman run its business while also providing greater visibility over the fintech market.
We “ask what are the investments we need to make to help accelerate the firm’s transition to the next evolution of our business?” Cohen told CNBC. “As a function of solving these problems well, a by-product is the companies we pick become very successful.” Recent investments include electronic trading market Tradeweb, developer platform GitLab and data analytics firm Crux. With the launch of Marcus, Goldman’s online consumer bank, PSI also began investing more in the consumer banking space where it previously lacked footing.
What’s interesting about PSI is that the team is not just strategically investing from afar. Goldman Sachs typically takes a seat on the company’s board and connects the startup with internal groups and its customers that would use the product – almost acting as a marketing or sales lead. While neither Goldman or CNBC mentioned this other possible advantage, big banks will often make investments in startups with the hope of setting themselves up for future business when the company matures, including offering debt and equity underwriting and M&A services.
One other point worth mentioning is that Goldman appeared to go out of its way to make the highly-secretive tech fund…much less of a secret. Cohen and his main deputy, fellow partner named Rana Yared, went on the record with CNBC and Quartz over the last six weeks to talk up the team and detail what is has accomplished. Typically, Goldman would be happy to generate 25% annual returns with no coverage or fanfare. Perhaps its media strategy is evolving under new CEO David Solomon. – Or maybe Goldman is just looking for some good publicity as it bullies for space in business lines that aren’t considered its bread-and-butter. Either way, the 28-person team seems like a safe place to be working with all the changes that are happening at Goldman.
Elsewhere, former UBS investment banking chief Andrea Orcel sat down with the FT to discuss what life has been like since he left the firm last year. Orcel planned to join Santander as CEO after gardening leave only to have the offer pulled over reported disagreements concerning reimbursing deferred compensation. Among several highlights from the sit-down include Orcel reveling in the “overdue” time he now has to spend with his family over the last six months, including his young daughter. But his comments also highlight the difficult realities at home that can often accompany a high-stress career in banking, particularly for a known workaholic like Orcel.
“The disadvantage of being so driven is that you’re making some brutal choices that you’re not fully aware of, vis-à-vis your family, your friends and other parts of life that you prioritize out,” he said. “I always thought I was a good father because every Friday I would take her to school, I would go to her plays. But then you realize that, yes, you’re there, but your brain is going 1,000 miles an hour on what you’re going to do next. And children can feel that.”
Beecher Tuttle – Read more on efinancialcareers.com