Goldman Sachs Raises $2.5 Billion to Buy Stakes in Private-Equity Firms

Global Stock Markets

Group will follow the permanent capital approach of Warren Buffett’s Berkshire Hathaway by not setting exit dates for investments

Goldman Sachs Group Inc. GS -0.56% raised $2.5 billion to buy minority stakes in private-equity firms, betting on an industry that is commanding increasing influence as more businesses choose to stay private longer.

Petershill, a group within Goldman’s asset-management arm, gathered more than the $2 billion it targeted. An announcement is expected as soon as Thursday.

Goldman is zeroing on an industry that has secured a record amount of dollars from pensions and endowments in recent years to buy and lend money to businesses. U.S. private-equity firms in 2017 raised the most money in a year since 2007.

These firms can be attractive targets for investors who want to hold long-term stakes, as the firms’ funds typically lock up the money of major institutions for at least a decade, earning fees and a cut of profits along the way. The investment pool Goldman raised for the strategy, which includes Petershill Private Equity LP and other related funds, channels the approach of Warren Buffett’s Berkshire Hathaway Inc., in that it doesn’t set deadlines to exit its bets.

Over time, Goldman could cash in on the positions by selling stakes to investment managers and other buyers. It also could take a portion of the portfolio public, making it available for retail investors and mutual funds to invest in. There is no guarantee Petershill will make these moves.

If Goldman does list a pool of manager stakes, it would further open up a market that has largely been out of the reach of mom-and-pop investors. The majority of private-equity firms don’t list their shares publicly—and their funds typically don’t accept checks from small investors. This means that only large institutions, such as pensions and endowments, as well as the ultrarich have broad exposure to the asset class.

Goldman has already put a chunk of its new fund to work, acquiring minority stakes in private-equity firms. The fund generally will buy passive stakes in midsize firms with assets of $5 billion to $20 billion that Goldman believes have potential to expand.

The latest Petershill pool has taken stakes in technology-focused firm Accel-KKR, energy-infrastructure investor ArcLight Capital Partners and oil-and-gas manager Riverstone Holdings.

These sorts of transactions set a price tag for private-equity firms, allowing founders to put a dollar figure on the wealth they have created and paving the way for some of them to transfer ownership to other executives. Firms that sell a minority stake can use the new cash to fund expansion efforts. The Petershill unit also can act as a sounding board for the firms it backs.