Meet Goldman Sachs execs running its new alternative-investing unit

Goldman Sachs on Monday announced a plan to combine five investing teams into a single alternatives-investing unit, to be housed in the merchant-banking division.

The three coheads of the new division will be Julian Salisbury, Andrew Wolff, and Sumit Rajpal, according to a memo to staff announcing the appointments.

The changes elevate a trio of executives with relatively little public persona into a crucial spot as CEO David Solomon looks to pump up the firm's flagging stock price.

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Goldman Sachs has tapped a trio of little-known executives to run a newly created alternative-investing unit, and selected a media-shy partner as its chairman.

The investment bank announced the appointments in a memo to staff Monday morning, detailing its plans to create a new division that combines private equity, private credit, real estate, and venture-capital investing into a single unit that will be tucked into the merchant-banking division.

The execs chosen to run it are Julian Salisbury, Andrew Wolff, and Sumit Rajpal, who will serve as heads, and Rich Friedman, who will chair the division.

“This unified investing platform will enable us to accomplish several strategic objectives over time,” CEO David Solomon, president John Waldron, and CFO Stephen Scherr wrote in the memo.

“These include the raising of additional third-party capital from our institutional and private wealth clients, a more consistent and coordinated marketing approach across strategies and an enhanced ability to attract and retain the most talented investment professionals.”

Among those professionals, Friedman has been around longest. He's run Goldman's principal investing area since 1991. He made partner a year earlier, giving him the title as the firm's longest running (with apologies to asset management chief Tim O'Neill, who was named partner the same year but joined Goldman after Friedman).

During his career, Friedman's avoided the limelight despite building Goldman Sachs' merchant-banking unit into a sprawling collection of funds invested in real estate and infrastructure, private equity, and credit markets that often competes with flashier investment firms like Blackstone, Carlyle, and KKR.

Read more: 'It's good to be Rich': Meet the Goldman Sachs banker who has built a private investing empire that goes head-to-head with Blackstone

Friedman has had a hand in some of Goldman's most transformative strategic choices, most recently coming up with the idea, along with Rajpal, for Goldman's nascent consumer banking operation, Marcus.

Of the three executives who will handle the day-to-day management of the division, Salisbury is probably the most well known.

The head of the global special situations group, he manages a team that invests for the firm in public and private stock, and also lends to corporations and real-estate firms. For much of its existence, the group has been secretive. Earlier this year, news reports suggested it would begin to take outside money.

Special situations came out of the shadows when ex-CEO Lloyd Blankfein named Salisbury to the firm's management committee in January 2017 in a reflection of his success running what has been one of the most lucrative groups at the bank. Before his current role, Salisbury, who went to college in England, was head of European special situations and worked in Moscow.

Read more: Goldman Sachs just named its next CEO — here are the execs who will be in and out

Business Insider last year reported that Salisbury was in close contact with Solomon, who values his advice beyond SSG on broader issues of investing and securities markets. He joined Goldman in 1998 and became partner in 2008. He worked in the audit practice at KPMG before going into finance.

While less well known than Salisbury, Rajpal is no pushover. The exec, who has an MBA Indian Institute of Management, Ahmedabad spent time at McKinsey, joined Goldman in 2000.

Originally a financial-institutions banker, Rajpal shifted to principal investing more than a decade ago and has played a leading hand in some of the merchant bank's most successful financial-services investments.

He helped lead Goldman's investment in TransUnion and served on that company's board during its IPO. Goldman made at least $2.8 billion on its investment.

Rajpal, in his early 40s, helped Friedman come up with the idea for Marcus, the bank's consumer-finance platform that has collected nearly $50 billion in deposits, made $5 billion in loans and is now in the process of developing a wealth management offering for the masses. The two men came up with the concept in 2014.

As Goldman was looking to hire for its nascent consumer banking effort, Rajpal tracked down Discover executive Harit Talwar in Washington after the latter refused to answer Goldman's calls to come in for an interview, according to Fast Company. Rajpal's pitch over dinner was convincing enough that Talwar agreed to speak with the bank and joined as a partner just a few short weeks later.

In 2016, Goldman named Wolff to a list of “significant management” execs required under a then new regulation set up by the London's Financial Conduct Authority.

David Solomon has been thinking about combining Goldman's private investing teams since at least last fall. The CEO sat down with a group of investors on the sidelines of Barclays annual financial-services conference in September.

At the dinner, held in Barclays' midtown headquarters, some of the investors pushed the CEO to think about splitting off or spinning out asset management, according to a person who attended. The investors specifically questioned why Goldman's alternatives business hadn't gotten the same treatment in the public markets as Blackstone has. Blackstone, the private-equity and real-estate behemoth, has seen shares rally 36% in the past 12 months. That compares to a 17% decline at Goldman during the same period.

Read more: Goldman Sachs is considering a shakeup of its alternative-investing units as part of a plan to simplify the bank's strategy

While Goldman's alternative-investing operation is about a third the size of $512 billion Blackstone's, many investors and Wall Street analysts don't give the firm much credit for the business. The challenge is that they consider the investment gains that Goldman reports each quarter to be one-time in nature and not repeatable, and can't get a clear understanding of how much revenue is coming from management fees. The investing and lending segment that collects most of the revenue from the private investing activities reaped $8.3 billion in revenue last year, or more than 22% of Goldman's total. It's $4.2 billion in pretax earnings accounted for more than one third of the firm's total.

Solomon is trying to change Wall Street perceptions by raising more outside money and collecting a greater share of revenue from recurring fees rather than the investment gains that investors discount.

By January, Solomon was directly comparing Goldman to Blackstone. At Goldman's annual partners' meeting, in January, Solomon showed a PowerPoint slide with the multiples assigned to Blackstone's business and stacked Goldman's much lower ratio next to it.

Goldman's share price has remained mired about or below $200 since soon after Solomon replaced Lloyd Blankfein as CEO in October. It's down 14% since he took over and closed last Friday at $191.66. By comparison, peer JPMorgan is down just 2% and closed last Friday at $109.82.

While much of that reflects concern over how much the firm will have to pay to settle allegations of wrongdoing related to its role underwriting $6 billion of bonds for a Malaysian sovereign wealth fund, known as 1MDB, and some of it is also tied to questions about revenue durability and growth prospects.