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Goldman's president and chief operating Officer, John Waldron at a conference where almost a decade ago you helped start in the world of leverage finance. You and David Solomon had cut your teeth in this industry, and it's a good time to ask what's changed the most about this business.
Well, first of all, it's great to be here back at this conference in California. We've been nine years now doing this conference. We have about eighty issuers and about four hundred and fifty investors, so it's a great convening to bring the issuing side together with the investing side. I would say the answer to your question is undoubtedly the growth in private credit. So back nine or ten years ago, it was mostly a syndicated market. Private credit is not a new industry. It's been going on for
quite a long time. But if you think about the size of the private credit market versus the syndicated market, the private credit market has grown enormously and that's definitely been the biggest change in the structure of the marketplace.
Goldman had its own plans. There are large plans.
You've told investors recently that you plan to grow your private credit business into a three hundred billion dollar business by assets in the next five years. How important is scale to you? And where is this on your list of priorities.
It's very important. I'm here for a reason. This is an incredibly important client franchise for us. It's an incredibly important set of constituencies to Goldman Sachs. Private credit is a big growth opportunity for the firm. We have been doing private credit for a long time. Goldman Sachs has an over thirty year history of operating in the private markets, private equity, private credit, real estate, infrastructure, and other elements
of the private markets. The big opportunity for us is to take what we've built, which is over one hundred billion dollars of AUM in private credit, and really double and triple it. We've obviously got to double it before we can triple it, so we've talked about three hundred million dollars as a target. We've got to get to two hundred million dollars first. We see a line of sight to doing that. But at the same time, I want to say that our syndicated business is a really
important business. Leverage finance is a long term core strength of the firm. We've built a great business. We're number one or number two to in all the major elements of leverage finance, whether it's on the bank loan side or on the high yield side. We intend to continue to be there, and it's an incredibly important franchise. We are unique because we have scale in both. We can play in the syndicated market, we can play in the
private credit market. And what our people know to be true is that their job is to go see our clients and give them good advice which markets should you be accessing at which point in the cycle, based on pricing terms available at capital and that's what we're doing. We're doing that, I think very effectively. I think we're uniquely positioned to be able to access both markets and be effective for our clients in that manner.
One thing that cannot be true is that of the billions of dollars flowing into private credit, everybody is an amazing underwriter. If you think through this market right now, where is the risk and are people making mistakes?
Well, I don't know that there's clear risk in front of us. I think I think the explosion of credit broadly has been good for the economy is giving more companies and issuers access to more credit. I think there definitely has been distant mediation of parts of the banking system, probably more pronounced in the regional banking system than in the larger scale banking system.
I think that's something that.
The market, that the regulatory apparatus should be paying attention to. But fundamentally, I'm not sure that there's lots of mistakes being made. I think that at some point we will have a credit cycle. When we have a credit cycle, my guess is there'll be some dispersion in the performance of different players in private credit. For US, we've been
doing this a long time. We care a lot about structure, we care a lot about terms, we care a lot about underwriting standards, and we intend to be a good performer through the cycle.
You kind of have to have a crystal mole heading into that cycle, don't you. I'm wondering when you think that cycle will come and what it looks like when it starts to turn south.
Well, it's very dependent upon economic growth. You know, if we have a two plus percent GDP performance in the US economy or in the global economy for the next few years, we won't have a credit cycle. At some point, we're likely to see a contraction in the economy, or at least a significant slowing in the economy. When that happens, that will be likely a trigger for more more default, more challenges in the credit market, and we'll be prepared for that.
Now.
Another thing that a lot of people are waiting for is the revival of an M and A market to fuel this leverage finance market that you've been talking about here. One of your top bankers just earlier was talking to a group of people saying that this could be a four trillion dollar market or more again by the end of next year. Do you see that and how fast can we get there?
We're definitely optimistic about the merger market. I think that we need the private equity community to be more active. We need the debt markets to be very open and available, whether it's on the private credit side or on the syndicated site. That's starting to happen. So the conditions are
there for a much better M and A market. But the way I think about the M and A market, you've got regular way kind of corporate transaction flow, You've got very big deals and then you've got kind of a broad private equity driven marketplace, which has been the biggest grower in the merger market. The regular way activity is pretty solid. The private equity activity is getting untracked, but it's not anywhere near what it can be, which I think is probably our colleague was referring to. And
the big deal market is kind of sluggish. Any trust is tougher, it's not the best environment to go try to do transformational transactions. So if you've got the big deal market firing and the private equity market firing, we can have a much bigger merger market. We expect both of those to happen, but I think everybody's kind of a rush for it to happen sooner. These things take a while to unfold, and I would just caution that I don't think you're going to see tons of new
activity in the next couple of weeks or months. I think it's going to take us a little bit of time to get going, and very much depending upon economic growth. So if we have strong GDP for the next couple of years, you're going to see the merger market start to really grow. It is clearly underrepresented as a percentage of equity market cap. That's a metric that we look at. I think it's three or three and a half percent of total equity market cap. Really ought to be five
or six percent of equity market cap. So there's a lot of room to run here, which could and should likely be the case over the next couple of years.
There's a real sense here that you and the bankers at Goldman Sachs are trying to put the M and A train back on the rails in.
A significant manner.
But is there anything that could really hit pause on that trajectory.
It's not off the rails. I mean, we're having a very good M and A year this year. It's just not as good as it was when we had the kind of euphoria in twenty twenty one. But by any historical standard, this is a pretty good environment. I think we're fifteen percent below the market volumes are like fifteen percent below five year averages, so we're not at five year averages, but we're not that far below five year averages, and it doesn't take a lot for it to really
start to turn on. The deterrent to that would be economic contraction. It's very reliant on CEO confidence and GDP growth. I would say the two main factors driving the upswing and the M and I cycle.
What about the election cycle.
We were talking to David Costin, your chief equity strategist, a little bit earlier in the United States, and we're talking about volatility around the election. What does that conversation look like with clients.
I think clients are starting to pay attention to the election about now. For the most part of the of the year, it hasn't really been a major factor. Gets written a lot about, But I wouldn't say in decision making we've seen a lot of impact yet. But I think we're starting to get to a place where policy differential and the outcome is starting to become more more part of the narrative and part of the discussion and meetings that we're in and I'm sure others are in it.
So I think we're going to go through the summer, We're gonna have more conversations as we get into the fall. I think it's going to become much more prominent in everybody's mind.
Are there specific policies investors are talking about with you, particularly when it pertains to either Trump two point zero or Biden two point zero.
I think taxation, regulation, I think policy on China. Those are major, Those are probably major areas of focus. You know, there are other important areas of focus. It might not be as much economic, whether it's social issues or immigration or other issues that are important. But I think if you're talking about the things that really speak to the economy, it's global trade, it's regulation, it's taxation.
On China in particular, you had President Biden announcing more tariffs and China vowing resolute measures in return. You've spent a lot of time in China yourself. How are investors thinking about this dynamic of more terrorists.
Well, it's not surprising to me that the Biden administration is deploying tariffs. They obviously kept the tariffs in place that the Trump administration put put forward and are now, you know, kind of raising the ante a little bit.
It's not surprising. I think that US policy, frankly, from both sides of the of the isle, is turning much more hawkish and is of the opinion that we have to protect and safeguard American interests and also invest in the industries that we need to be globally competitive in.
And so I think you're going to see more of that. Frankly, whichever direct whichever president we have in the next uh, you know, in the next election, and I think that's going to that's that's a reasonable place for the US to be is to continue to invest, to be globally competitive, continue to focus on our own competitiveness and investing in our industries. I also would say, and I saw it Secretary Yellen's comments, which I think we're good comments about
continued engagement. You know, we don't want to have I hope we don't have a zero sum game here where it's kind of tariffs on tariff's. Hopefully we can continue to have a rational approach from both sides. And I think that this administration deserves a lot of credit in my opinion, for having constructed engagement and putting the relationship in a firmer, you know, on a firmer footing and having more dialogue, which I think is going to be important.
We're not going to agree on a lot of these areas, but it's going to be important that we continue to engage with each other.
As you think about future administrations.
Also, you and David Solomon, your CEO, both have been quite critical when it comes to the US debtload and what it means for the United States moving forward under both administrations, there's a sense from investors that that fiscal responsibility will not be rained in paint a picture of what the world for the United States looks like if this continues.
I think the points that we're trying to make, and that we discussed a lot inside the Four Walls of Gold and Sachs, are we can't be complacent about continuing to spend and at this pace and assume because we enjoy the reserve currency status that that will always be the case and that there's not any risk to that. So I think we're looking for both parties to find a way to create more discipline in the fiscal spend. It's not that we shouldn't be spending. A country needs
to be spending. There are certainly areas where we need to be stimulative from a fiscal standpoint, but broadly speaking, we think the pace is unsustainable. You're really now reliant heavily on US households to continue to fund the treasury spend, which I think is a perfectly okay assumption, but it's not an infinite assumption, and it needs to be. It needs to be thought about, and I think that we need both sides of the altbu come together and be more disciplined in the spend.
At the same time, treasury issuance has been significant, and there are a lot of worries about, as you say, who absorbs all of that issuance. We haven't seen any real hiccups yet, but do you worry that we will at some point if we continue at this pace of issuance.
We haven't seen hiccups. There's no evidence yet to suggest that we can't keep going in this direction. But I think those of us have been watching this for a long time are worried that this is an unsustainable pace and that we need to show more discipline in the system. And you know, I think the US continues to be
a great place to invest. There's a lot of demand for US assets, including for US treasuries, but we have to make sure that we show the right kind of discipline fiscally and financially so that those investors want to continue to put money here.
John, we're hours away from another inflation print, and there are a lot of worries about what inflation means for the economy and the trajectory of interest rates.
How are you thinking about it?
I think that we are continuing to be fairly constructive on what's happening. You have to give the Fed a lot of credit for engineering what appears at this moment to be a soft landing. We're not calling it quite yet. I think we have a lot of debate inside the four walls of our firm about word the direction of the economy will go. But it looks to us like the soft landing is very likely, and the FED deserves credit for bringing inflation down and engineering, you know, a
reasonably good economic outcome. We'll see what the CPI print brings. Anytime you try to do what they're doing, which is an extraordinary amount of stimulus and then are really heavy amount of tightening in a short period of time, there's going to be bumpy outcomes. And I think we're seeing it's not a straight line down. There's been lots of disinflation, but inflation is proving a little sticky here. As we're getting closer to trying to get to the two percent target,
we expect that to continue to be the case. The PPI number, I think showed that that's continuing to be the case, we'll see what the CPI number brings. I think our estimate is for twenty eight basis points and the market's estimate is thirty basis points. So we're in and around consensus and we'll see what it brings. But I think you're going to continue to see bumpy prints along the way.
Now before I let you go, also, I want to talk about Goldmansax for a moment here, because we're almost halfway into the year. You were one of the earlier banks to cut headcount when things got rough, and activity is now coming back across the industry. What does this mean for headcount moving forward.
We're continuing to invest in our firm. I'd say most of the investment we're making is in the infrastructure of our firm. We're continuing to try to find ways to create the infrastructure that we can scale against, and so we're going to make more investments there. And we're investing in our assonal wealth management franchise most so we want to build a much bigger asset and wealth management business.
We're investing in our wealth management franchise, which is really more in people, advisors, support for advisors, technology around the advisors to make sure we can continue to grow our business there and to serve our clients more effectively. We think that that generational transfer of wealth will need and require a lot more technology, and so we want to meet our clients where they want to be met, which is really in a more mobile world, and we continue
to invest heavily in technology across the firm. I think generative AI will be a big unlock for firms in
our industry, and we're going to be no different. So I think you're going to see over the next handful of years a much bigger spend in terms of looking for ways to deploy generative AI, particularly around automation and resiliency and doing things that are more maybe clerical and lower level activities that are more human process that can be uplifted into more automative, automated technology driven AI lead activities.
It's clear that you're putting that spend across different areas of the business.
Does this mean the hiring sign is up at Goldman Sachs today.
I wouldn't say that. I'd say that you're going to see us grow our headcount in a measured way. We obviously made the moves you talked about, you know, eighteen months or so ago, we saw a need to reduce our headcount from where we were coming out of the pandemic. I don't think that's very different from many companies that I certainly talked to and others talk to now. At this point, I think we're in a place where we've created a good base. We've got places we want to invest.
As I said, wealth management, asset management, technology, and infrastructure. You'll see us at headcount at a measured pace in doing that, but it will be at a measured pace.
John, We thank you so much for your time. That is Golden in Sacks, President and Chief operating Officer, John Waldron