FROM: Don Pierce, Chief Investment Officer
SUBJECT: Goldman Sachs Asset Management - Master Custody Account
RECOMMENDATION:
title
Recommend that the Board approve the establishment of a Master Custody Account (MCA) with Goldman Sachs Asset Management, including a $200 million initial allocation, subject to completion of due diligence and legal documentation.
body
BACKGROUND:
Starting in 2024, staff undertook an effort to broaden the SBCERA portfolio’s capabilities in the European credit universe. This included an in-depth process to survey the market and identify target areas of interest. Beginning with 62 survey respondents, staff conducted focused diligence on 10 managers and identified 4 managers that aligned with SBCERA’s objectives from a strategy and firm perspective.
Staff recommends that SBCERA establish a new Master Custody Account (“MCA”) with Goldman Sachs Asset Management (“GSAM”) with an initial focus on two main strategies forming the core of SBCERA’s European credit allocation:
- Direct Investments - $100 million of the MCA (50%)
o Investments across GSAM’s European credit platform including asset finance, senior direct lending, and mezzanine debt.
- West Street Strategic Solutions Fund II (“WSSS”) - $100 million of the MCA (50%)
o Hybrid strategy focusing on capital preservation with structural protections and delivering returns by solving for complex capital solutions.
GSAM is the asset management division of Goldman Sachs (“GS”), a global investment bank founded in 1869 and headquartered in New York. The firm oversees $2.9 trillion including $132 billion in private credit. GSAM’s European credit business has invested €65 billion since 1996.
The MCA relationship will be headed by Mr. Beat Cabiallavetta, Partner and Global Head of Hybrid Capital. In addition, he is a member of the Asset & Wealth Management (“AWM”) Private Credit Investment Subcommittee, AWM Private Credit Investment Committee, and AWM Private Corporate Investment Committee. Prior to this role, Mr. Cabiallavetta was head of the Multi-Strategy Investment business within the Merchant Banking Division. His senior role at GSAM combined with committee positions and experience in multi-strategy investments positions Mr. Cabiallavetta to have a broad lens on investment opportunities for SBCERA to consider via the MCA. He has been with GSAM since 2005.
European Credit:
The European credit team is led by Amitayush Bahri and Patrick Ordynans and supported by over 34 investment professionals across 7 countries in Europe. Investment research is conducted at the geography/country level and sector expertise is shared and leveraged across the private credit platform. The European credit team is focused in the underwriting and origination of senior loans in the large end of the European credit market with an eye towards capital preservation and quality of the borrower.
WSSS:
The WSSS team is led by Beat Cabiallavetta and backed by 19 investment professionals including regional heads in North America, Europe, and Asia. The strategy is a directly sourced opportunity to provide bespoke solution capital to high quality companies seeking capital to solve complex financial structures, for acquisitions, and for recapitalizations.
Staff and NEPC believe that GSAM is a compelling opportunity for SBCERA for the following reasons:
• Strategy and focus to deliver a low-double-digit total returns on a consistent basis for the MCA.
o GSAM private credit strategy is to provide capital solutions to large and well performing businesses in Europe and globally while generating outsized returns per unit of risk by taking advantage of broad well-established capabilities and large size to achieve repeatable and risk-adjusted outcomes for investors.
• Established track record and a key player in the European credit markets.
o Credit underwriting and workout capabilities have yielded in strong risk-adjusted returns while minimizing capital losses.
o GSAM offers credit and hybrid capital solutions to the larger end of the corporate market where competition and availability of capital is constrained.
o Analysts at GSAM have an average of 18+ years of experience.
• Sourcing strength established over time and execution.
o GSAM has built a track record in Europe executing €54 billion of private credit transactions over 28 years by leveraging banking relationships across the continent.
• Depth of global resources.
o GSAM as a global asset manager and a division of a large investment bank has resources that most cannot match:
§ Breadth of capital solutions.
§ Speed and certainty of execution.
§ Work-out capabilities across sectors and geographies.
§ Access to GS Value Accelerator.
§ Resources of GS global network.
NEPC has reviewed GSAM’s strategies and the firm overall; additionally, Neil Sheth also accompanied staff on due diligence meeting in London at GSAM’s office. NEPC believes that this MCA investment is a good fit with SBCERA on multiple levels - within credit, within our international lineup, and within the broader portfolio.
This investment will be included in SBCERA’s Global Fixed Income allocation, which has a Board-established target allocation of 17% of plan assets. Staff and NEPC are recommending the Board establish an MCA with GSAM with an initial funding commitment of $200mm (1.2% of plan assets), with the potential for account growth over time pending additional co-invest and strategy-specific diligence.
BUDGET IMPACT:
None.
STRATEGIC PLANNING GOAL/OBJECTIVE:
Prudent Fiscal Management
STAFF CONTACT:
Amit Thanki
ATTACHMENTS:
Exhibit A: GSAM Presentation
Exhibit B: NEPC Cover Memo
Exhibit C: NEPC Research Memo (confidential)
Exhibit D: Additional Staff Information (confidential)