Exchanges Sep 18, 2026 42m 26m saved
With Rich Friedman, Chairman of Goldman Sachs Asset Management, who created the firm's principal investing business and has run it through every cycle since 1992
Goldman Sachs raised its first billion-dollar buyout fund in 1992, when only five firms anywhere had one.
Rich Friedman built that business from a group of about 20 people. He now describes an industry with thousands of competitors and three to five trillion dollars of assets sitting in inventory with nowhere obvious to go.
"It's a lousy industry from a standpoint of looking at how many players, how much money, how much opportunity."
Friedman joined Goldman Sachs 45 years ago, made partner in 1990, and was handed the job of building what became the Principal Investment Area under Hank Paulson. He is in his fifth decade of investing and still chairs the asset management business.
The full interview is covered here so you can skip it. 42 minutes of audio, 16 minutes of reading.
Here are the 15 insights that matter.
Key Takeaways
The crisis in private equity today is exits, not operating performance, which he says is about as good as it gets
$3T to $5T of assets sit in inventory, and he does not expect public or strategic buyers to absorb most of it
Goldman once owned 13% of Alibaba and, a decade earlier, 10% of Qualcomm, from a tech program it was pushed into
$200B of buyouts in 18 months around 2005, in the one period when public companies asked to be taken private
He wants five to seven investments a year and says that is enough for a great business
A deal in his firm's size range now draws one or two rival bidders, not ten
The first fund was $1B in 1992, when only five firms in the world had reached that size
Tech and telecom took 10% of a fund in the 2000 bubble, deliberately capped so a bad outcome could not sink it
His rule for the investment committee: you can disagree with force, but you cannot be disagreeable
He would not approve a deal on a 60/40 vote — a strong consensus was the bar
1. Day One At 55 Broad Street
Friedman was asked about his first day, 45 years ago, and remembered the building and the floor.
He can still name the address people get wrong
I remember we were at 55 Broad Street. Most people think we were at 85 Broad Street.
Rich Friedman
The group held 25 to 30 people. Walking in, he ran into Joel Beckman, someone he had grown up with in Riverdale, which took the edge off the day.
The place felt easy to join
It was a very low-key, very welcoming place.
Rich Friedman
The same day, Salomon Brothers was sold to Phibro, which he registered as a strange thing to hear in week one.
The price sounded large at the time
And I think it was sold for like $800 million. It sounded like a lot of money back then, but obviously not so much today.
Rich Friedman
2. The 1980s Deal Desk
The group he joined did financings rather than advisory work, which meant projects with balance sheets attached.
What the group actually did
The group I joined was a group that did private financings, credit debt financings, lease financings.
Rich Friedman
He had spent a summer between business-school years at Citibank in asset-based lending, learning receivables and inventory financing and meeting the earliest bootstrap leveraged-buyout investors. That made him one of very few people at the firm with relevant experience when the first buyout assignments arrived. The industry was not yet called private equity. He was steered into media deals, and worked on the recapitalization of Multimedia, which Jack Kent Cooke pursued, and on Harte-Hanks.
The qualification was thin
And it wasn't because I knew anything about it other than I watched TV and read the newspapers.
Rich Friedman
And it became a specialty anyway
But I became an expert having worked on some of the early recaps in the media industry in the early 80s.
Rich Friedman
3. The Battlefield Promotion
The promotion he calls a battlefield promotion came in the 1989 to 1990 recession, which he attributes to the savings-and-loan crisis.
Partner in 1990, and a new boss
And I had become partner in 1990. And I was slated to raise a new buyout fund. And then I met this individual named Hank Paulson, who became my new mentor
Rich Friedman
There was no merchant bank to join
Because at that point, we were all in investment banking. There was no concept of a merchant bank.
Rich Friedman
The first GS Capital Partners fund followed in 1992. The naming was decided by a group of fewer than 20 people who ruled out "principal investment group" on the grounds that the acronym would not do, and settled on area only after Steve Friedman rejected the more ambitious option.
The answer he got when he proposed "division"
He basically says, "Yeah, Rich, I don't really think you're ready to become a division of Goldman Sachs."
Rich Friedman
The name outlasted the joke
So, we created the Principal Investment Area, which today still has what I'll call brand value in the marketplace.
Rich Friedman
4. Why He Needed A Big Brother
Asked how he used his mentors, Friedman said the relationships were not labeled at the time.
He did not know they were mentors
It's a good question because I never thought of them as mentors, but they were.
Rich Friedman
One of them handed him the media and communications banking business in 1987, when he was 33 or 34 and reluctant, because the job meant covering chief executives and finance chiefs in their fifties and sixties at companies including ABC and Cap Cities. The argument that persuaded him was that the assignment was temporary and he would learn from it.
The merchant bank was not a safe place to sit
it was a fragile business model for the firm. It wasn't central to the firm's advisory and trading businesses.
Rich Friedman
There was a history of what he called mistakes in that kind of activity, so the new business needed cover from above.
What he needed was protection, not advice
And that for this to be successful, I really did need a big brother.
Rich Friedman
He said he needed support from the executive office at every stage, including as a senior partner.
5. The First $1B Fund
The first milestone was the fund itself, and the number was unusual for the time.
Only five firms had a fund that size
So, the first milestone, obviously, was raising GSCP-1. That was a billion-dollar fund in 1992. And at that point, there were only five firms that had billion-dollar funds.
Rich Friedman
And then the deals that built the brand
Like buying in a 28.5% stake in Polo Ralph Lauren.
Rich Friedman
Through the mid-1990s he described the business as getting bigger and raising bigger funds, with nothing special about it.
6. The Subordinated Debt Fund
The first move outside equity came late in the decade, and it started as a European idea.
He raised the first subordinated debt fund
And in the late 1990s, I came up with the idea that we should raise a subordinated debt fund.
Rich Friedman
The gap was in Europe
Because Europe didn't have the ability to raise subordinated debt for their buyouts.
Rich Friedman
There was no industry to compete with
And there was just no private subordinated debt industry at that point in time.
Rich Friedman
The fund ended up doing American deals as well, competing against the US public markets, and became the start of a credit business inside the private equity business. Muneer Satter ran it.
7. Pushed Into Tech
The move into technology was not his idea. A message came from the executive office telling him to build a team for it, and he said his group resisted.
His instinct was to stay narrow
a big part of my thinking and my team's thinking is, let's stick to what we're good at.
Rich Friedman
The early money came off the balance sheet and out of employee funds, in $3 million, $6 million and $9 million increments that he described as bets rather than a strategy. Two of those positions turned out to matter.
13% of Alibaba, and 10% of Qualcomm before that
Now, we didn't know that looking back in time, that we could, at one point, own 13% of Alibaba when it was being formed. And if you went back a decade earlier, we owned 10% of Qualcomm.
Rich Friedman
He credited the firm with bringing those opportunities in, and said growth investing has had ups and downs since but is now a large part of what the business does.
8. The 2005 Buyout Boom
The next step up in size came in 2005.
A $5B fund, then a deal every other week
Then I'd say we took a big leap in 2005 by raising a $5 billion fund.
Rich Friedman
The industry's volume in 18 months
I think we did $200 billion of buyouts in an 18-month period. It was a crazy period.
Rich Friedman
What made it hard on discipline, he said, was that valuations were not extreme and the demand was coming from the other direction.
Public companies were asking to be bought
it was the first time in history where the public markets were saying, "We want you, private equity, to buy us."
Rich Friedman
9. Debt And Infrastructure
Coming out of the crisis, the firm raised a senior debt fund and a real estate debt fund, both aimed at distressed opportunities, followed by its first infrastructure fund at about the same time. Friedman said a senior debt fund was not something he had expected to run.
The yield on it sounded unpromising
It's like, really? LIBOR plus two and a half plus fees?
Rich Friedman
And it did not behave like senior debt
We made equity-like returns in that senior debt vehicle for that first phase.
Rich Friedman
Tom Connolly ran it. Each new business was added when the market presented the opportunity and the right people were available, which is his explanation for why the build-out took decades rather than years.
The constraint was deployment, not fundraising
It wasn't a matter of, could we raise the money? It's could we responsibly invest the money?
Rich Friedman
He said the firm was first into each of those businesses, that others have since passed it in credit, and that it remains in roughly the top five there.
10. The Green Beret Trip
Europe was straightforward because the firm already had a banking business there. Asia was not.
The first trip was a small group and no map
And I remember that, I took a small green beret group. We jumped on planes and we went over to China.
Rich Friedman
The ideas on that trip were improvised from what they could see on the street.
The level of analysis on day one
"Hey, I don't see anyone with a bicycle helmet. Maybe we should invest in bicycle helmets."
Rich Friedman
What he did not expect was the reception
And what I found over time is the Chinese welcomed Goldman Sachs.
Rich Friedman
The team was built mostly in Hong Kong with some people in Shanghai, staffed with nationals who were Western-trained. Stephanie Hui, who runs the business now, joined 25 or 26 years ago; before her, Henry Cornell and Andrew Wolff held the seat. Friedman said having someone he trusted there mattered because the decisions were being made while he was asleep in New York. The deal that established the firm was a bank privatization.
ICBC was the deal nobody else got
Eventually, we had that seminal deal. And that was the investment in ICBC.
Rich Friedman
And it was a privatization, not a trade
It was a very big investment in the privatization, if you will, of the Chinese banks.
Rich Friedman
11. The Three Tenets
Asked for the philosophy behind the build, Friedman gave three conditions. The first was organizational.
It had to be part of the firm, not a subsidiary
The first is this business had to work inside Goldman Sachs. And that it wasn't a subsidiary of Goldman Sachs. It was a division of Goldman Sachs.
Rich Friedman
That meant a strategy that did not put the firm in competition with its own private equity clients on a regular basis, and staying out of auctions where the conflict was not worth it. The second condition was scale and standing: the team had to feel like part of the firm rather than a side operation, and he said retention was good as a result.
Long tenures were the evidence
So, we kept our people for, I think, pretty long periods of time. We had good retention.
Rich Friedman
The third condition was the one he put above the others.
Without returns, none of it counts
Most important was we had to have good returns. You don't have good returns. Forget it.
Rich Friedman
Which made the process the thing that mattered
So, the investment process was always the lifeblood of what we did.
Rich Friedman
He was explicit that it could not be his own portfolio or his own calls, and noted that a large amount of employee capital was invested alongside, which changed how the firm behaved toward the funds.
12. Disagree Without Antagonism
Friedman was asked what he means by his own rule for investment committees.
The process depends on people speaking
We run a very, and we still do, a very what I'll call honest investment committee process, which means people speak up.
Rich Friedman
Seniority does not govern who gets to object, and he said he did not want to silence input from a room full of capable people.
The rule itself
You can disagree. And you can disagree with force. But you can't be disagreeable.
Rich Friedman
His objection to antagonism was practical: it spreads, and then other people copy it. He also set the bar for approval above a bare majority.
A narrow vote was not an approval
We wanted a strong consensus of support for any investment that we made.
Rich Friedman
The reason is the task itself
And that as smart as we are, this is predicting the future. It's like, we're not so good at this.
Rich Friedman
13. Saying No In A Mania
Asked whether performance and principles have ever conflicted, Friedman said they are in conflict now. The question in the late 1990s was why the firm was not in AOL or Netscape; the current version is about artificial intelligence.
The pressure is the same pressure
And the same thing will go on now, which is if you're not active in AI right now, you're useless.
Rich Friedman
His answer is that the discipline has paid
Consistency and staying within what we're good at has proven to be true. And that means you're going to miss some things.
Rich Friedman
The method he described is tempering rather than abstaining. In the 2000 cycle, $500 million to $600 million of one fund went into technology and telecommunications, which was 10% of it.
A capped position that could fade without damage
And then it sort of like faded, went away, and it didn't kill the fund. But we at least were playing at it.
Rich Friedman
Some places were ruled out entirely
We decided there were places that were off limits. We didn't have to go to every part of the world.
Rich Friedman
He named the United States, Europe and Asia as the defined home territories, and said that is plenty.
Sitting out a mania is uncomfortable
They're really hard because if you're not active in them, you look like you're just out of place.
Rich Friedman
14. An Industrialized Industry
Friedman said competition in his part of private equity has always been intense, because one other bidder is enough to make a process competitive. What has changed is the number of firms.
He did not see this coming
I never imagined the PE industry would evolve into what it is.
Rich Friedman
And he has a word for it
"Oh my God, this is industrialized. There are hundreds and hundreds of them."
Rich Friedman
A host corrected the count upward, and Friedman took it further.
Not hundreds
Thousands. Thousands. Thousands of them.
Rich Friedman
The paradox he pointed at is that a crowded industry produces thin auctions, because no firm can look at everything.
A live deal draws three or four serious looks
What's happening in our sweet spots is when there are businesses for sale, there seems to be only like two to three or four that really pay attention and get involved.
Rich Friedman
He had signed a couple of mid-sized deals in the previous week, and described the field on them.
Diligence costs are what keep bidders out
And there are really one or two other competitors. There weren't 10 or 20 because no one wants to be in something where you have to pay for due diligence and spend $2 million against 10 other people.
Rich Friedman
His verdict on the industry, against his verdict on the job
It's a lousy industry from a standpoint of looking at how many players, how much money, how much opportunity. But it's an incredible business to be able to go search, find, and then manage and create.
Rich Friedman
The inventory is the number that surprises him
I never imagined, we'd have an industry with thousands of competitors, three to five trillion of assets in inventory needing to find a home.
Rich Friedman
His answer to all of it is a deliberately small program, a position he said the team settled on around 2005 or 2006 and has not changed.
Five to seven deals a year is the whole plan
We can have a great business with five to seven decent-sized investments a year.
Rich Friedman
He framed it through an idea he attributed to Warren Buffett, that an investor gets only a limited number of punches on a ticket, and said the test for anything is whether it is one of the five, six or seven.
15. The Crisis Is Exits
Asked which event tested him most, Friedman named the financial crisis, and the reason was the absence of information rather than the losses.
Nobody knew anything
I think the event that sort of was the biggest shock was the great financial crisis, if you will, because no one knew anything.
Rich Friedman
The consensus at the time was that the debt financings would not happen and the whole asset class would fail.
The consensus was wrong
And every private equity investment was going to fail. That didn't happen, obviously.
Rich Friedman
He said he has had to make the same call to his portfolio companies more than a few times across his career.
The message he has delivered repeatedly
"There's a problem. You're going to have a financing issue. We're going to have to batten down the hatches. We're going to have to do this and do that."
Rich Friedman
On whether the past crisis was the worst, he relayed a line he credited to Lloyd.
The current crisis always wins
And as Lloyd would say, today's crisis is worse than that crisis because that crisis is over.
Rich Friedman
And the current one, on his account, is not about the companies.
The problem is the exit, not the business
So, I'd say, the crisis today in the PE industry is exits. It's not operating performance.
Rich Friedman
Performance is fine; liquidity is not
Operating performance is probably, as good as it could be over, your whole portfolio. But how do you exit your investments?
Rich Friedman
And he does not expect the obvious buyers to clear it
And I think that, the public market and the strategic market aren't going to be big buyers of the lion's share of the inventory, if you will.
Rich Friedman
He raised the possibility of industrial transactions between private equity firms as a route out, and left the conclusion short.
The plain description
everything's slowed. Let's put it that way.
Rich Friedman
Bonus Insights
On being around to tell it
And I'm still alive to tell the story.
Rich Friedman
A host noted that year-over-year merger statistics show the same divergence he is describing, with corporate and technology deal volume holding up better than private equity. Friedman also corrected the host's arithmetic on his own career, pointing out that he is in the middle of his seventh decade living and his fifth decade investing.
Friedman's bottom line is that the businesses inside private equity portfolios are performing about as well as they can, and the industry's problem is that there is no longer an obvious buyer for three to five trillion dollars of them.
Products, Companies & Tools Mentioned
Goldman Sachs (Where Friedman built the Principal Investment Area from a group of about 20 into the firm's principal investing business)
Alibaba and Qualcomm (Positions of 13% and 10% respectively, from a technology program the firm's executive office pushed him into)
Polo Ralph Lauren (A 28.5% stake, and one of the deals he says branded the first fund)
ICBC (The Chinese bank privatization he calls the seminal deal for the firm's standing in China)
Citibank (Where he learned asset-based lending in a business-school summer, which is why he got the first buyout assignments)
Salomon Brothers and Phibro (Sold for about $800 million on the day he joined, which he heard as a strange welcome)
AOL and Netscape (The names he was asked why he had missed in the late 1990s, which he set against the same question about AI today)
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