Rich Friedman on the Rise of Private Markets and AI Investing

Rich Friedman (0:00)

I never imagined the PE industry would evolve into what it is. This is industrialized, there are hundreds and hundreds of them.

Alison Mass (0:06)

Thousands and thousands.

Rich Friedman (0:08)

You know, the crisis today in the PE industry is exits. It's not operating performance. Everything's slowed, let's put it that way. But it's an incredible business to be able to go search, find, and then manage and create. And the question is, is that still doable in the world? And my answer would be yes.

Alison Mass (0:25)

Welcome to Goldman Sachs Exchanges Great Investors. Today, I sit down with Rich Friedman, the Chairman of Goldman Sachs Asset Management and one of the foremost leaders in alternative investing.

Well, welcome to Great Investors, Rich. It's so great to have you here.

Rich Friedman (0:42)

Thanks, Alison. This is really a treat for me.

Alison Mass (0:45)

So today, I'm interviewing you for Great Investors podcast. But before we begin that and talk about the investment environment, I want to go back to your start at Goldman Sachs, which is 45 years ago.

Tell us about your first day. What was that like? Do you remember?

Rich Friedman (1:01)

I do remember. I remember we were at 55 Broad Street. Most people think we were at 85 Broad Street, but I'm dating myself, but I would think I was on the eighth floor. It was a small area and there were about 25 to 30 people in the group. The funny thing is, one of the people I saw as I was walking in was this guy named Joel Beckman.

He was someone I grew up with in Riverdale. It was a very low-key, very welcoming place and I didn't feel so anxious walking in there because I knew someone and it seemed like a place you could assimilate into.

Alison Mass (1:39)

What was it like to work at the firm in the 80s? What was that first 10 years like?

Rich Friedman (1:45)

Well, it varied a lot over 10 years, but certainly the early years. But first of all, the day I joined the firm, Salomon Brothers was sold to Fibro.

Alison Mass (1:51)

Wow.

Rich Friedman (1:52)

Now, I didn't say wow because I didn't really know that much about Goldman Sachs or Salomon Brothers, but it was a little bit of a wow that literally, you're joining Goldman Sachs and then you hear that one of its principal competitors were sold, 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. But I'd say that I got going relatively quickly. The group I joined was a group that did private financings, credit debt financings, lease financings, and so they were projects. It wasn't advisory.

So what was happening was I was being assigned to work on different things. Early on in my career though, I was starting to get assigned to work on some of these early stage buyouts where we were like financial advisor to help raise the debt. I had a little experience because in between my years at business school, I worked for Citibank in their asset based lending area. So I learned about asset based financing for receivables, for inventory, and the earliest of days of bootstrap LBO people. So I was one of the only ones who had that kind of experience. So when we started to get a few assignments in this, I was chosen to get involved with it, which to me was very interesting. I would say that I got assigned very quickly to, we were progressing fast into the LBO world back then. It wasn't called private equity. I ended up being assigned to getting involved with a fair amount of media transactions.

It wasn't because I knew anything about it other than I watched TV and read the newspapers. But I became an expert having worked on some of the early recaps in the media industry in the early 80s, multimedia's recapitalization that Jack Kent Cooke came after, a hard hang. So there were companies that I was involved with early on that were media related, but were transactional, which really fit my skill base at the time.

Alison Mass (3:44)

And you eventually got your battlefield promotion, as you call it. Tell us about that story.

Rich Friedman (3:49)

So the battlefield promotion was something because this was in the middle of the first recession that we were living through, which was in 1989, 1990 And it felt pretty severe at the time. And this is from the SNL crisis that really caused this. And I had become partner in 1990

And I was like slated to raise a new buyout fund. And then I met this individual named Hank Paulson, who became my new mentor, who they said, this is who you're going to report to. Because at that point, we were all in investment banking. There was no concept of a merchant bank. And it was the beginning pathway onto the creation of what we referred to as the principal investment area when we raised our first GS Capital Partners Fund in 1992