← Alt Goes Mainstream: The Latest on Alternative Investments, WealthTech, & Private Markets
Alt Goes Mainstream: The Latest on Alternative Investments, WealthTech, & Private Markets
AGM Unscripted: Goldman Sachs' Michael Bruun - Driving Value in Private Equity Through Network and Innovation
00:28:17
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- [00:00]
A
I think no entity that we are aware of have a network like our network. And that's very important for sourcing and it's very, very important for value creation. But it's not just like a network in theory, it's a network in action. And so what we have done, and I commend our executive management team for this, we have created 1GS. We created 1GS roughly seven years ago and that 1GS is really working full steam. For example, our private equity strategies. But I would say all our alternative strategies, what that gives us is it gives us an opportunity to activate employees far from the ultimate investment decision in the process of deal sourcing or in the process of value creation. I think that that network effect is unrivaled, seen from my perspective. And the more we activate it, the more of a flywheel we create.
- [00:57]
B
Welcome back to the Altcos Mainstream podcast. In this special series we went behind the scenes at the Goldman Sachs Alternatives conference and interviewed six Goldman Sachs Alternatives leaders about their current thinking on private markets and how the firm has built and evolved its private markets capabilities. The next interview in this series is with Michael Brune. Michael is global co head of private equity within Goldman Sachs Asset Management. We had an interesting and insightful conversation. Thanks Michael and please enjoy. We're going mainstream. Michael, welcome to the Altcos Mainstream podcast.
- [01:31]
A
Thank you. Good to be here.
- [01:32]
B
Pleasure to have you. You're over from London?
- [01:35]
A
Yeah, absolutely. Came over a couple of days ago and we have like a very, very big segment over the next few days working with our investors, talking about what we're doing in alternatives.
- [01:43]
B
Goldman obviously has a massive alternatives platform. Tell me about what you focus on and what your background was.
- [01:50]
A
I started at Goldman Sachs 21 years ago, started my career in fixed income, then went on to do capital markets and M and A and then roughly 15 years ago moved into asset and wealth management. And all that time I've been focused on private equity investing, which for us means focusing on controlled buyouts in the upper mid market space.
- [02:10]
B
So 15 years ago was 2010. Private equity was in a very different place than it is today. I think that's a great jumping off point to hear your perspectives on the evolution of private equity as it pertains to your own career arc. What do you think the industry looks like today and how is it different from when you started in the private equity side in 2010?
- [02:33]
A
Obviously the industry today is dramatically bigger. It has really scaled over the last 15 years. You started out in an era where rates might have been lower, credit spreads were very Benign. You saw continuous multiple expansion. And so the way we generated returns over that era was very much driven through financial engineering. A combination of multiple expansion and a good amount of use of leverage. That has really changed since the peak in 2021. As we moved into 2022, where rates are now somewhat higher, they've come down a little over the last few quarters, but somewhat higher. Credit spreads really ballooned out versus where they were around 2020 21. And so we got an overall cost of leverage that was just dramatically higher than you had seen in the prior period. And that really changed the focus in terms of how to generate returns going forward. The returns had to rely significantly more on operational value creation. And that's one of the biggest thematics. I do think that right now we are getting a little bit of help from credit. So if you look at the overall cost of leverage for a buyout right now, it is reasonably lower than it was just two, three years ago. Maybe you financed yourself in 2022 at an overall cost of debt at 11%. In many cases that's down to say 7%. And so that really helps. So if I look at equity return formation at this moment in time, it just leaves more room for the equity return formation. And then if you then combine that with very, very strong value creation resources, you can actually generate very, very healthy returns without relying on the multi bill expansion that had helped prior vintages.
- [04:13]
B
I think such an important point, what you're getting at is feels like we're in the get fit era for private equity where firms really need to rely on their underwriting acumen and expertise and then their value creation. How do you think about how LPs should look at different firms and which firms are going to be good at value creation and why they're going to be good at it?
- [04:36]
A
I think first of all, I would call it a resource battle. Right now in private equity, those who bring the most value creation resources are likely winners. And that's why some of the most scaled multi segment platforms are likely to be the winners. Because we can basically spread these value creation resources over several funds and basically drive value creation at a much, much bigger scale. If you go through the return formation at this moment in time, you can split it into two pretty simple components, revenue scaling and EBITDA margin expansion. That is what's going to lift your overall EBITDA growth. If you apply a constant multiple to that on the way in and then on the way out, you should get an appropriate return. If you have gotten that EBITDA growth So how do you drive an enormous amount of EBITDA growth? You do it by activating your network. It's very important that you help your companies over and above what they can achieve themselves. So I think management teams, founders, families, they look to managers like ourselves and say, what can these guys do that I couldn't do on my own? How can I tap into, in our case, the Goldman Sachs network and get that network working for them? So I think the network effect has become incredibly important in that EBITDA growth equation. And then there's your value acceleration resources. At Goldman, we have split those value acceleration resources into six segments. We focus on revenue scaling, we focus on what we call operational excellence. That's a lot around your margin. We focus on technology, which I'm sure we're going to talk a little bit more about. But that's data, AI, your tech stack. We focus on talent. I cannot stress the importance of talent enough. We will, during an ownership period, really change a lot of the managers in the business because we will high grade that group of people and allow the company to be so future proof and ready to take on more. And then we focus on elements of ESG and we also focus on elements within finance and strategy. So between these six sectors of excellence, we have more than 100 people now working in our portfolio. And interestingly, each of the sectors of excellence are activated. But if I look at broad data sets across our broader private equity platform, talent, revenue scaling and technology are some of the areas that are consuming the most hours.
- [06:48]
B
If you think about the evolution of value creation within private equity, what are areas today that you're investing more in when it comes to value creation? Building out your own platform so that you can help your companies best.
- [07:04]
A
I think data and AI is the single most important aspect of any value creation plan at this moment in time. I can tell you a lot of positives, but maybe just start with the negatives. If you're buying a company right now, you need to have a reasonably clear view. And I appreciate it's reasonably murky because we didn't talk about AI three years ago. Some people were talking about machine learning, but we didn't talk about AI in the broader sense that we're experiencing today, both with generative and agentic AI. So now, first of all, I think you need to go through is this an area where your business will get disrupted once you've gotten your head around it? If it is probably not the right investment for you, but if it isn't, and there is an interesting business opportunity I think you need to say, how can I enable the growth of this company? The margin expansion of this company through the use of AI. And that starts with a diagnostic around what data does this company actually have? What's the hygiene around that data? How is their tech stack configured? How can they use AI to enable their business? And so we spend more hours in our value acceleration resources on this specific topic than any other topic at this moment in time. And I haven't seen competing trends for the next few years.
- [08:14]
B
At Goldman's private equity business, you invest across consumer and enterprise. And if you think what some investors in enterprise software have said, Rule of 40 is a commonly used metric as to assessing the health of a business and underwriting success within that business. Do you find that AI or applying digitization or technology is helping enterprise companies more than consumer companies? And is that also impacting or changing how you think about one, underwriting and two, where you apply value creation or where there's the most uplift in EBITDA expansion, value creation when it comes to the types of companies you're investing in.
- [08:55]
A
As of now, we have actually seen AI being highly applicable both in B2B businesses and in B2C segments. Our biggest power lane as a platform is financial services. It's technology, it's healthcare and it's services. And if I look at that, which represents more than 80% of our overall deployment, AI is applicable in all of those segments. What I find really interesting, even if we have for example in financial services a B2C business model, but in the financial services segment, what I find really interesting is sometimes you're using AI to solve a discrete problem, but as you're solving that discrete problem, you actually realize that it can do wonders to another problem. So for example, optimization related to call centers. You start out by thinking, oh, let me optimize this so I can generate more margin. But where AI is now, it will also generate a better consumer experience. So maybe you'll actually get lower churn and maybe you actually get an incremental revenue opportunity. And the accuracy of the answers that the AI tool that is enabled you're still human employees is so good now that it's all like out competes another human being. So what I really like about AI in our business is whether it's B2B or B2C is that it's not only an EBITDA or kind of a rationalization opportunity. Goldman Sachs research have done several papers around maybe 25% of the workforce can be automated through AI. That's a very Margin related focus. But what we're seeing actually is that through AI you give a better customer experience, whether it's a B2B or B2C customer. And therefore you can use AI to scaling revenue. And then obviously the most fascinating thing about AI is obviously that it sometimes allow you to expand your business model. So you start creating insights for your end customer that go way beyond the insights you have generated up until now. That's when it gets really interesting. Which is also why we are allowing our companies to invest very large resources. And we at Goldman Sachs, we are not only investing our clients capital, but we are also investing the balance sheet of Goldman Sachs within our private equity business and the employees capital. And we have said this is an area where we need to double down and it's worth making that extra investment at this moment in time to future proof our companies.
- [11:08]
B
I think that's a really important and interesting point that you bring up which is the broader franchise of Goldman Sachs can give you different perspectives, whether it's tapping into different proofs of capital, leveraging your balance sheet to make investments, and whether it's value creation or things like evergreen funds which often require balance sheet capital to get started. As you think about the broader platform of Goldman Sachs, how does that help inform how and where you invest?
- [11:35]
A
So first of all, I think we're very fortunate to be part of a broader alts platform. I think we are kind of enabled by Goldman Sachs. We bring four things to bear fundamentally. We bring the network of Goldman Sachs, we bring the insights of Goldman Sachs, we bring the value creation capabilities, whether that's sector based or operationally based like the ones we just discussed. And then we bring the alignment. If I go through each of these components brings something extra to me and something that I need to take into account in my value creation playbook or in our team's value creation playbook. And so there is no concept of saying oh, this is the private equity value creation playbook, this is the Goldman Sachs value creation playbook. And we will express that playbook in a specific segment. So for example, in upper mid market where we operate in buyout, we are control focused upper mid market investors. So when we say network effect, it means a number of things. It means sourcing differentiated deals, it means getting customers interested in our portfolio companies. It means talking to potential strategic buyers of our companies. It means talking to private wealth professionals with founder relationships where we need to get closer to them to be the next relevant parties to this. So for each strategy, the key components of our value creation Plan at Goldman Sachs means something slightly different, but they're all built on these four tenets of network insight, value creation, and alignment.
- [13:00]
B
How are you able to get that point across to the founders or teams that you work with? And how do you showcase that Goldman is maybe a bit different from other firms that they could work with when it comes to who they partner with?
- [13:15]
A
From an investment perspective, it's all based on your reputation. When we go and talk to a founder of a company or a family and tell them that we think we can be really, really good partners to them, one of the things we always bring is the phone number of somebody else who have been on a similar journey, because it's a very lived experience. When I tell you that we have these six sectors of excellence in the value accelerator, what does that actually mean to your business? You're a founder yourself. What does it actually mean to your business? And so when you work through that, through a live case study, usually people get the point. But things like our global presence, that's pretty obvious to a founder. If a founder sits, let's say, in Europe and is building his or her business and want to take it to the United States, it's no coincidence that we are really good at that discipline, because Goldman's biggest presence in the world is in the United States. And so we can exemplify it through case studies, but we can also illustrate it just in the sheer numbers and the sheer capabilities that we can showcase.
- [14:10]
B
What you're talking about is the importance of scale. I want to talk about scale in a different context. The private equity business at Goldman is about $83 billion or so of AUM. It's close to 40 years old. You've been doing this for a long time. There's now a lot more capital that's going into private equity. There also have been less distributions as of late, which I want to get to as well. But as you think about increasing amounts of capital that have come into private equity, how has that changed the business from an investment perspective for you? And what does it mean going forward as well? There's now new sources of capital coming in from the Wealth Channel with Evergreen Funds. How has this change in market structure impacted how you've gone about investing?
- [14:56]
A
First of all, I think there are elements where you need to be back to basics or you need to stay the course that you had already plotted some years ago, for example, around areas like value creation. I haven't found, despite the changes in capital formation, I haven't found that EBITDA growth is not important anymore. So there are some basics that are incredibly important and I think you need to be careful not to get sloppy, so to speak, in your underwrite just because there's a lot of capital chasing a specific segment. Having said that, obviously co investment has become incredibly important. So when we allocate capital into a fund, do a specific investment and put that investment into a fund, then it is very often that we bring capital in alongside into our co investment vehicle so that our clients can co investment us. That has become incredibly important. That's also, by the way, very good for diversification because we don't want one single position in any of these vehicles to get too large. So co investments is incredibly important. The other thing you touched on was evergreen vehicles. The way we are set up, these evergreen vehicles on the private equity side can also invest alongside the funds, but they still represent a very, very small portion. So the ethos of the underlying deal manufacturing is still through the lens of a closed end fund. Who is buying a company and driving the value creation. What we want to avoid is a significant strategy drift just because the ultimate packaging of the investment is now in an evergreen fund. We appreciate that the evergreen fund has a lot of advantages. You get to scale very quickly or you get deployed really quickly. For people who may be less used to the asset class, this is a very simple they get their monthly or quarterly marks. There are a lot of good things to be said about evergreen vehicles, but that doesn't mean necessarily that the underlying assets that you put in, you should start taking a completely different perspective. That's also why in our underwrites we're still incredibly focused on is there a strategic buyer ultimately of this asset? Is there a corporate that would pay cash for our company once we have created a much better company, or is there a financial sponsor who would like to buy this? If you immediately start relying on continuation vehicles, evergreen vehicles, etc. As your ultimate destination, I think it might lead to a bit of a strategy drift. But that's not to say that these vehicles are not incredibly important, but they are supplement, not a substitute.
- [17:18]
B
How do you think that the growth in evergreen funds, the continuation vehicle market, is that changing the private equity market structure as it relates to entry point and exit point for many private equity investors, because this also relates to private companies are and can stay private longer. So is this just creating a bifurcation of when a firm enters, when they exit, and it just elongates that process and it means that people can kind of stay in their lanes from an investment perspective. And have exits, even if it doesn't mean companies necessarily going public.
- [17:57]
A
I think first of all, private markets have become incredibly important also in an IPO market has been a lot less vibrant over the last few years. So we welcome continuation vehicles. We welcome the evergreen structures as incremental capital to facilitate and prolongation of the ownership period for some investors, but still giving the choice for other investors who thought they were signing up for a Traditional Asset Level 5 Year hold for them also to be able to get out. So what I think these vehicles add is really flexibility and I think flexibility is very, very good for private markets. I still think that it's important that the underlying return formation is based on your operational input, your network, et cetera. And you don't start creating like a parallel universe just driven by compounding new and new and new vehicles. As long as the underlying value creation is there, I think it's fine to have some continuation vehicle, some evergreen structures involved in your deal formation.
- [18:55]
B
That brings up a really interesting point. We're here at the Goldman Alternative Summit where there's a cross section of institutional clients, wealth channel clients, Goldman private wealth clients. How do you think investors should approach allocating to private equity today?
- [19:14]
A
I think they should be very, very clear minded in terms of what is it actually that they are buying, what is the return formation that they are buying, what are the capabilities that they're buying. And then when they look at history and track records, how were these returns generated? Were they generated by somebody buying an asset, creating a lot of value and then selling it, for example to a strategic. Or was it created by somebody doing the same exercise but then selling it to themselves? I think it's important to differentiate and see getting a third party perspective on your platform. And so back to where we started, it is a resource game and we believe that those managers who have the largest resources will be the future winners.
- [19:52]
B
How do you think about differentiation in that context? So as it relates to brand and scale, how do you think firms can differentiate themselves? Because while there are a number of firms that are very large, I actually think they're very different in many respects. How would you describe how Goldman is different?
- [20:11]
A
I think no entity that we are aware of have a network like our network and that's very important for sourcing and it's very, very important for value creation. But it's not just a network in three theory, it's a network in action. And so what we have done, and I commend our executive management team for this, we have created 1GS. We created 1GS roughly seven years ago. And that 1GS is really working full steam. For example, our private equity strategies. But I would say all our alternative strategies, what that gives us is it gives us an opportunity to activate employees far from the ultimate investment decision in the process of deal sourcing or in the process of value creation. I think that that network effect is unrivaled, seen from my perspective. And the more we activate it, the more of a flywheel we create. Because then I can go back to where we started and tell a CEO about, look how we generated this amount of value for this other CEO or this other management team. And so the network effect is something that we rely heavily on. And then I'll just say with the amount of macro volatility and geopolitical volatility we're seeing at this moment, moment in time, you really need insights. And one of the things I'm most happy about as I go to work every morning is coming in knowing that we have a very scaled active public manager and a very scaled private manager. There are multiple forms where we get to listen to the impulses from our public colleagues. And I think that's very important. Again, so you don't live in a very small universe, but actually get all the impulses and insights.
- [21:39]
B
You bring up a really important point, which is in many respects, private equity is micro investing. You have a micro view, specific company. Now, obviously that may be informed by a macro view, but it also feels, as you just mentioned, that in today's world, understanding macro, particularly in a new world order, whether it's geopolitically or a new world order in investing, we live in a different interest rate regime, as you mentioned, different environment. How do you think the skill set might need to change when it comes to investors and the types of investors that you're training up in terms of what do they need to have to be good investors going forward?
- [22:23]
A
Today, I think it's more about being able to kind of conduct an orchestra rather than just necessarily being a very singular deal maker. When we think about the resources that we bring to bear to create a return, it is at a much greater scale. It involves many, many more resources than we did say 15 years ago. So one of the things that I value tremendously in this day and age is being an extraordinary collaborator that also happens to really play to the strengths of Goldman Sachs. So I'm clearly biased from that perspective. But being an extraordinary collaborator, for example, will allow you to gain insights, to figure out this company that you are in the process of buying will it actually fit into an industry context five years out for one single human being to solve that riddle. I think it's very, very hard. But if you get a good group of people, a good amount of insights, you can probably predict whether this will be relevant, especially if you also speak to a fair amount of these strategic buyers, as we do at Goldman Sachs, because a huge part of our business more broadly in Goldman Sachs services, these very large corporates. So things like that, you will have to lean on collaboration because not one human being can figure all of this out on their own.
- [23:32]
B
What's the hardest part about investing in today's private equity market environment?
- [23:39]
A
I think navigating the amount of volatility that we're seeing is something that you need to spend an enormous amount of resources on. There's no doubt that even this year so far we have had several kind of thematic shifts in the market that as we were exiting 2024 and we're going into 2025, very few people had predicted those shifts. So one thing that was like flavor of the month in December 2024 became violently out of flavor in April 2025. So the ability to navigate that is the most important thing. You need to stay agile. You need to make sure you get the information from many places and as soon as you have the signals, you need to be ready to implement. This goes a little bit back to the tech stack point. If you have a very advanced tech stack, if you have very good data on your portfolio, you can move much faster. And then if you can activate your network on behalf of your portfolio companies, then you probably can navigate this. But if I look at our investing team, but also the surveys, the observations we have from our LPs, it is an extraordinary amount of volatility. But that's also what allows good managers to shine.
- [24:45]
B
Brings up a really important point which is the post investment operations of a business. Not just post deal value creation, which we talked about, but the ability to harness the data that you have. How do you leverage the franchise? You have the team that you have to be able to extract insights from the data that you're getting.
- [25:09]
A
One of my newest and most important friends is Goldman Sachs Engineering. Goldman Sachs Engineering has extraordinary capabilities. And so it's very important that we take the insights that we gain from each of the case studies in our portfolio companies and try and productize that such that every CEO, every Chief revenue officer, every CFO don't need to go on a learning journey on their own. There are so many insights to be gained and actually the more the volatility, the more important this data becomes. And so we spend a fair amount time of of time with our Goldman Sachs engineering colleagues and we think there's a lot more to do on that front.
- [25:42]
B
I think you've done such a good job illuminating the platform that Goldman Sachs has and what differentiates the firm in that context. I want to close by asking, you've been in the industry, private equity specifically, for the last 15 years. As we've discussed, the industry's gone through pretty significant evolution. What are you most excited about going forward?
- [26:06]
A
That's a very good question. One of the things is just that the amount of change constantly facilitates investment thematics that can generate returns way in excess of, say, the average return in private equity. So for example, the shift towards AI, if you're invested in say, an IT solutions IT services company, you didn't even have AI in your playbook. If you did that investment like three years ago, all of a sudden there's a new technologically driven catalyst that arrives. This can be a threat or it can be the biggest opportunity this company is going to experience in the next 20 years. So if you have the resources to take that opportunity and do something about it, then I think you can generate extraordinary returns. And that's maybe a bit different from what we saw in the past where we relied very heavily on one management team, a few private equity investors. Today, it's a large group of people who mobilize very quickly to drive value.
- [26:59]
B
How do you discern whether or not a management team is ready to make that change and apply things like AI to their business or has the capability to do that and cascade that throughout the company.
- [27:15]
A
So that's probably one of the most important characteristics of the best CEOs is their ability to harness these new technologies and then drive through an organization. We have at Goldman Sachs something called the CEO AI Academy. And we basically believe that AI needs to be driven not just through the technology department of your company, but actually top down. It needs to be a message and a thematic coming from the CEO. And so we take all our CEOs through this academy to make sure that these interventions happen top down. That's one of the things I'm most excited about.
- [27:47]
B
It's a great way to wrap up such a wide ranging discussion of what's going on in the industry, but how Goldman is playing its own specific role in the space. So this has been a fascinating conversation. Thanks so much, Michael.
- [27:59]
A
Thank you. Good seeing you.
- [28:00]
B
Likewise. Thanks for listening to this episode of Alt Goes Mainstream. I hope you enjoyed it. You can read more about Alts at my substack altgoes mainstream.substack.com Thanks a lot and have a great day. We're going mainstream.