DJ D-Sol Fleecing Goldman Sachs
In this issue:
Market Snapshot ??
Banana Bits ??
Paradise Means Leaving Thumb Drives Behind
You’ve got enough things to worry about. A thumb drive full of deal docs and data shouldn’t be one of them. ? With SRS?Acquiom, it doesn’t have to be. Because once your files are up and organized on the VDR, they can stay there until you decide to take them down. Since there’s no additional charge to keep the VDR open, it’s totally up to you whether and when to close it. In the meantime, all that confidential data stays as secure as ever. It gets better: transparent, flat-rate pricing for however many users and uploads you need, for as long as you opt to keep the VDR open. No pay-by-the-page nonsense or unexpected upcharges here. It’s obviously a win-win as far as VDRs go. It’s also one more way?SRS?Acquiom maximizes efficiency throughout the deal process— from due diligence, to payments, all the way through post-closing. That’ll keep your clients happy and you looking great at what you do. Need more convincing?
Macro Monkey Says ??
No-Fun Fundraising
2023 was a tough year, especially for those of us visiting the wreckage of the Titanic named Sam Bankman-Fried and anyone who wasn’t holding Nvidia.?
But, one particularly sweet and innocent group suffered too, experiencing one of their worst years in the past decade—Private Equity and Venture Capital investors.?
The plight of VCs and PE investors is all too well known, mostly because they never STFU with the complaints/brags on X that even their parents find cringy. But it turns out that in 2023, their complaints might’ve actually been valid (for once).
Let’s get into it.
Dealflow to Dead-flow
The only thing hotter than ventilators and videos of entire towns singing from their balconies in 2020/2021 was the private investment market.
Anything with a pulse and an NFT profile picture was fed millions as due diligence became about as loved as a chlamydia diagnosis. And then…
Boom. As indicated in the above chart, private investment fell off a cliff, with total fundraising falling over 22% in just 2yrs.
Overall, 2023 was the worst year in terms of the aggregate value of funding since 2017 and the worst since 2015 when it comes to the number of funds closed.
Liquidity was the key challenge for PE and VC firms as their Limited Partners (LPs), or people ponying up much of the cash for these funds to invest on their behalf, had a hard time saying no to a 5.5% rate on 6-month treasuries.
That certainly sounds a lot better than investing in another rock JPEG “NFT” project and likely led to…
… this drastic decline in the number of new funds launched in 2023.
When interest rates rise, the duration investors are willing to accept to earn their money back shrinks.
VC and private equity investments tend to be of the longest possible duration, promising returns years and sometimes decades down the line, so it was no surprise to see LPs and investors opt for the safer route now that real yields can be earned.
Further, these private investments almost certainly would not have seen that explosive growth without rates sitting at 0% for an extended period. So, the underinvestment now is also largely a correction for overinvestment then.
What About 2024?
We love it when things are confirmed BACK, like BTC price rises, hating on Taylor Swift, and Bud Light. And in 2024, it looks like we may be able to add private investment to that list.
For private investments to heat up, there has to be some kind of mechanism for LPs and those private investors to make their money back. The reason these investments have such long durations is often because that mechanism involves going public.
Initial public offerings, or IPOs, offer this mechanism to private investors to realize their investment… and they’ve been as popular as I was in high school since 2022.
But we can already see some signs of revival. At 2024’s current pace, we’re on track to close the year with 180 IPOs—a respectable uptick from 2023.
The good news is a lot of the 2024 IPOs are expected to go public at much higher valuations, meaning the total dollar amount realized should be far greater.
Stripe, Reddit, Skims, Plaid, Discord, Chime, Databricks, Shein, etc., have all signaled potential plans to IPO in 2024, giving further reason to believe deal flow will officially be BACK by the time bonus season hits this year.
Plus, the macro view to support a hot deal and IPO market in 2024 seems to be coming into place as well.
Although no one expects rate cuts in March anymore—and Goldman just announced they don’t expect one in May either—market-weighted probabilities from the CME Group still imply at least 100bps of cutting by late January 2025.
Better late than never—especially for these long-duration investments. If rates do decline even a little bit over the next year, each basis point decline will open the floodgates for more private investment, more deals, and more IPOs.
The Takeaway?
Stay strong, apes. Deal flow has begun its journey back to life, and although it’s almost certain we won’t see numbers as absurd as the past few years, it might be enough to drive net hiring in banking, PE, and the other industries you apes would kill a family to work in.
Hopefully, we get something as funny as Dogecoin or the Robinhood/WSB trials along with it…
What's Ripe ??
领英推荐
Coinbase (COIN) ??16.9%
Domino’s Pizza (DPZ) ??5.9%
What's Rotten ??
Berkshire Hathaway (BRK.B) ??1.9%
Alcoa (AA) ??4.5%
Thought Banana ??
Big Paydays
Calvin Harris, Steve Aoki, and Afrojack are some of the highest-paid DJs in the world, all boasting net worths well over $150mn.
But another lesser-known DJ with a day job has cracked the 9-digit net worth range as well, and his 24% raise in 2023 was a big help in getting there.
Goldman Sachs CEO David Solomon, a.k.a. ‘DJ D-Sol”, earned $31mn in 2023, a 24% rise in pay, nicely working out to a 1% increase for every 1% the bank’s earnings fell over the same period.
Everyone’s Pissed
Solomon hasn’t been the most popular guy at Goldman over the past few years.
His DJing and other non-Jamie-Dimon-like antics have aroused ire among shareholders, board members, and especially, fellow high-up employees.
Much of the anger comes from the fact that in 2023, Goldman saw a 24% decline in earnings, which generally implies weaker pay to top executives.
But this is Goldman Sachs we’re talking about—weaker pay is a foreign concept to these guys.
Now, DJ D-Sol could have a mutiny on his hands as key bankers and partners either are or are preparing to flee.
Solomon’s time left at GS has been questioned in the past, and although he believes the board is behind him, much of the anger among senior bankers and partners comes from the lack of promotion opportunities beginning with the continuation of his 6-year reign.
To satiate this desire for a promotion, Goldman has created committees on committees run by heads, co-heads, and co-co-heads that haven’t been sufficient to relax the displeasure among Goldman’s leadership.
Jim Esposito—the London-based (former) co-head of Goldman’s Global Banking & Markets team—highlights the most high-profile departure yet, according to the Financial Times.
Esposito was known for “keeping competing powers centers in check,” according to the very-British FT.
With his departure, the unrest has gone unfettered, and further departures appear imminent.
Who Cares?
It’s nice to be on top. But when you’re the CEO, you basically have two jobs:
In 2023, Goldman’s stock did see a ~12% rise, which is decent, but it still underperformed the S&P 500 by far.
So, amid falling profits, employee unrest, weak share price performance, and even weaker music produced by this part-time DJ, Solomon managed to not only keep his job but also took one of the largest pay raises on Wall Street in doing so.
I don’t know if I should be impressed or disgusted, but I’m kind of both.
As one of Wall Street’s most (in)famous institutions, it will be interesting to see how the rest of this saga unfolds and if Goldman can, like Pony Boy, stay gold.
?? The Big Question ??: Will Solomon be able to keep his spot as CEO and Chairman at Goldman if all these rumored departures come to fruition? How can banks satisfy the ambitions of their leadership teams with few executive promotion opportunities?
Banana Brain Teaser??
Previous ??
There are 5 cars to be displayed in 5 parking spaces, with all the cars facing the same direction. Of the 5 cars, 3 are red, 1 is blue, and 1 is yellow. If the cars are identical except for color, how many different display arrangements of the 5 cars are possible?
Answer: 20
Today ??
There are 10 books on a shelf, of which 4 are paperbacks and 6 are hardbacks. How many possible selections of 5 books from the shelf contain at least one paperback and at least one hardback?
Send your guesses to [email protected]
Wise Investor Says ??
“The best way to look at any business is from the standpoint of the clients.” — Jamie Dimon
Today's Peel??
??All the bananas? ? ???Meh? ? ? ? ??Rotten AF
?
Happy Investing,
David, Vyom, Jasper & Patrick