The Champagne was flowing in February 2018 when the Goldman Sachs executive Rich Friedman welcomed a couple hundred guests to the Rainbow Room. The Manhattan landmark, opened in 1934, offers a menu with beef Wellington and baked Alaska and serves a $162 brunch. Overlooking Manhattan from the 65th floor of Rockefeller Center, guests danced and chatted as Stevie Wonder played piano.
On the surface, the event was a celebration of Friedman’s 60th birthday. But it could have easily been a celebration of a Goldman Sachs career entering its golden years. The recent retirement of CEO Lloyd Blankfein made Friedman the longest-tenured partner at Goldman.
Since 1991, Friedman has built the bank’s private-investing activities into a sprawling collection of funds that have invested more than $180 billion in real estate and infrastructure, private equity, and credit markets that often competes with flashier investment firms like Blackstone, Carlyle, and KKR.
Though advocates put him in the pantheon of buyout greats, Friedman hasn’t enjoyed the same name recognition as men with names like Schwarzman, Kravis, and Rubenstein. That’s by design, according to interviews with about a dozen current and former colleagues, clients, and competitors.
“Rich is a very confident guy,” said Blankfein, who counts Friedman as a friend. “He’s very comfortable with his low profile relative to his performance. Not everybody is like that, but his instincts are firm first. Always.”
Compare his party, for example, with one held the year before: Blackstone CEO Stephen Schwarzman’s 70th birthday party, which reportedly cost $20 million, included appearances from the musician Gwen Stefani and the fashion designer Donatella Versace and got written up in the press.
Friedman may be the most influential and least-known Goldman banker of his generation — a man content to stay in the background despite a record of devising strategies that repeatedly put his company on firmer ground. Taking early cues from Goldman leaders like Stephen Friedman and Hank Paulson, he fashioned a cohesive unit within the larger enterprise, helped steer Goldman around a thicket of regulations, and gave it a shot to move beyond its Wall Street roots.
Rich Friedman’s preference for privacy may soon be tested. CEO David Solomon wants to lift the veil on the firm’s opaque alternative-investing activity, which encompasses Friedman’s unit, to make it easier for analysts and investors to value, according to people familiar with his thinking. A staggering 43% of the fee pool for the asset-management industry is in alternatives, according to Bernstein analysts. Most of that is in private markets, where more and more of the world’s active investing is taking place.
At Goldman’s annual partners’ meeting in January, Solomon showed a PowerPoint slide with the multiples assigned to Blackstone’s business and stacked Goldman’s much lower ratio next to it.
Solomon’s changes may give Friedman a larger remit or hasten his retirement. The special-situations group, a SWAT team of investors from the securities division, may begin taking outside money and throw in with Friedman’s troops, The Wall Street Journal reported. The head of that business, Julian Salisbury, is a candidate to run the unit, as are Friedman’s lieutenants Tom Connolly, Sumit Rajpal, and Andrew Wolff if Friedman retires or Solomon wants a younger exec in charge, one of the people said.
Either way, his nearly 40-year career will be thrown into sharp contrast.
From basketball star to ‘boy wonder’
Growing up in the Riverdale neighborhood of the Bronx, New York, with a father who worked in the garment industry, Friedman spent his youth playing basketball and card games and going to the nearby racetrack. After high school came Brown University, where Friedman played point guard for the Ivy League school’s basketball team. A photo in his office overlooking New York Harbor shows him in a recent alumni game taking a three-point shot, feet off the ground, ball in hand.
After Brown, Friedman attended the University of Chicago’s business school on the advice of his brother. Only after a finance professor started talking about how odds change at the racetrack did Friedman wake up. He joined Goldman after graduation, in 1981.
When Friedman arrived, private-equity investing was just beginning to capture the world’s attention. Corporate raiders were increasingly turning to the junk-bond markets developed by Drexel Burnham Lambert (Solomon’s old employer) for financing to buy companies, offloading them after surging stock markets propelled valuations higher.
It wasn’t immediately obvious that an investment bank with private-equity clients would want to compete directly with those clients, but Goldman began to muscle in. It raised its first buyout fund in 1986, while Friedman was shuttling between an early stint in private finance and running Goldman’s first media-investment-banking group. An early distressed-debt vehicle, the Water Street Corporate Recovery Fund, angered blue-chip corporate clients and led three execs, including Friedman’s mentor, Fred Eckert, to leave.
Stephen Friedman and Robert Rubin, Goldman’s co-chairmen at the time, configured a new principal-investments area that would invest company dollars and employee funds alongside client money, turning to a quiet partner to run it. In Rich Friedman they chose an executive whom one colleague still describes as a nerd: easy with numbers, but a little out of his depth as a manager. What many misread as aloofness — or worse, arrogance — comes from a natural shyness, the person said.
“He was seen as a boy wonder,” a former colleague said. “Even in those days, 33-year-olds didn’t get chosen to run divisions.”
No ‘wild and crazy guys’
Stephen Friedman and Rubin weren’t asking to start a private-equity arm separate from the investment bank, but a unit that worked with it hand in hand to find investments. The model continues to challenge Wall Street norms, where investment bankers closely guard their role as unconflicted adviser. To make it work at Goldman, they needed a shrewd manager to balance competing interests.
“We were never looking for wild and crazy guys,” Stephen Friedman said. “He was commercial, and we thought he could manage the business well.”
Rich Friedman worked hard to smooth over any friction between the bankers and his investment professionals, former colleagues said. Sometimes that meant conceding to bankers more often than some colleagues liked. Other times it meant saying no to investments that didn’t make sense. Hank Paulson, who would become CEO, emerged as an early proponent.
“I just decided early on that in every step of the way we would err on the side of building this deeply, deeply into the firm,” Rich Friedman said in an interview from his 28th-floor office in Goldman’s headquarters, in his characteristically straightforward style.
Other details of the office, which some consider nicer than Blankfein’s, include a small putting green, an aerial photo of Friedman’s vacation home in Bridgehampton, New York, and a pointillist painting with the words “no” and “go,” which he jokingly suggests is used to settle investment decisions.
One example shows how it can work. Roughly 12 years ago, the billionaire Thomas Pritzker selected Goldman’s investment bankers to drum up investors for his Hyatt Hotels chain. When one investor withdrew, Goldman’s merchant bank stepped up. Friedman would later join the Hyatt board, where he became a trusted adviser, Pritzker said in an interview.
“They started as an agent, and because they had a principal capacity, they were able to solve a problem for me,” Pritzker said. “In some quarters, conflict is an original sin. I don’t view it that way, as long as you are transparent.”
Conflicts between Goldman’s investment and investment-banking mandates have occasionally cropped up, such as when the firm advised El Paso in its sale to Kinder Morgan, the oil-pipeline operator in which it owned a 19% stake. Shareholders sued, and a Delaware judge dinged the bank for not doing more to disclose the relationship.
‘A holy s— moment’
Friedman was early to see the value of running the private-equity business in parallel with a debt business, said Tom Connolly, the head of Goldman’s private-credit arm. While the bank analyzes thousands of investments every year, not all make good equity investments, so using some of that analysis for debt investments makes sense. The businesses are so intertwined that a single investment committee reviews equity and debt deals.
The bank introduced a mezzanine fund in 1996, added infrastructure funds, and in 2008 raised a fund for direct lending that pioneered a surge in interest from other private-equity shops. A seventh mezzanine fund raised $13.3 billion last year, part of more than $45 billion raised in the two years through December. That month, when credit markets across Wall Street swooned, Goldman stepped in and lent more than $3 billion. The company sent more than $1 billion to Carlyle for its purchase of StandardAero.
“I remember when they came out with a senior-loan fund,” Blankfein said, “I said, ‘Senior loans, really?’ And his answer is that he wanted to have something in every part of the capital structure.”
Though executives didn’t know it at the time, the credit business gave Goldman the ballast to weather an existential threat. In January 2010, the Obama administration introduced the Volcker rule, which placed a 3% limit on the amount of money banks could invest in private-equity funds. Until then, Goldman typically contributed 30% to 35% of each fund’s capital.
Friedman remembers the moment vividly: It was his brother’s birthday, and he was scheduled to fly to the Bahamas. A bunch of people had gathered in his office to watch Obama’s address. “It was a holy s— moment,” he said.
Some banks moved quickly to jettison their businesses. Analysts began a quarter-by-quarter watch of which banks were withdrawing their money from the funds. Friedman began thinking of ways to adapt.
By September 2012, Friedman said he wouldn’t raise another private-equity fund until the rules were clear. He completed investing Capital Partners VI, the largest of its kind when it raised $20 billion in 2007.
The idea he came up with — investing in smaller deals from the balance sheet and then syndicating stakes to chosen partners — is considered smart because it kept Goldman in the game. But Friedman soon realized it wasn’t a long-term solution. It eliminated a tool for him to pay people as a portion of the fund’s returns, and it left many clients unable to invest.
So Friedman played to the rules, which hit equity investing harder than debt or lending activities. The merchant bank now has more assets under management in private credit — $40 billion — than it does in private equity. The bank declined to give precise figures. Goldman is now the No. 1 private-debt investor, according to Private Equity International. The ranking strips out management of securitized loan vehicles and slots Goldman in above Blackstone and its GSO Capital unit.
Along the way, he managed to create an esprit de corps within the larger enterprise. When a colleague was dying of cancer, merchant-banking employees kept vigil most evenings by her bedside. More than 50 attended her funeral.
‘It’s good to be Rich’
Around Goldman, there’s a saying that “it’s good to be Rich.” The man wears a constant tan, has houses on Fifth Avenue and in Palm Beach and the Hamptons, and seldom travels far for work. Insider guesses about his wealth range wildly, from $500 million to more than Blankfein. Friedman received about $150 million in Goldman’s 1999 initial public offering, the same as Blankfein and more than Gary Cohn, the former Goldman president, who cashed in almost $300 million when he joined the White House in 2017.
He declined to comment on his wealth.
In 2017, Friedman donated $24 million to Brown to renovate a building constructed in 1891 that sits on the college’s main green. Later this year, he’ll be named co-chairman — along with a close friend, Jim Tisch of Loews Corp — of Mount Sinai, where he’s served on the board since 2001. In 2010, he donated $20 million to the hospital operator to create the Friedman Brain Institute.
More than anything, Friedman’s secret is one he doesn’t keep to himself: He invests his money in the firm’s funds. Partners and managing directors can invest in a series of funds known as Stonebridge (a combination of separate vehicles for partners and MDs previously known as Bridge Street and Stone Street) and directly alongside client funds. When vice presidents make it to managing directors, Friedman welcomes them at orientation with an impassioned speech imploring them to invest alongside him, according to people who have witnessed it.
“He has a lot of partner money,” said one. “We all root him on and have a lot of confidence in the business.”
Critics grumble when they think Friedman should have pushed for a larger bonus pool, or hopped on a plane to visit a far-flung portfolio-company CEO, or toured the Middle East raising money. Others think he’s stuck around too long in Goldman’s up-or-out culture intended to make way for new talent. The buyout industry is sprinkled with former merchant-banking execs, including Gerry Cardinale, Henry Cornell, and Barry Volpert, who sought fortune elsewhere rather than waiting it out.
‘He could do it tomorrow’
His record isn’t perfect. An early investment in AMF Bowling, a bowling center and equipment maker, misread the demand from Asian consumers; the company went into bankruptcy with Friedman as chairman. An investment in the Texas utility provider TXU made at the height of the buyout boom in 2007 with KKR and TPG Capital — a press release quotes Friedman — still ranks as one of the industry’s worst.
Tech has been a sore spot, with Goldman suffering big losses in the internet crash. Scarred by the experience, Friedman’s investment committee got skittish and forced the sale of a 33% stake in Alibaba, according to Duncan Clark’s book “Alibaba: The House that Jack Ma Built.” The $3.3 million stake would have been worth almost $9 billion in the firm’s 2014 public offering, according to some estimates. Goldman disputes the account and says its stake was never larger than 13%.
And yet it’s Friedman’s idea about digital finance that has given Goldman its first new business in years. Asked to come to a 2014 offsite at Cohn’s Hamptons home with ideas for how the firm could grow, Friedman sat down with Sumit Rajpal, a top lieutenant, and shot for the moon. Their idea, unsecured consumer loans, was received warmly, and he wrote a business plan, presented to the board, and hired its first leader. Now known as Marcus, the business has made more than $5 billion loans and attracted more than $35 billion in deposits.
“I figured most people were going to go out there and talk about running faster and jumping higher and being Goldman Sachs in more places,” Friedman said. “I wanted to think about what Goldman Sachs could do that could be really transformative.”
Other wins include TransUnion, where Goldman made more than $2.8 billion on its investment. A 2005 investment in Universal Studios Japan delivered a return of more than 15 times invested capital, while an investment made five years earlier in the YES Network delivered a 28% internal rate of return. The first senior-loan fund delivered an IRR net of fees of between 17% and 21%.
Returns like those have contributed to operating margins of greater than 50% and given Goldman a needed boost of revenue when other parts of the company, like bond trading, have struggled. Over the past three years, the investing-and-lending segment where most of the results show up has delivered $10 billion in earnings, or almost 30% of the firm’s total.
“If Rich wanted to cut a much bigger profile in the world, he could,” Connolly said. “He could do it tomorrow.”
Solomon may ask him to do just that.