On September 30, I wrote an article entitled "Can Goldman profit from the banking cleanup." 

Goldman Sachs (NYSE: GS, Stock Forum) got caught up in the mortgage and derivatives meltdown. Yet the firm sustained far less damage than some others on Wall Street and has survived. Furthermore, GS has been very adroit at making the right strategic moves to reposition it for the new financial landscape. The conversion to a bank holding company was a logical move given the regulatory climate and need for additional capital. Also, the GS expertise in problem securities and derivatives gives the company a leg up on doing due diligence on target banks and knowing where some of the problem portfolios reside. Now for Round Two of the GS plan. 

Yesterday, GS announced it had closed GS Loan Partners I with $10.5 billion in equity and leverage commitments, including more than $1 billion of equity from the firm and its employees. This is the first senior debt fund of its kind raised by Goldman Sachs and the 15th fund formed by the firm’s Principal Investment Area (PIA) since 1986. Note the description of the new GS fund: 

"The fund seeks to generate current income as well as long-term capital appreciation through senior secured loan investments. Its primary focus will be providing senior secured loans to finance leveraged buyouts, recapitalizations and acquisitions for leveraged buyout firms and other corporate issuers." 

It is also interesting to note a description of the funds opportunities: 

"The current environment of constrained balance sheets and declining new leveraged loan issuance has created significant opportunities for GS Loan Partners,” said Thomas G. Connolly, Managing Director with global responsibilities for GS Loan Partners. “Our unique ability to provide senior debt issuers with commitments in size on known terms and with certainty of financing should allow us to provide our investors with attractive, risk-adjusted returns.” 

What does all this mean? It means that GS is now in a position to do asset-based lending, one of more lucrative businesses that a commercial bank or specialty finance company can do. GS will be filling a capital raising vacuum in the current market by issuing high interest secured loans to companies that cannot obtain funds by any other means. Once again GS emerges as an opportunistic leader in its target market. Looks as if Warren Buffet picked the right franchise at the right time.