Former Goldman Partners Join Private-Credit Rush in New Venture

Former Goldman Sachs Group Inc. partners Tom Connolly and Mike Koester are betting on one of the hottest corners on Wall Street for their next act.

(Bloomberg) — Former Goldman Sachs Group Inc. partners Tom Connolly and Mike Koester are betting on one of the hottest corners on Wall Street for their next act.

The New York-based duo have co-founded a new firm, 5C Investment Partners, that aims to capture a slice of the burgeoning private credit market, where alternative asset managers are increasingly displacing banks by providing multi-billion financings to companies.

“Direct lending is playing a very important role during a market dislocation that is persistent,” Koester said in an interview Thursday, referring to regulation that has curbed bank lending since 2008. “There are credit-worthy companies that need financing.”

Many Wall Street veterans have sought to capitalize on a yearslong shift that’s seen more capital flow into the hands of private credit managers. Josh Harris’s 26North Partners and Dan Loeb’s Third Point have both made high-profile hires in recent weeks to push into direct lending.

Connolly and Koester are not new to the trade. At Goldman, they helped the bank develop its direct lending business and raised a $10 billion credit fund after Bear Stearns had collapsed. 

“They have a very strong record, and it’s not a surprise they’re trying to repeat the success of their collaboration,” said Bjarne Graven Larsen, founder and CEO of Qblue Balanced, a Copenhagen-based asset manager, who recalls committing more than $4 billion to that Goldman fund during his tenure as chief investment officer at Danish pension fund ATP Group.

“It was well-timed and well-structured, and some of the first investments were credits out of the Lehman bankruptcy at roughly 30 cents on the dollar which led to great returns that I’d never seen before from a loan fund.”

Old Mantra

5C, which describes itself as a credit-centric alternative investment firm, will be initially focused on the US, with scope to expand in Europe. Connolly, who estimates an addressable market of $3 trillion in coming years, believes there’s room for independent platforms despite increased competition among direct lenders.

The firm’s name is a nod to the “five Cs of credit” a lending framework Connolly and Koester learned as young credit traders at Bankers Trust in the 1990s. The five Cs — capacity, capital, collateral, conditions and character — were emblazoned on mugs the firm’s chief credit officer handed out.

“We are fundamental investors in everything that we’re doing, and these are five incredibly important tenets for investing, underwriting and lending,” said Koester, citing character — or the reputation and behavior of borrowers — as the top principle. 

Connolly, who made partner at Goldman in 2004 and held roles including global co-head of private credit, left the firm last year. Koester, who became partner in 2008 and held roles including co-president of alternatives of Goldman Sachs Asset Management, left in April.

“I am looking forward to Mike and Tom being important clients of Goldman Sachs in their new venture and believe this is the powerful Goldman Sachs ecosystem in action,” Alison Mass, Goldman’s chairman of investment banking and leader of its alumni engagement effort, said in an emailed statement.

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