Rich Friedman on the Rise of Private Markets and AI…

PodcastGoldman Sachs ExchangesRich FriedmanSep 18

Friedman reflects on Goldman Sachs’ growth in private investing, from its first $1 billion GS Capital Partners fund to a scaled private-equity business built around discipline, consensus, and a measured investment pace. He describes opportunities in wealth management and sports-related services, while emphasizing selectivity amid competition and deal-making cycles. On AI, he recognizes its unprecedented capabilities but questions whether the scale of data center investment can earn good returns and cautions that adoption may take longer than many expect.

Private Credit Venture Capital Artificial Intelligence AI Infrastructure Investment Strategy Private Equity

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Key Takeaways

Friedman argues Goldman Sachs should participate in AI without chasing momentum, focusing on areas where it has expertise; he would rather service data-center infrastructure than own the facilities and questions whether the contemplated $4 trillion in investment over the next three-plus years can earn good returns. He also says AI’s capabilities are unprecedented but expects its potential may take longer to materialize than many anticipate.

Friedman describes AI as central to his view of the U.S. economy, saying the economy is okay with AI but not okay without it, while cautioning that AI’s potential may not materialize on the timeline many expect.

Goldman Sachs’ principal investment business expanded from a $1 billion first GS Capital Partners fund in 1992 to a subordinated debt fund for European buyouts in the late 1990s, which also invested in U.S. deals. Friedman recalls that the subsequent buyout pace reached an estimated $200 billion in 18 months, despite valuations not being especially high.

GEO-POLITICS

ICBC Investment — Friedman describes Goldman Sachs’ investment in ICBC as a pivotal step toward establishing the firm as a constructive investor in China. The investment paired a fund investment with a commercial relationship and was linked to the privatization of Chinese banks.

“It was a strategic investment, but the firm made an investment. Our funds made an investment. There was a commercial relationship that was established between Goldman Sachs and ICBC…”—

TECHNOLOGY

AI Investment Discipline — Friedman says AI creates pressure to join a momentum-driven investment theme, but argues the firm should balance its level of participation with consistency and focus on areas where it has expertise. He says the firm has not historically succeeded by jumping into momentum trades.

“The same thing will go on now, is if you're not active in AI right now, you know, you're useless…”—

Data Center Exposure — Friedman would rather provide services to data center infrastructure projects than own the data centers themselves. He questions whether the contemplated $4 trillion in investment over the next three-plus years can earn a good return.

“I'd rather be servicing the infrastructure that's being put into the data centers than necessarily owning these data centers, because if $4,000,000,000,000 gets invested over the next three plus years…”—

ECONOMY

S&L Recession — Friedman recalls that the 1989–1990 recession felt severe to him and attributes it to the S&L crisis.

“And it was it felt it felt pretty severe at the time. And this is from the SNL crisis that really, caused this.”—

MARKETS

First GSCP Fund — Friedman says Goldman Sachs’ principal investment area led to the launch of its first GS Capital Partners fund in 1992. The $1 billion fund was a signature milestone at a time when only five firms had billion-dollar funds.

“So the first milestone, obviously, was raising GSCP one. That was a billion dollar fund in 1992…”—

Subordinated Debt — Friedman says Goldman Sachs created a subordinated debt fund in the late 1990s, initially to finance European buyouts because Europe lacked that funding. The fund also invested in U.S. deals, competing with U.S. public markets.

“And in the late nineties, I came up with the idea that we should raise a subordinated debt fund. And it was really…”—

Buyout Boom — Friedman recalls an unusually active private-equity period, estimating $200 billion in buyouts over 18 months. Public companies were seeking private-equity buyers, valuations were not especially high, and the pace tested the firm’s discipline.

“You know, I think we did 200,000,000,000 of buyouts in an eighteen month period. It was a crazy period…”—

Friedman’s Goldman Sachs Beginnings

Friedman recalls joining Goldman Sachs in the early 1980s, moving into buyout financing, and receiving a career-making opportunity to help build its media business.

Building Goldman’s Merchant Bank

Friedman traces the merchant bank’s development from its first $1 billion fund through new credit, technology, growth, debt, real estate, and infrastructure strategies.

Goldman’s China Investment

Friedman describes Goldman’s early exploration of China, its patient team-building, and the ICBC investment that helped establish the firm as a constructive investor there.

Goldman’s Investment Principles

He says the business had to be integrated with Goldman Sachs, partner thoughtfully with clients, retain strong talent, and prioritize returns through rigorous investing.

Consensus Over Momentum

Friedman favors open but civil investment debate and broad consensus, while explaining why discipline means resisting fashionable sectors and limiting exposure when needed.

Private Equity’s Crowded Market

Despite thousands of competitors and abundant capital, Friedman believes selective investors can still find opportunities by focusing on their sweet spots and making only a handful of deals annually.

Crisis, Exits, and Returns

Friedman identifies the financial crisis as his career’s greatest shock and says private equity’s current challenge is exiting investments, not weak portfolio-company performance.

AI Valuations and Real Returns

He sees opportunities in wealth management and services supporting data centers, but questions whether enormous AI infrastructure spending can generate adequate returns or arrive on the expected timeline.

Sports, Giving, and Goldman Culture

Friedman connects basketball to teamwork, discusses his philanthropy priorities, and reflects on the collaboration and sense of purpose that have endured as Goldman Sachs has grown.

Work, Judgment, and Career Growth

He advises employees and investors to work hard, think beyond assigned tasks, build relationships, and pursue opportunities while emphasizing his strategic ability to see the larger picture.

Golf and Richard Rainwater

In the lightning round, Friedman describes golf as his current happy place and names Richard Rainwater as an inspiring investing pioneer.

AI’s Uncertain Timeline

Friedman calls the current moment challenging and exciting, but cautions that AI’s promised changes may take longer than optimists expect before the conversation closes.