Among big Wall Street banks, Goldman Sachs (GS -0.23%) may be the most aggressive in terms of fintech investments. For instance, Goldman is the only major Wall Street bank to have an online personal loan product, called Marcus, which competes with Lending Club (LC -0.12%) and other private Silicon Valley start-ups like Prosper.
Goldman's strategic investments group, which makes venture-capital-like investments, now owns 80 portfolio companies. One such company is Cadre, a fintech company involved in online commercial real estate investing that Goldman funded in its Series B, C, and D funding rounds. The start-up, which happens to be led by some Goldman alumni, also just received a $250 million investment from Goldman's private wealth clients. Here's what the partnership is all about and what it could mean for other big Wall Street asset managers.
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What Cadre does
Cadre was founded in 2014 by current CEO Ryan Williams and the Kushner brothers, Jared (now in the White House) and Josh, who runs venture capital firm Thrive Capital. Cadre is an online platform for making commercial real estate investments, and it aims to give limited partners (LPs) –- those who put up most of the outside money in a real estate investment fund -- both greater transparency and lower fees than a traditional private-equity real estate fund. The company typically seeks joint ventures with operators, which incentivizes the operating company to do a good job while Cadre focuses on managing its portfolio for investors.
The company boasts an experienced deal team headed by Michael Fascitelli, former head of real estate investment banking at -- you guessed it -- Goldman Sachs. The investment committee also includes former executives from Blackstone (BX), Baupost (Seth Klarman's investment firm), and other heavyweights.
Cadre also charges its LPs less than a typical private real estate fund. These funds usually charge a management fee, often around 1.5%, as well as a 20% cut of the profits above an 8% "preferred" return to LPs. On Cadre's website, it advertises a 1% "transaction fee" (I assume that's based on a per-deal fee, like a broker would get) and then a similar 1.5% management fee, but no incentive fee. Cadre claims this fee structure will increase investors' invested rate of return by over 2% compared with a typical fund, all other factors being equal.
In addition, Cadre aims to increase transparency for investors by opening up a host of tech-enabled data and research to limited partners, which is usually hard to come by in private funds. These include property value trends, market analysis, background on operators and managers, and insurance and tax information.
Goldman the disruptor?
Is blue-blooded Goldman Sachs trying to become a "disruptive" tech company? It certainly looks that way. Just as its Marcus personal loan product takes aim at credit card companies, the new Cadre partnership takes direct aim at private-equity firms and other real estate managers that operate on the traditional model.
Can Goldman do it? Perhaps, but I'm not exactly sure these new ventures will move the needle, at least in the near term, as they make up a small portion of Goldman's overall current revenue. As of the third quarter of 2017, the company managed over $1.4 trillion in assets, so the $250 million invested in Cadre is just a tiny portion of that. Still, the new partnership is just a start, and investors would be wise to monitor Goldman's fintech-related actions going forward as technology increasingly opens up the world of finance.
