One of Wall Street's most successful executives is parting ways with Blackstone
Like the letters on a lighted marquee going dark one by one, Blackstone Group has been losing the co-founders of its $139 billion credit business, GSO Capital Partners. The “O” left first, in 2015. “S” followed in 2018. Now, finally, the “G” — Bennett Goodman — is making his exit.
For months, speculation has swirled on Wall Street that Goodman, 62, might join one of his former partners at a rival firm. But in an interview he said “there’s no plan to get the band back together.” Instead, Goodman intends to build a family office and explore opportunities to invest the wealth he’s amassed over 35 years in finance. That means giving up most of his duties on Dec. 31, stepping down as a senior managing director and board member while continuing to advise parts of Blackstone’s business.
“I don’t necessarily feel like I’m leaving Blackstone,” Goodman said. “I feel more like I’m changing my status.”
That’s a more fitting ending to one of the most successful ensembles in private-equity history, a collaboration that helped Blackstone — which acquired GSO in 2008 — turn the turbulence of the global financial crisis into a source of profits.
In his 11 years at the New York-based firm, Goodman has built one of the biggest and best-performing players in credit markets. GSO gave Blackstone the talent and expertise it needed to scoop up beaten-down bonds and loans after the crisis and then to capitalize on the regulatory shifts that forced banks to retreat from risk-taking.
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“He was uniquely suited to integrate and scale the team,” said Tony James, Goodman’s former boss at Donaldson, Lufkin & Jenrette who’s now an executive vice chairman at Blackstone.
Credit now accounts for a quarter of Blackstone’s $545 billion in assets, more than hedge fund investments and almost as much as private equity and real estate. GSO buys and sells distressed debt, finances buyouts, lends to energy companies and manages collateralized loan obligations. Investors in its flagship funds have earned an average 12% annually.
It’s all made Goodman one of the more powerful figures on Wall Street, not to mention afforded him an enviable lifestyle — private jet, driver, an apartment on Manhattan’s Central Park, vacation homes in the Hamptons and Aspen, Colorado, memberships at New York’s Atlantic and Purchase golf clubs.
So why leave?
“I’ve accomplished all that I set out to accomplish, and I think at some point you have to let go,” Goodman said. “I don’t want to sit in a corner office and just be a hanger-on.”
Plus, he wanted to be sure he wasn’t needed any longer. Goodman handed over day-to-day management of GSO in 2017 as part of Blackstone’s transition to a younger generation of leaders. His successor, Dwight Scott, has become “very comfortable and confident in his role” and is ready to lead GSO’s staff of about 400 on his own, Goodman said.
For his part, Goodman will remain chairman of GSO’s business development company and become a senior advisor to Blackstone. He’ll play a role in the firm’s direct-lending business, as well as in deals and client relations.
That’s not to say leaving will be painless. Goodman forfeits more than $100 million in unvested stock when he ceases being an employee at year-end.
Like a surprising number of Wall Street titans, including Leon Black, Ken Moelis and David Solomon, Goodman got his start at Drexel Burnham Lambert, the investment bank that created the junk bond market. It was 1984. Goodman, a Miami native, had studied engineering at Lafayette College and just graduated with an MBA from Harvard Business School. Drexel offered him a job in high yield, the department run by Michael Milken.
What the twenty-something Goodman learned from Milken shaped the rest of his career.
“The world thought that these non-investment-grade companies were not worthy of lending money to or financing, and he felt that the risk-adjusted return was more than adequate and you’re getting overly compensated,” he said. “That was the genius of Mike.”
After leaving Drexel in 1988, Goodman joined DLJ and built Wall Street’s top leveraged-finance business. By the early 2000s, Credit Suisse had bought the firm, and he was ready for a change.
Most bankers, weary of the constant hustling or worn out by the often-brutal hours, entertain notions of becoming investors themselves. So it was with Goodman.
“Because we were the ones who were creating all these investment opportunities for our clients, at some point you just say, ‘Why don’t we just do it ourselves, keep it for ourselves?’” he recalled. “That started the idea of the transition from being a banker, which I did love doing, to wanting to be a principal.”
In 2005, Goodman, together with two colleagues, Tripp Smith and Doug Ostrover, started GSO. By 2008, the hedge fund was managing $10 billion. James, who had left Credit Suisse, persuaded them to join Blackstone.
There’s a cluster of Lucite “tombstones” on the windowsill of Goodman’s 31st-floor office at 345 Park Ave. commemorating the more memorable deals of his career. Looking back, one in particular stands out: the purchase of a $6.1 billion loan portfolio from Citigroup in March 2008.
“It was the transaction that put GSO on the map,” he said, describing how Blackstone Chairman and CEO Stephen Schwarzman went through each of the borrowers in detail. “We were like his new toy, and this was big.”
Within months, the deal almost cost Goodman his job. Lehman Brothers went bankrupt, credit markets froze and Blackstone had to record a market-to-market loss of more than $1 billion on the loans. As a 2013 Harvard Business School case study observed: “When the market would hit bottom and when it would start to recover is hard to say.” Eventually, it did bounce bank and Blackstone made a handsome return.
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It was Goodman’s luck to enter finance at perhaps the optimal time. Over 30 years, benchmark bond yields would drop by more than 10 percentage points, the internet would revolutionize the economy and globalization would supercharge U.S. corporate profits.
The outlook today isn’t as bright, and that presents challenges for Blackstone and specifically for GSO’s Scott, age 56. Putting money to work now, with debt instruments trading at historically rich valuations, could result in lousy returns or even losses down the road.
Plus, there's been a lot of turnover at GSO. Ostrover started his own alternative credit manager, Owl Rock Capital Partners. More than a dozen senior managing directors and MDs have departed in recent years as the firm's new leaders took charge. Blackstone elevated Jon Gray, 49, to succeed James as the firm's president and operating chief in February 2018.
“Culturally, it’s very hard to manage a group of 400 people if you’re not doing deals and if you’re not growing,” Goodman said. “We have $25 billion of dry powder, but we’re going to wait for another day and hopefully better opportunities before we deploy that capital.”
In his new life, Goodman will be free of such weighty responsibilities. You might find him dining at one of three New York restaurants he co-owns with Solomon, the Goldman Sachs CEO — Charlie Bird, Pasquale Jones and Legacy Records — doing basketball drills at the Jewish Community Center on the Upper West Side or taking spin classes at SoulCycle with his favorite instructor, “Julie D.”
Goodman said he is already hiring for his family office and has agreed to invest in the fund his onetime GSO partner Smith is raising to bet on market dislocations in the next economic downturn. He calls the strategy WIC, a cheeky reference to the signature line “winter is coming” from HBO’s hit TV series “Game of Thrones.”
Come January, with all three of its GSO founders gone, Blackstone likely will re-brand its credit business. Then the only question will be what Goodman does next. His non-compete agreement expires 90 days later.
“I’m not going to be, you know, sipping piña coladas out of coconuts on some beach,” he said.