Harit Talwar on Catch-Up With David...Talks at GS with Dr. Zeke Emanuel...Leveraged Loan Demand Marches Higher

Insights on markets, industries and the global economy [Goldman Sachs]( [BRIEFINGS] May 13, 2019 Catch-Up With David: Harit Talwar on the Inspiration and Strategy Behind Marcus Above (L to R): David Solomon and Harit Talwar of Goldman Sachs What's it like to build a startup within a 150-year-old institution? Harit Talwar, global head of Goldman Sachs' consumer business, explains the strategy behind the firm's online consumer banking platform Marcus in the latest episode of Catch-Up With David. "Unlike a small startup, we don't have the freedom and flexibility to just do a beta product test or be less than perfect in our marketing. Our execution standard expectations by the broad stakeholder community, both within the firm and outside the firm, are very high -- which sometimes in a startup is challenging," Talwar says. "But I think it's the flip side of having a great brand, and so we would rather take that challenge." Talwar points to leading technology and consumer brands, like Amazon and Apple, as the inspiration for Marcus' digital-first approach. "[They] use engineering, data and design to make the experience simple, easy, transparent repeatable... We can do that for consumer financial services. After all, today we have four million [banking] customers without a single branch." [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=%3ci%3eCatch-Up%20With%20David%3a%3c%2fi%3e%20Harit%20Talwar%20on%20the%20Inspiration%20and%20Strategy%20Behind%20Marcus&body=https%3a%2f%2fwww.goldmansachs.com%2finsights%2fpages%2fcatch-up-with-david-solomon-may-2019.html) Talks at GS with Oncologist and Bioethicist Dr. Zeke Emanuel Above (L to R): Rob Mass of Goldman Sachs and Dr. Zeke Emanuel With pharmaceutical drug pricing increasingly in the political spotlight, the issue may present a rare opportunity for bipartisan action, says oncologist and public health expert Dr. Zeke Emanuel, an architect of the Affordable Care Act and chair of the Department of Medical Ethics and Health Policy at the University of Pennsylvania. In Emanuel's view, meaningful reform will need to incorporate two principles -- value-based pricing (linking the price of a drug to the health benefit it produces) and determining a drug's total affordability to the system, he explained during a recent episode of Talks at GS. Regardless of the policy approach, Emanuel predicts that events will push the drug pricing issue further into focus this year: "In 2019, we are likely to have the first million dollar drug treatment. I think that will send a shock wave through the system. And I think it is going to galvanize people. We just can't spend a million dollars for a drug treatment." [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=%3ci%3eTalks%20at%20GS%3c%2fi%3e%20with%20Oncologist%20and%20Bioethicist%20Dr.%20Zeke%20Emanuel&body=https%3a%2f%2fwww.goldmansachs.com%2finsights%2ftalks-at-gs%2fdr-zeke-emanuel.html) Podcast: What's Keeping Insurers Up at Night? The findings of Goldman Sachs Asset Management's (GSAM) eighth annual insurance survey are in, and they indicate a "dramatic shift...going from a benign investing environment to a late-stage [one]," says GSAM's Mike Siegel, with concerns of lower inflation, market stability and interest rates driving a longer-term investment strategy among global insurance companies. With US markets in the late stages of the economic cycle, high equity valuations and low bond yields, insurers are increasingly deploying their capital into private equity away from public equities to reduce volatility and earn higher returns, Siegel says in the latest episode of our podcast, Exchanges at Goldman Sachs. [Listen to podcast]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Podcast%3a%20What%27s%20Keeping%20Insurers%20Up%20at%20Night%3f%20&body=https%3a%2f%2fwww.goldmansachs.com%2finsights%2fpodcasts%2fepisodes%2f05-07-2019-mike-siegel.html) Briefly...on the Rise of Corporate Debt, Leveraged Loans and Smaller LBOs Demand for leveraged loans -- a form of capital issuance to companies with sub-investment-grade credit ratings -- is continuing to march higher even as some regulators raise concerns about rising debt levels. We sat down with Goldman Sachs' Christina Minnis and Vivek Bantwal, who run the firm's leveraged loans business, to discuss their perspectives on the market. You just hosted Goldman Sachs' Fourth Annual Leveraged Finance Conference. What was the tone among investors -- especially in light of the Federal Reserve's recent comments that the rise in leveraged loans could be a potential risk to the financial system? Christina Minnis: Overall, the tone was constructive among the nearly 800 issuers and investors who attended this year's conference. To be sure, there was chatter about unchecked risks. But while borrowing is up, leveraged loans are in the most secure part of a company's capital structure -- meaning that in a bankruptcy, loan holders would be the first to get all their money back. For credit investors, that's where you would want to be -- in the senior secured part of the capital structure. Vivek Bantwal: The market has also evolved over the past decade. It's true that debt levels have crept up over the last 10 years and that "covenant lite" loans -- or loans that offer limited protection for debt investors if a borrower runs into problems -- have become the market standard. But at the same time, companies' earnings, cash flow generation and coverage ratios are more robust. In our view, that means the leveraged loan and high yield markets are safer than they were in the last downturn. What's more, the equity checks as a percentage of a leveraged buyout's enterprise value are more robust, at around 40%. In other words, the amount of equity that private equity firms are contributing to buyouts is, on average, higher than levels we saw during the financial crisis. One area, however, that we're watching closely is a recent loosening of loan documentation, which gives borrowers more flexibility but weakens lender protections. In December, leveraged loans posted steep losses. How would you describe the market conditions today? CM: The US leveraged loan market has rebounded in recent months amid stronger demand, tighter supply and improving technical conditions. One catalyst was the Federal Reserve's more dovish tilt to keep interest rates low for longer. That essentially tempered the earlier-in-the-year phenomenon where investors were favoring fixed-rate bonds to floating-rate loans. How has regulation affected the development of the market? VB: The leveraged lending guidelines, which were implemented in 2013, essentially pushed the most levered deals out of the regulated banking market into the direct lending market where asset managers, private equity and hedge funds deploy loans directly to investors. The growth there has been significant and now represents about 20% of the leveraged loan market by volume. It's an area that we're watching closely. Leveraged loans are often used to fund leveraged buyouts. What's the outlook for transactions that are being financed by leveraged loans? VB: We have seen a slowdown in the mega deals from last year because of the market downturn at the end of 2018. Those might take some time to return. We are, however, seeing a return to small deals, or transactions of $1 billion or less, with activity exceeding year-ago levels. We're also seeing a pickup in deal activity in the $1 billion to $5 billion range. CM: We would expect to see large deals to return to market. The private equity industry, for example, raised more than $800 billion in 2018 so there's a lot of cash that could be deployed for big transactions, especially since the cost of capital is so low. SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Briefly...on%20the%20Rise%20of%20Corporate%20Debt%2c%20Leveraged%20Loans%20and%20Smaller%20LBOs&body=https%3a%2f%2fwww.goldmansachs.com%2finsights%2fpages%2ffrom_briefings_13_may-2019.html) Goldman Sachs Media Highlights Barron's - May 8 [Barron's Roundtable Live: Abby Cohen and Todd Ahlsten on ESG Investing]( Bloomberg - May 8 [What Goldman Discovered About the Barriers to Advancing Female Entrepreneurs]( (4:11) Bloomberg - May 7 [Goldman's Himmelberg on the US-China Trade Conflict and the Private Debt Markets]( (4:28) Bloomberg - May 7 [Goldman's Philip Says M&A Thriving Despite Macro Headwinds]( (5:05) The Investor's Field Guide - May 8 [Stephanie Cohen -- The Evolution of M&A and Corporate Strategy]( [Subscribe]( The data provided in this newsletter is for information purposes only and should not be construed as investment or tax advice nor as a recommendation to buy, sell, or hold any particular security. 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