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Unicorn bets dent Goldman in Q3

Goldman Sachs Group Inc. recorded some third-quarter losses from its exposure to unicorn companies, and Chairman and CEO David Solomon expects to see rebalancing in the private markets.

In the third quarter, Goldman Sachs recorded $267 million in mark-to-market losses from its public investment portfolio with the primary drivers being drops in the valuations of Avantor Inc., Tradeweb Markets Inc and Uber Technologies Inc., CFO Stephen Scherr said during an earnings conference call. The three companies comprise about 40% of Goldman's public investment portfolio, which has a carry value of about $2.3 billion, Scherr said. Avantor, Tradeweb and Uber completed IPOs in 2019 and were so-called unicorns, tech startups that reach private market valuation of $1 billion.

Recently, companies have had a more challenging time accessing the IPO market with the postponed IPO of The We Co. being one of the more high-profile examples. We Co.'s troubles led to Goldman Sachs taking an $80 million writedown in the third quarter on its position in the company, Scherr said. He added that Goldman Sachs' carry value in We. Co. is about $70 million, but that is still "meaningfully higher" than its embedded cost. "If there was further downdraft, there's still embedded profit in the name itself," Scherr said.

He noted that the value of Goldman Sachs' private portfolio is about $19.7 billion. Goldman Sachs typically makes changes to its private company valuations when certain events occur. "We look at circumstances where there is another [fundraising] round, there's been a sale, we look at the underlying performance of those names," Scherr said.

Solomon said he thinks the global IPO market is "alive and well," but he does see some adjustments coming to the private markets. He expects to see changes in the size and magnitude of private capital investments, and Solomon sees companies going public sooner.

He also expects more transparency will come to the private capital formation process, which will lead to companies becoming more disciplined. A lack of governance controls is part of the reason We Co.'s IPO was sidetracked.

"One of the things that public markets do is public markets provide discipline and process around companies," Solomon said.