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Goldman Sachs Cutting Private Equity Future in Half

"If we had a smaller fund, it would have forced us to be more disciplined," said Friedman of mega-deals prior to the crisis. His expectations for Goldman's eventual private equity returns prove the point. While he is targeting an over 100% return on the Goldman's $9 billion fund closed in 2006, he only expects a 20% to 50% absolute return on the bank's $20.7 billion 2007 fund. Because of an expected eight year holding period, returns "won't be spectacular but not as bad as people once thought," said Friedman.

If discipline is tempering Goldman's return to the private equity market, it may be a sign of caution that ordinary stock investors should watch for corporate profitability. "The public markets are not exactly low given current multiples on EBITDA [earnings before interest depreciation amortization and depreciation]," noted Friedman.

For more on Goldman Sachs, see why the bank is in a unique position to grow by shrinking

-- Written by Antoine Gara in New York

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