Goldman Finds Investing for Itself Rewarding

Private equity has paid off handsomely for Henry M. Paulson Jr., the former chief executive of Goldman Sachs.

For the last two years, Mr. Paulson, now the Treasury secretary, has banked $24 million in investment returns from lucrative partnerships made available to top Goldman executives. The sudden flowering of these investments — last year, Mr. Paulson’s return was $12.7 million, according to the firm’s 2006 proxy — signals vividly how Goldman’s growing private-equity business has been gushing profits not only for the firm’s executives, but also for the investment bank as a whole.

The rush of investment banks to replicate the Goldman model — using internal private-equity funds as a profit stream and as a means to fertilize its investment banking and asset management businesses — is the latest example of copycat economics on Wall Street.

Fees from the traditional business of advising companies on underwritings and mergers have been squeezed by corporate clients who have become less beholden to their investment bankers.

Private equity, on the other hand, whose essence is investing directly in companies, selling for a profit and inviting select clients along for the ride, has become the most mercenary, and right now the most popular, of Wall Street fads.