- Senior executives at Goldman Sachs Asset Management described in a recent interview how they are positioning themselves in a difficult environment for investment managers.
- Craig Russell and Luke Sarsfield, who co-lead GSAM’s client business, see its breadth and menu of capabilities as benefits for the asset management operation, which oversees some $ 1.5 trillion in assets.
- Most asset managers like GSAM are moving beyond traditional financial management, introducing new services, advice and tailor-made investments to differentiate themselves – and realize bigger profits.
- For example, GSAM recently formed a group that helps pension funds tackle tricky portfolio building issues, Russell and Sarsfield said.
- Visit the Business Insider homepage for more stories.
The asset management industry is struggling. Passive investing approaches are gaining the upper hand, lowering fees for hundreds of small active managers and pushing them to merge with weakened competitors.
Bigger managers like Morgan Stanley and JPMorgan are looking to get even bigger to be competitive.
And yet one of the biggest in the world, Goldman Sachs, is betting he can make more progressive moves while still maintaining a leadership role in the industry.
Last fall, for example, Goldman created a team that helps corporate and public pension funds with portfolio construction issues, such as how to prepare to liquidate funds for private investment.
The idea is that the team will support Goldman sellers who use pension funds, and it is expected that if Goldman can help clients feel more comfortable with their
need more funds to invest in other investments, according to Luke Sarsfield and Craig Russell, co-directors of client activity at GSAM.
“We thought it was really important to have a dedicated team of consultants who can think through the key questions that are being asked and, you know, how to answer them in the best and most thoughtful way,” Sarsfield said. “This team has a real impact on accelerating the strength and flow of the relationships and interactions of our coverage agents with their clients.”
A movement that reflects the direction of the industry
This effort is part of a larger trend emerging in the asset management industry, which has long revolved around the sale of individual products like mutual funds or exchange traded funds. More and more, managers are trying to offer something more, a consultative and solution-oriented relationship with clients.
Russell and Sarsfield told Business Insider in an exclusive interview that they see Goldman fitting in perfectly with this trend, leveraging its scale and the wide range of services they offer – including “thought leadership” – as advantages in a rapidly changing industry.
“There will always be buyers of spare parts,” Sarsfield said. “I don’t want to underestimate this, but I think more and more that our customers are moving from buying a part or a part to actually getting a solution.”
Sarsfield and Russell are the principal officers of GSAM, responsible for providing the firm’s investment products and services to outside institutions and financial advisers, and overseeing these relationships.
Until September, GSAM, now part of Goldman’s largest asset management division, managed some $ 1.5 trillion in assets under supervision as of September 30, 2020.
Read more: The asset manager of the future looks like a consultant. Here’s how companies like BlackRock, PIMCO, and Invesco are preparing for it.
Most asset managers like GSAM are moving beyond traditional money management, introducing new digital services, advice and tailor-made investments to stand out – and make bigger profits.
That change reached a boiling point last year with a wave of mergers like Morgan Stanley and E-Trade, Franklin Resources and Legg Mason, and Macquarie buying parts of Waddell & Reed.
Goldman, too, has been acquisitive in recent years, albeit on a much smaller scale. Last month, the bank closed its purchase of the Perth Mint Physical Gold ETF. She purchased Rocaton Investment Advisors in 2018, as part of a series of complementary small acquisitions led by the company’s asset management business over the past decade.
M&A activity in the U.S. investment management industry was valued at around $ 28 billion in 2020, the industry’s highest aggregate deal value since $ 29 billion in 2000, according to provider data. of Dealogic data and analytics.
Much of that activity has been midsize managers who have been “stuck” in a low-cost world, said Sarsfield, who once led Goldman’s investment banking team responsible for advising financial institutions like asset managers.
“If you’re stuck, it’s not a nice or comfortable place,” he said. “I think the good news for us is that we feel like we have the scale, the scale and the capabilities required.”
New group reflects industry direction
For those who can survive, analysts expect asset levels and wealth to continue to rise.
But fees are generally expected to continue to fall, posing ongoing challenges for portfolio managers. Firm net income as a proportion of assets under management has declined steadily since 2014, from 29 basis points that year to 25 basis points in 2019, according to a May 2020 analysis by the Boston Consulting Group. Overall revenue growth has been “insufficient to offset cost cutting across the industry,” BCG found.
GSAM’s consulting team will help counter some of these issues by focusing on providing “thought leadership on key issues” to state and corporate pension clients in the Americas, a. Sarsfield said.
For example, many GSAM retirement clients have made commitments with hedge funds or private equity funds and are subject to capital calls. (The calls occur when a private equity manager requests funds that have been pledged but not yet provided by the pension).
Some of those clients, Sarsfield said, asked the team how they should position their funds around these events. Have enough cash to honor commitments and earn paltry returns with ultra-low rates, or take a different approach?
“That’s a very interesting question. And these guys are really capable of doing some robust analysis on this,” he said, adding that it’s not “in the vein of selling a product “, but rather by providing advice to retirement clients who wish to gain exposure to private markets.
The group is led by Kareem Raymond, a seasoned leader at Goldman, and the company has staffed it with existing employees, including some from its investment research arm.
Sarsfield and Russell also expect demand to continue to rise for their outsourced Chief Investment Officer (OCIO) services, which Sarsfield says “really started in the US” but has grown to “no. giant on an international level “, as well as a growth of the separate offer. managed accounts (SMA) to clients.
The OCIO business manages some $ 100 billion in assets, a pool that has grown about 20% year on year over the past five years, a spokesperson said.
With ADMs and the increasingly popular direct indexing capabilities with which they are associated, asset and wealth managers have recently grasped the growing client preference for customizable and tax-efficient investment strategies, once again making an investment vehicle that is several years old.
Read more: What BlackRock’s $ 1 Billion Offer for Trendy Indexing Company Means for the Money Management Industry
Changes within the asset management arm
Goldman’s asset management business has undergone structural and leadership changes over the past year.
The company announced last fall that it has created a new stand-alone consumer division that will take effect Jan. 1 and will be led by former chief strategy officer Stephanie Cohen and chief wealth officer Tucker York. As part of the restructuring of its division, the bank eliminated the old consumer and investment management division, which housed GSAM. GSAM and the investment banking business are now part of a new asset management division.
Read more: Goldman Sachs just rocked its divisions to create a new consumer and wealth management arm to be led by Stephanie Cohen and Tucker York
And Sheila Patel, president of GSAM and a member of CEO David Solomon’s executive committee, resigned earlier this year to become an advisory director, according to a memo seen by Business Insider.
Overall, asset management had a strong quarter last fall. The company generated $ 2.77 billion in third-quarter revenue, just over a quarter of Goldman’s overall revenue of $ 10.78 billion. The company is expected to release its fourth quarter results later this month.