Goldman Sachs, long hailed as Wall Street’s premier brand, finds itself at an inflection point. The high-profile businesses that once propelled the firm’s success have fallen out of favor with investors since the 2008 financial crisis. Instead, it is the steady, fee-generating sectors of wealth and asset management that are now being valued more highly. This shift in priorities has prompted Goldman’s CEO, David Solomon, to position the bank to capitalize on two significant trends in finance: the rise of alternative assets and the growing wealth of the ultra-rich.
While Goldman Sachs is making strides in asset and wealth management, concerns have arisen regarding a potential brain drain at the firm. The recent departure of former asset management co-head, Julian Salisbury, to a smaller rival firm has fueled these worries. Additionally, Luke Sarsfield, another co-head, left earlier this year. However, Goldman remains confident in its ability to weather these departures, citing a deep bench of talent and the longest average tenure of partners in a decade.
Goldman Sachs’ portfolio managers engage in a wide range of financial instruments, making bets on behalf of clients or using the bank’s own funds. From low-risk investments like money market funds to corporate bond funds, stock ETFs, mutual funds, and alternative assets such as private equity, private credit, real estate, and hedge funds, Goldman exhibits a greater weighting towards esoteric alternative investments compared to rivals like JPMorgan and Morgan Stanley.
The industry has adopted a model where financial advisors charge fees, typically 1% to 2% of a client’s assets annually, for managing investments. Goldman Sachs excels in serving the ultra-rich, defined as individuals with at least $30 million to invest, with approximately 8% of this affluent cohort in the U.S. choosing the bank. However, the bank’s market share in the high-net-worth market, those with assets between $1 million and $10 million, remains relatively low at only 1%.
While Goldman Sachs boasts more than $1 trillion in wealth management client assets, its key competitors, such as Morgan Stanley, have larger and faster-growing client asset figures. Morgan Stanley reported $4.9 trillion in client assets as of June 30, overshadowing Goldman’s figures. This discrepancy highlights the need for Goldman to expand and accelerate its growth in the wealth management sector.
Goldman Sachs remains heavily influenced by the fluctuations of the overall market. The bank’s trading and advisory division accounted for two-thirds of its $23.1 billion in revenues thus far in the year. The pandemic-induced surge in deals and trading witnessed in 2020 and 2021 was swiftly followed by a downturn, resulting in the industry’s lowest investment banking earnings in a decade. This market volatility has contributed to Goldman Sachs experiencing the most significant profit decline among the top six U.S. banks. Consequently, the push to establish sustainable sources of growth is more critical than ever.
Goldman Sachs CEO David Solomon has made bold decisions to consolidate various investment pockets within the firm and focus on raising outside funds while reducing internal wagers. These decisions have been met with resistance from insiders accustomed to autonomy. Additionally, Solomon has implemented multiple restructuring efforts and leadership changes, including the recent appointment of Marc Nachmann as the head of asset and wealth management. While these moves have caused upheaval and led to the departure of senior leaders, Solomon remains optimistic about the trajectory and stated that the bank’s “asset management journey” will take two to three years to meaningfully impact margins.
Despite the challenges and turbulence, Goldman Sachs’ asset and wealth management arm has shown progress in achieving its fee and fundraising targets. The bank is on track to generate at least $10 billion in fee revenue by the next year, while total assets under supervision increased by $42 billion to $2.71 trillion in the second quarter. Solomon’s confidence resonates as he emphasizes the strategic decisions being made and the clear line of sight to progress.
Goldman Sachs is undergoing a significant transformation as it pivots towards asset and wealth management while navigating the changing dynamics of the financial industry. While challenges and concerns persist, the bank’s focus on alternative assets and serving the ultra-rich positions it well for future success. With strategic leadership and a commitment to sustainable growth, Goldman Sachs is poised to solidify its standing as a formidable force in the world of finance.