Exclusive: Goldman Sachs to cut asset management investments that hurt profits

NEW YORK, Jan 23 (Reuters) – Goldman Sachs Group Inc’s ( GS.N ) asset management arm will significantly reduce $59 billion in alternative investments that have weighed on the bank’s earnings, an executive told Reuters.

Julian Salisbury, Goldman Sachs’ chief investment officer for asset and wealth management, told Reuters in an interview that the Wall Street giant plans to divest its positions and replace some of those funds on its balance sheet with outside capital over the next few years.

“I would expect to see a meaningful decline from current levels,” Salisbury said. “It won’t go to zero because we’ll continue to invest in funds and funds, as opposed to individual deals on the balance sheet.” The move is a continuation of the strategy set out in 2020 as the bank aims to reduce its investments on the balance sheet and increase income from fees.

Goldman had a dismal fourth quarter, missing Wall Street profit targets by a wide margin. Like other banks grappling with corporate deals, Goldman is shedding more than 3,000 workers in its biggest job cuts since the 2008 financial crisis.

According to him, the bank will provide additional information on the asset plan on February 28 at Goldman Sachs’ investor day. Alternative assets can include private equity or real estate, as opposed to traditional investments such as stocks and bonds.

Goldman controlled a record $2.55 trillion in assets at the end of last year.

“As we raise more third-party capital, that (balance sheet investment) becomes a smaller piece of the growing pie,” Salisbury said.


Mark Narron, CEO of North American banks at Fitch Ratings credit rating agency, said that reducing investments on a bank’s balance sheet could reduce volatility in its earnings. The investment cuts also reduce the amount of risk-weighted assets used by regulators to determine the amount of capital a bank must hold, he said.

Goldman Sachs’ asset and wealth management saw a 39% drop in net income to $13.4 billion in 2022, as its income from equity and debt investments fell 93% and 63%, respectively, from earnings released last week.

The results show that the $59 billion in alternative investments held on the balance sheet is down from $68 billion a year ago. The positions include $15 billion in equity investments, $19 billion in loans and $12 billion in debt securities, among other investments.

“Obviously, the environment for asset exits was slower in the second half of the year, which means we’ve been able to make less gains in the portfolio than in 2021,” Salisbury said.

If the environment for asset sales improves, Salisbury said it expects to see “a more rapid decline in legacy balance sheet investments.”

“If we had a couple of normalized years, you would see the decline happening,” he said.


Salisbury said that given the sluggish capital markets, clients are showing strong interest in private loans.

“Personal loans are interesting to people because the available income is attractive,” he said. “Investors like the idea of ​​having something a little more defensive in the current economic climate, but with a high yield.”

Goldman Sachs’ asset management arm closed a $15.2 billion fund earlier this month to make junior debt investments in private equity-backed businesses.

Private loan assets across the industry have more than doubled since 2015 to more than $1 trillion, according to data provider Preq.

Investors are also interested in private equity funds and looking to buy positions in the secondary market when existing investors sell their stakes, Salisbury said.

The US investment-grade primary bond market has started 2023 with new deals.

The market rally has “more legs” as investors are willing to buy longer-dated bonds as they seek higher credit quality due to an uncertain economic environment.

Goldman Sachs economists expect the Federal Reserve to raise interest rates by 25 basis points each in February, March and May and then hold them steady for the rest of the year, Salisbury said.

More broadly, the “chilling effect” of last year’s rate hike is beginning to cool economic activity, Salisbury said, citing softer hiring activity and slowing rent growth.

Report by Saeed Azhar; Edited by Megan Davies, Lananh Nguyen, and Lisa Shumaker

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