Goldman Sachs, like other banks, has serious ambitions to finance the global energy transition, with a target of $750 billion to invest, finance or advise on sustainable investments by 2030. Along the way, this should create a wealth of investment opportunities for clients. .
Goldman Sachs Asset Management (GSAM) has its own significant goals – aiming to raise $150 billion in gross commitments to alternative strategies by 2025.
Opening up opportunities in alternative investments, which could include energy transition debt and equity financing, can help the maturing Western traditional pension sector meet some of its prodigious future income needs, as well as to generate good asset management income – Goldman’s other stated goal.
Traditional asset management – government bonds, money market funds and public stocks – while an important part of the mix, suddenly looks less attractive when you can charge at least 100 basis points on alternative debt.
As a group, Goldman Sachs is keen to stress the importance of its global networks – these will be needed to underpin the negotiating capacity needed to find the alternative investment opportunities that clients are increasingly seeking.
This means that different parts of the business – investment banking and asset management – have to work together. To that end, on his very first day of investing in January 2020, CEO David Solomon announced the company’s “One GS” strategy. Here, it broadly means that different parts of the group work together effectively to better integrate deal sourcing along the value chain to the end investor or co-investor.
For Goldman Sachs equity investors, the prospect is greater capital efficiency, as well as higher fee income from asset management, as the group moves away from intensive direct equity investing. of capital to alternatives such as private credit funds.
“We are beginning a transition to raising significant third-party alternative assets where we expect to be a market leader,” Goldman Sachs chief operating officer John Waldron told an analyst conference in June.
Waldron said Goldman has raised about $53 billion in gross commitments to alternatives and had seen $75 billion in net inflows since 2019 — on track for its 2025 goal of raising $150 billion and 250 billion dollars, respectively, in these areas.
Over the past two or so years, GSAM has also integrated its traditional asset management capabilities with its alternative platforms – to better serve clients who need the agility to quickly move capital from traditional asset classes and liquids to higher yielding alternatives, as opportunities arise.
Expanding client reach and dialogue will be important to GSAM as it seeks to achieve its capital raising and commission revenue goals. Low-income lines of business like fiduciary management (often referred to as outsourced CIO in the US) will be important in client segments like traditional pension funds to drive the pipeline that ultimately leads to higher fee income.
GSAM’s acquisition of NN Investment Partners, apparently under DWS’s nose, should help create a strong foothold in continental Europe, centered on NNIP’s headquarters in The Hague. GSAM already has a strong Dutch business leader in the person of Gerald Cartigny, former CIO of fiduciary manager MN, in an office in Amsterdam.
Speaking to IPE in August when the acquisition was announced, Fadi Abuali, CEO of GSAM International, acknowledged NNIP’s strong fiduciary platform in Benelux.
“We will use it to further develop our fiduciary management business on the continent,” he said.
The deal provides GSAM with some missing capabilities in areas such as fundamental European equities and green bonds. NNIP manages around €6.1 billion in European equities, according to its website, and some €3.8 billion in green bonds.
“We invest a lot in our customers. We listen and do many things that allow them to make better judgments, and we hope that one of those judgments will be to do more business with us.
Along with adding $190 billion (€163 billion) of captive insurance assets for at least 10 years, the acquisition is also expected to help GSAM re-establish itself in fiduciary management in continental Europe.
With its own ambition to double the AUM of GSAM International, Abuali sees a kind of centripetal force away from London and towards European regional hubs that work better from a customer proximity perspective.
“We invest a lot in our customers so that they invest in us,” says Abuali. “We’re trying to shape ourselves as solution providers, investing in them, providing them with resources. We listen and do a lot of things that allow them to make better judgments, and we hope that at some point one of those judgments is to do more business with us.
But he adds: “I try to impose a good dose of humility on our people so that we listen to them rather than just offer them products and ideas.”
Finding that right balance will be crucial – as with all asset managers, promoting products can lead to short-term asset and revenue collection goals, but, similarly, those assets and revenue may not not be as stable in the long term.
Until it lost one of its biggest clients, Pensioenfonds Vervoer, in the early 2010s on the eve of a damaging lawsuit, GSAM was a major player in Dutch fiduciary management, with around 10 billion euros. euros in assets in 2010, according to company figures provided to IPE at the time.
GSAM settled the lawsuit out of court in 2014 for an undisclosed sum.
Abuali and his colleagues are no doubt hoping that their second foray into continental European fiduciary management will be more durable than the first. Fiduciary management can be a useful way to generate assets and income, but it also requires a great deal of mutual trust.