If you are a pension fund, insurer or sovereign wealth fund and you haven’t heard from Goldman Sachs already, it probably won’t surprise you to learn that they want to talk to you – about a variety of alternative investment opportunities they want to put your way as a potential debt or equity fund investor, co-investor or all three.
Goldman Sachs, like other banks, has serious ambitions to finance the global energy transition, with a $750bn target to invest in, finance or advise on sustainable investments by 2030. Along the way, this should throw up a multitude of investment opportunities for clients.
Goldman Sachs Asset Management (GSAM) has significant goals of its own – aiming to raise $150bn in gross commitments to alternative strategies by 2025.
Opening up opportunities in alternative investments, which could include energy transition debt and equity finance, can help the western world’s maturing traditional pensions sector meet some of its prodigious future income needs, as well as driving good asset management revenues – Goldman’s other stated aim.
Traditional asset management – government bonds, money market funds and public equities – while an important part of the mix, suddenly look less attractive when you can charge at least 100bps on alternative debt funds.
As a group, Goldman Sachs is keen to stress the importance of its global networks – these will be required to underpin the deal-making capability needed to source the alternative investment opportunities clients increasingly want.
This means different parts of the business – investment banking and asset management – must work together. To that end, at its first-ever investment day in January 2020, CEO David Solomon announced the firm’s ‘One GS’ strategy. Here, this broadly means different parts of the group working together effectively to better integrate deal sourcing along the value chain to the end investor or co-investor.
For equity investors in Goldman Sachs, the prospect is greater capital efficiency, as well as the higher fee income from asset management, as the group moves away from capital-intensive direct equity investments towards alternatives like private credit funds.
“We are embarking on a shift towards raising significant third-party alternative assets where we expect to be a market leader,” Goldman Sachs COO John Waldron told an analyst conference in June.
Waldron said Goldman has raised around $53bn in gross commitments to alternatives and has seen $75bn in net inflows since 2019 – well on the way to its 2025 target to raise $150bn and $250bn, respectively, in those areas.
In the past two years or so, GSAM has also integrated its traditional asset management capabilities with its alternatives platforms – the better to serve clients who need the agility to shift capital quickly from traditional, liquid asset classes to the higher-yielding alternatives, as opportunities arise.
Expanding client reach and dialogue will be important for GSAM as it seeks to attain its capital-raising and fee-income goals. Low fee-income business lines like fiduciary management (often called outsourced CIO in the US) will be important in client segments like traditional pension funds to drive the pipeline that eventually leads to higher fee income.
GSAM’s acquisition of NN Investment Partners, reportedly from under the noses of the likes of DWS, should help create a solid foothold in continental Europe, centred on NNIP’s headquarters in The Hague. GSAM already has a strong Netherlands business head in Gerald Cartigny, formerly CIO of the fiduciary manager MN, in an Amsterdam office.
Speaking to IPE in August on the announcement of the acquisition, Fadi Abuali, CEO of GSAM International acknowledged NNIP’s strong fiduciary platform within Benelux.
“We’re going to use that to further grow our fiduciary management business on the continent,” he said.
The deal brings GSAM some missing capabilities in areas like fundamental European equities and green bonds. NNIP manages about €6.1bn in European equity, according to its website, and some €3.8bn in green bonds.
“We’re investing a lot in our clients. We’re listening and doing a lot of things that permit them to make better judgments, and we hope one of those judgments will be to do more business with us”
Aside from adding $190bn (€163bn) in captive insurance assets for at least 10 years, the acquisition should also help GSAM re-establish itself in continental European fiduciary management.
With his own ambition to double GSAM International’s AUM, Abuali sees something of a centripetal force away from London and towards European regional centres that work better from a client proximity perspective.
“We’re investing a lot in our clients in order for them to invest in us,” Abuali says. “We’re trying to shape ourselves as solution providers, by investing in them, providing resources to them. We’re listening and doing a lot of things that permit them to make better judgments, and we hope at some point one of those judgments will be to do more business with us.”
But he adds: “I’m trying to impose a healthy dosage of humility in our people so that we’re listening rather than just going to them with products and ideas.”
Getting this balance right will be crucial – as for all asset managers, pushing products may drive short-term asset gathering and revenue targets but, equally, those assets and revenues may not prove to be so sticky over the longer term.
Until it lost one of its largest clients, Pensioenfonds Vervoer, in the early 2010s in the run-up to a damaging law suit, GSAM was a significant player in Dutch fiduciary management, with around €10bn in assets by 2010, according to figures the firm provided to IPE at the time.
GSAM settled the lawsuit out of court in 2014 for an undisclosed sum.
Abuali and his colleagues will doubtless hope that their second foray into continental European fiduciary management will be a more durable one than their first. Fiduciary management may be a useful means to drive assets and revenues but it also requires a lot of mutual trust.