By Saeed Azhar
NEW YORK (Reuters) – Goldman Sachs’ asset management arm will significantly reduce the $59 billion in alternative investments that weighed on the bank’s earnings, an executive told Reuters.
The Wall Street giant plans to divest its holdings in the coming years and replace some of those funds on its balance sheet with outside capital, Julian Salisbury, chief investment officer for asset and wealth management at Goldman Sachs, told Reuters in an interview.
“I expect to see a significant decline from current levels,” Salisbury said. “It doesn’t go to zero because we will continue to invest in and alongside funds as opposed to individual deals on the balance sheet.”
The change is an extension of the strategy defined in 2020, as the bank intends to reduce its balance sheet investments and increase fee income.
Goldman had a dismal fourth quarter, greatly disappointing analysts’ expectations. Like other banks battling business closures, Goldman is laying off more than 3,000 employees in its biggest round of job cuts since the 2008 financial crisis.
The bank will provide more details on its asset plan during the investor’s day on Feb. 28, he said. Alternative assets could include private equity or real estate.
Goldman oversaw a record $2.55 trillion in assets at the end of last year.
Decreasing investments on a bank’s balance sheet could reduce volatility in its earnings, said Mark Narron, senior director of US banking at Fitch. The reduction in investments also reduces the amount of so-called risk-weighted assets that are used by regulators to determine how much capital a bank should hold, he said.
Goldman Sachs’ money management business posted a 39% drop in net income in 2022 to $13.4 billion, with its income from equity and debt investments down 93% and 63% respectively.
Alternative investments on the balance sheet fell from $68 billion to $59 billion, the results showed.
Clients are showing greater interest in private assets given weaker capital market momentum, he said.
“Private credit is attractive to people because the available returns are attractive,” he said. “Investors like the idea of owning something a little more defensive but high yielding in the current economic environment.”
Goldman’s asset management arm closed a $15.2 billion fund earlier this month to invest in junior debt in private equity-backed companies.
Private credit assets across the sector have more than doubled since 2015 to more than $1 trillion, according to data provider Preqin.
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