Goldman Sachs Group holds steady in ninth place on the II300, Institutional Investor’s annual ranking of the U.S.’s top money managers, but that doesn’t mean there hasn’t been any movement at the New York–based firm. In a year when many asset managers struggled to find growth, Goldman attracted $50 billion in new money — more than any other firm except Malvern, Pennsylvania’s Vanguard Group.
See the full list of the II300’s biggest gainers.
Changes in the way big investors buy securities have helped fuel Goldman’s growth. Before the financial crisis institutions primarily built portfolios using narrowly defined strategies — say, large-cap equity — from numerous money managers. Since then many have wanted to simplify their operations to cut oversight and other costs and leverage the extensive resources that bigger firms often offer.
“We are well positioned as a holistic adviser. Our platform is open architecture and broad in terms of products, asset classes and geography,” contends Timothy O’Neill, global co-head of Goldman Sachs Asset Management, which oversees more than $1 trillion. “And while we’re principally an active shop, we also have more benchmark-oriented strategies like active beta.”
GSAM also offers alternatives, including liquidity products, exchange-traded funds, fixed income, fundamental equity, money market funds, quantitative strategies and stable value, among others.
Although performance is still important, investors are looking beyond that to tap outfits that offer service, advice and research on asset allocation and portfolio implementation. From 2013 through 2015 the fastest-growing managers have been those with a deep bench of products and investment capabilities around the world.
Regulators have also unwittingly helped big firms by enacting far-reaching and expensive new rules since 2008, O’Neill notes. Smaller competitors have been challenged to keep up. “The regulatory framework does put a moat around this business model,” he concedes.
GSAM also believes that a multiasset model can be more easily expanded while sustaining returns.
Gavin O’Connor, chief operating officer of the investment management division, stresses that GSAM also has the ability to provide objectivity through its extensive manager selection business, which evaluates investment vehicles in areas such as hedge funds and private equity. Even in money markets the firm offers clients the choice of outside managers.
“The ultimate return to clients is based on asset-allocation advice, and it follows that the advisers with the broadest capabilities are best positioned to give that advice,” O’Connor attests.
GSAM has found success with outsourced chief investment officer services for institutions such as endowments and pensions, as well as liability-driven investing and unconstrained fixed income, he adds.
Money managers have long wanted to provide more than one discipline, even when they tout the advantages of being specialized. But moving outside a core expertise can be difficult. Bond shop Pacific Investment Management Co., for instance, has achieved only limited success in moving into equities, and many traditional asset managers have launched alternatives with mixed results.
“The asset-management industry was built on a model of silos, but the client need has since moved on to the whole portfolio,” says O’Connor.
Or, as O’Neill puts it, “If you only have fixed income, the answer is always fixed income.”
