Goldman Sachs' Investment Management Wins

Even as fixed-income trading pulled down Goldman Sachs’s fourth-quarter earnings, its investment management division generated record net revenues of $6.22 billion for the full year on the back of record management and other fees. 

The division, which is a combination of the bank’s private wealth management and Goldman Sachs Asset Management, also boasted an 8 percent increase in assets under supervision, with net inflows of $42 billion excluding short-term money market funds, for the year. Investors have poured money primarily into fixed income, alternatives, and GSAM’s factor-based exchange-traded funds. The division manages a total of $1.49 trillion, up $115 billion over last year.

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Goldman has grown the business even as other active managers have suffered in the face of the continued popularity of low-cost index funds. The division’s results mark five consecutive years of organic net inflows. 

Separately, GSAM has also grown through a number of acquisitions, including the purchase of Pacific Global Advisors in 2015 and last year’s acquisition of the portion of Seattle-based Verus’s outsourced chief investment officer business that is focused on large pension plans.

“Eric [Lane] and I believe in our global, broad and deep business model and we are grateful that our clients appreciate it,” says Timothy O’Neill, global co-head of the investment management division with Lane who also sits on the firm’s management committee. “Much is made of the active versus passive debate. We think both styles are relevant. The business of passive is outperforming in the industry now but our results show investors still believe in active management.”

Investment management’s net revenues were $1.66 billion in the fourth quarter, 4 percent higher than in the same period last year and 9 percent higher than in the third quarter. During the fourth quarter, total assets under supervision increased $38 billion. The increase came from equity returns as well as flows into short-term liquidity products.

Goldman’s investment management arm has been benefiting in a market that is feeling some pain overall in part because it offers a wide range of funds in the U.S. and globally. Big investors have been culling the list of managers they employ and gravitating to the bigger firms that provide everything from bonds and equities to hedge funds and private equity. That way, they can cut better fee deals and get extras like proprietary research and customized portfolios, investors say.