Asset Management - Goldman Sachs 2020 Investor Day

Executive Leadership and Background

• Julian has served 21 years at Goldman Sachs, transitioning from the finance division (joined 1998) to global co-head of alternatives (last year).
• Tim O'Neill has served 35 years at the firm, currently providing context on the asset management business before handing off to Julian.

Competitive Advantages of the Asset Management Platform

• The firm operates as a global, multi-line manager across all asset classes (cash, fixed income, equities, alternatives), contrasting with competitors' monoline or regional models.
• The business leverages the "One Goldman Sachs" affiliation to access investment banking, global markets, and wealth management ecosystems.
• Over 30 years of operation have built teams with experienced professionals and strong track records.
• A large, stable balance sheet provides flexibility to seed new strategies and co-invest with clients.

Business Scale and Asset Breakdown

• Total Assets Under Supervision (AUS) stand at $2.3 trillion.
  • Liquidity strategies: $460 billion.
  • Fixed income: $790 billion.
  • Equities: $420 billion.
  • Alternatives: $320 billion.
  • Client brokerage assets: $280 billion.
• The firm holds top-four rankings in liquidity, fixed income, and alternatives, and a top-ten ranking in equities.
• Fee-paying assets total $1.9 trillion, while non-fee-paying assets total $410 billion (primarily brokerage assets).
  • Fee-paying distribution: Institutions ($680 billion), third-party platforms ($610 billion), and individuals ($560 billion).
• The platform encompasses 31 distinct investment strategies ranging from core fixed income/equities to specialized mandates.

Investment Performance and Track Record

• The firm employs over 1,200 global investment professionals with an average partner tenure of 19 years (81 partners).
• Morningstar relative performance data shows consistent results: 65% of funds in the top half over three years, 69% over five years, and 83% over ten years.
• Alternative strategies have generated the following net IRRs since inception:
  • Corporate equity: 15.5%.
  • Corporate credit: 8.9%.
  • Real estate credit: 9.8%.
  • Open architecture (AIMS): 11.0%.
• $1.6 billion in unrecognized incentive fees exists as of year-end 2019, to be recognized upon portfolio realization.
• The firm reports being "best in class" against top 10 large public asset managers for organic, active, long-term fee-based flows over the last five years.

Five-Year Growth Strategy and Targets

• The firm targets $350 billion in net organic growth over the next five years.
  • $250 billion from traditional public market strategies (60% fixed income, 40% equity).
  • $100 billion from alternatives (representing $150 billion in gross fundraising).
• Over 80% of alternative growth is projected to come from expanding existing fund strategies.
• The strategy focuses on five priorities:
  • Leveraging the global platform for holistic solutions with major allocators.
  • Innovating new investment solutions.
  • Scaling the alternatives business via third-party funds.
  • Strategic balance sheet investment to support fundraising and shareholder returns.
  • Optimizing the on-balance sheet portfolio for capital efficiency.

Specific Innovation and Operational Initiatives

• Passive Shift: Addressing the 50% passive share in US equities with a suite of 22 active beta ETFs.
• ESG Integration: Managing $75 billion in dedicated ESG assets using in-house capabilities and the Imprint Capital acquisition.
• Liquidity Platform: Launched a digital portal for corporate treasurers offering analytics and trading integrated with Goldman Sachs workflows.
• Alternative Capital Markets: Established a new group to drive firm-wide fundraising by leveraging sales forces across global markets, investment banking, and asset management.

Balance Sheet Investing and Capital Efficiency

• The firm manages a $60 billion on-balance sheet portfolio, diversified across ~1,000 investments with high granularity.
  • Approximately 50% allocated to credit (corporate and real estate).
  • Approximately 50% allocated to private equity and real estate equity.
• Track record shows consistent asset yields: mid-to-high teens for equity and mid-to-high single digits for credit over the past three years.
• Capital Strategy: The firm plans to migrate capital-intensive private equity and growth equity activities into fund formats, while remitting the balance sheet toward less capital-intensive credit investments.
• This shift is projected to release $4 billion in capital from the asset management business.

Financial Projections and Outlook

• Assuming 2% annual market appreciation and a stable 32 basis point weighted average fee rate, the plan aims to generate an incremental $1.6 billion in annual management fees over five years.
• The net impact is a transition to a more recurring, durable, and capital-efficient revenue profile.
• Expected outcome: Higher management fees offset by lower on-balance sheet revenues, resulting in a significantly accretive evolution in Return on Equity (ROE).