The firm’s asset-management arm is buckling as passives apply industry-wide pressure
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Goldman Sachs Asset Management (GSAM) has been reported as the worst-selling fund manager globally this year, putting more pressure on the investment house besieged by sinking revenues and profits.
Outflows from more than half of GSAM’s strategies have caused it to bleed an estimated US$26.7bn so far this year, reported the Financial Times. Figures compiled by Morningstar for the publication reveal that Goldman’s suffered nearly twice the level of withdrawals experienced by Federated Investors, the second-worst selling fund provider.
To make up for a reduction in profits from its traditional investment banking and trading units, Goldman has been attempting to grow its US$1.3-trn asset management division. Its efforts have been futile so far, with revenues and profits at the arm falling nearly 7% and 17%, respectively, in 2016.
There‘s been no stopping the plunge in 2017 as GSAM’s revenues fell 7% in the first quarter relative to the three months prior. The large outflows have been blamed on investors pulling out of money-market funds. According to a spokesperson, the company’s mutual fund products other than the money-market offerings have had inflows so far this year.
“By their nature, money market fund flows in any short period are a misleading measure of our business or longer term performance for clients,” the spokesman said.
Based on data from Morningstar, Goldman’s non-money-market funds saw US$6.5 bn in net inflows — not enough to neutralize the huge withdrawals from its money-market fund arm. The largest redemptions were from funds based in the US, where new rules to strengthen investor protection and liquidity strategies have impacted the domestic money markets.
On an April call with analysts, Goldman Chief Financial Officer Martin Chavez admitted that the asset-management business was “not immune to what is happening generally across the industry: fee compression of various kinds [and a] shift in the mix of strategies.”
Traditional asset managers, notably the ones primarily positioned in actively managed funds, have taken a beating as investors abandon stockpickers for cheaper index-tracking passive strategies. Federated has sustained US$14bn in redemptions this year; Fidelity, Morgan Stanley, and Franklin Templeton have also registered billions of dollars in outflows.
“The remorseless rise of passives is taking a toll on almost all active managers — some more than others,” said Amin Rajan, CEO at consultancy firm Create Research.
During the first quarter of 2017, the assets managed by Goldman’s investment management division slid by US$6bn. But since 2012, assets have increased from US$965bn to US$1.65trn. GSAM has been adopting different approaches to cut costs since last year, including a ban on non-business-related travel and a shutdown of its internal hedge fund’s London operations.
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Outflows from more than half of GSAM’s strategies have caused it to bleed an estimated US$26.7bn so far this year, reported the Financial Times. Figures compiled by Morningstar for the publication reveal that Goldman’s suffered nearly twice the level of withdrawals experienced by Federated Investors, the second-worst selling fund provider.
To make up for a reduction in profits from its traditional investment banking and trading units, Goldman has been attempting to grow its US$1.3-trn asset management division. Its efforts have been futile so far, with revenues and profits at the arm falling nearly 7% and 17%, respectively, in 2016.
There‘s been no stopping the plunge in 2017 as GSAM’s revenues fell 7% in the first quarter relative to the three months prior. The large outflows have been blamed on investors pulling out of money-market funds. According to a spokesperson, the company’s mutual fund products other than the money-market offerings have had inflows so far this year.
“By their nature, money market fund flows in any short period are a misleading measure of our business or longer term performance for clients,” the spokesman said.
Based on data from Morningstar, Goldman’s non-money-market funds saw US$6.5 bn in net inflows — not enough to neutralize the huge withdrawals from its money-market fund arm. The largest redemptions were from funds based in the US, where new rules to strengthen investor protection and liquidity strategies have impacted the domestic money markets.
On an April call with analysts, Goldman Chief Financial Officer Martin Chavez admitted that the asset-management business was “not immune to what is happening generally across the industry: fee compression of various kinds [and a] shift in the mix of strategies.”
Traditional asset managers, notably the ones primarily positioned in actively managed funds, have taken a beating as investors abandon stockpickers for cheaper index-tracking passive strategies. Federated has sustained US$14bn in redemptions this year; Fidelity, Morgan Stanley, and Franklin Templeton have also registered billions of dollars in outflows.
“The remorseless rise of passives is taking a toll on almost all active managers — some more than others,” said Amin Rajan, CEO at consultancy firm Create Research.
During the first quarter of 2017, the assets managed by Goldman’s investment management division slid by US$6bn. But since 2012, assets have increased from US$965bn to US$1.65trn. GSAM has been adopting different approaches to cut costs since last year, including a ban on non-business-related travel and a shutdown of its internal hedge fund’s London operations.
For more of Wealth Professional's latest industry news, click here.
Related stories:
Canada’s mutual funds edge up in May
What are the hallmarks of a winning mutual fund?
