Photo: Bloomberg Markets Magazine
Goldman Sachs is used to being number one.Besides claiming the mantle of Wall Street’s most successful securities firm, ever, the bank is one of few who came out swinging after financial crisis.
But one area in which they’re certainly not winning is asset management.
In fact, CEO Lloyd Blankfein and COO Gary Cohn are on a personal warpath to save its flailing AM arm, GSAM, according to this month’s Bloomberg Markets Magazine.
But GSAM wasn’t always the black sheep. In fact, at one point, it was Wall Street’s biggest asset manager.
In 1996 John McNulty, 'a visionary broker in the wealth management department' joined David Ford to run GSAM.
McNulty divides GSAM into 10 boutiques, 'each with a different investment strategy, independent of each other and of the front office' - it's a success.
But McNulty retired in 2001 (the same year the firm's AUM hit $351 billion), and ever since, Goldman has
'played musical chairs' with GSAM's management.
In 8 years, Goldman hires and replaces 8 GSAM chiefs.
Peter Kraus and Phil Murphy replaced McNulty. When Kraus retired in '08 the unit had been battered by the financial crisis
So Ed Forst takes over GSAM in 2008, after Kraus leaves; then he leaves after three months to take a job at Harvard.
But then, he suddenly retires from Harvard and comes back to GSAM.
By the time 2009 rolled around, two new execs were running the unit, and revenue continued to plunge
To replace Forst, Marc Spilker and Tim O'Neill, become the seventh and eighth Goldman investment heads in eight years. And they didn't improve on Kraus' numbers.
The division's 2009 net revenue fell 12.8% from 2008 under their management.
GSAM's 'once-vaunted hedge funds have lost their sizzle' - their value has fallen by 34%. Now hedge fund AUM is about $19.5 billion - making Goldman the 16th-largest hedge-fund firm.
Back in 2006, AUM was $29.5 billion. And GSAM was the Street's largest hedge-fund manager.
According to Morningstar, just 44.9% of Goldman's U.S. diversified stock funds managed
to beat their peer average in the last three years.
Goldman's reputation is not 'the average firm that gets you average returns.' The bank is supposed to be the best, and investors were beginning to squirm.
Then in June, the $2.8 billion Kern County, California, Employees' Retirement Association pulled $347 million from two GSAM accounts.
Executive director Anne Holdren cited both performance and turnover at Goldman as reasons.
Goldman planned to sell as much as $1.5 billion of Facebook's stock to clients through a GSAM-affiliated fund known as a special-purpose vehicle.
They pitched clients; they got everyone excited. And then within days, yanked the opportunity away from its U.S customers.
Because of all of the press the deal got, the bank apparently decided that the level of media attention might contravene 'proper completion of a U.S. private placement under U.S. law.
GSAM has particular culture, that is far more 'academic, collegial, less cutthroat' than the rest of Goldman.
Now Blankfein and COO Gary Cohn are attempting to 'Goldmanize' GSAM and 'tether it more closely to its parent.' But with their independence gone, 'a parade of portfolio managers have left.'
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