- Goldman Sachs recently reported its fourth-quarter results. And the financial firm revealed how it is planning to ramp up its wealth management business.
Earlier this week, Goldman Sachs reported its fourth-quarter results — which included the results of its private banking and wealth management unit for the first time. And it was revealed that the unit achieved $4.4 billion in revenue for 2019.
While this sounds substantial, the unit trails behind Bank of America and JPMorgan Chase. But Goldman Sachs Chairman & CEO David M. Solomon has major plans to improve upon the company’s wealth management division in order to depend less on revenue from trading.
During an earnings call, an analyst asked why profit margins were appearing low. And Solomon said that investments in consumer banking have been weighing down profitability. The company plans to make more disclosures during its first investor day on January 29.
Goldman’s assets under supervision for the Consumer & Wealth management business hit $561 billion for Q4 2019, which is up from $530 billion in the previous quarter and $455 billion Q4 2018.
However, Bank of America has over $3 trillion of client balances for a unit which includes the Merrill Lynch Global Wealth Management and private bank businesses, according to Bloomberg.
Merrill Lynch and Morgan Stanley have both spent several decades pursuing a wide range of wealthier clients while Goldman had been known for pursuing clients with significantly higher net worths.
And Morgan Stanley Chairman and CEO James Gorman has aggressively made it a priority to grow the financial firm’s wealth management division, especially since the global financial crisis. For example, Morgan Stanley bought its joint venture with Citigroup in 2013 at a price of $4.7 billion for the remaining 35% stake and $2 billion for Citigroup’s preferred securities.
But Solomon now has plans to pursue a base of clients with a lower amount of assets. In May 2019, Goldman Sachs acquired Newport Beach, California-based United Capital — which helped the company reach more clients with assets of $1 million to $15 million.
Goldman Sachs President and COO John Waldron also pointed out that the company is looking into wealth management opportunities in China. Bloomberg’s sources said Goldman is planning to double its headcount to 600 people in China over the next five years.
Xi Jinping, president of the People’s Republic of China, is planning to allow foreign investment banks to take full control of units as part of the opening of a $45 trillion financial market including asset management and insurance. And Goldman is currently applying to boost its stake in an investment bank joint venture based in mainland China to 51% from 33%.
Todd Leland, co-president of Goldman’s Asia-Pacific operations, pointed out that the leadership in China “understands the value of global capital flows.”
During the earnings call, Goldman executives also said that the firm is planning to move its private investing business to be more reliant on client money. Essentially, billions of dollars in client money will be placed into diversified funds across private equity, real estate, and infrastructure.
Back in June, Goldman revealed a plan to consolidate five investing teams into a single alternatives-investing division based within its merchant-banking unit. Julian Salisbury, Andrew Wolff, and Sumit Rajpal are overseeing the division and it is being chaired by Rich Friedman.
Solomon also said that Goldman is going to make less private equity investments with its own money. This change in strategy is likely due to the regulatory scrutiny associated with these types of investments. Currently, Goldman manages $22 billion in public and private equity investments.
“We will continue to use the balance sheet, but we will remix that balance sheet,” said Solomon during the call via Business Insider. “Historically we have managed some institutional money, but we’ve managed very significant private wealth money in addition to using our balance sheet. The primary growth plan for the business is to over time raise a significantly increased amount of institutional capital.”
Solomon pointed out that the company’s ability to use the balance sheet is also an asset. As Goldman grows new products and services in the space, it is “easier to fund the acceleration of that if you do have the capacity to use balance sheet to jump-start some of those businesses.”
