Goldman Sachs Group Inc’s asset management part will make vital cuts to the $59 billion of other investments that impacted its earnings.
Alternative property can embody non-public fairness or actual property as an alternative of conventional investments like shares and bonds.
The agency will divest its positions over the following few years and change a few of these funds on its stability sheet with exterior capital, in accordance with Julian Salisbury, chief funding officer of asset and wealth management at Goldman Sachs.
“I would expect to see a meaningful decline from the current levels,” Salisbury advised Reuters. “It’s not going to zero because we will continue to invest in and alongside funds, as opposed to individual deals on the balance sheet.”
Goldman Sachs had a poor fourth quarter, when it missed Wall Street revenue targets by a considerable margin. The financial institution is firing greater than 3,000 staff in its greatest spherical of job cuts for the reason that 2008 monetary disaster.
The financial institution’s asset and wealth management posted a 39% drop in internet income to $13.4 billion in 2022, with its income from fairness and debt investments declining 93% and 63%, respectively, in accordance with earnings introduced final week.
The $59 billion of alternative investments held on the stability sheet dipped from the prior yr’s $68 billion, in accordance with the outcomes. The positions included $15 billion in fairness investments, $19 billion in loans and $12 billion in debt securities, in addition to different investments.
“Obviously, the environment for exiting assets was much slower in the back half of the year, which meant we were able to realize less gains on the portfolio compared to 2021,” Salisbury stated.
Salisbury expects to see “a faster decline in the legacy balance sheet investments” if the setting for asset gross sales improves.
“If we would have a couple of normalized years, you’d see the reduction happening” throughout that interval, he stated.
He additionally stated purchasers are displaying curiosity in non-public credit score due to poor capital markets.
“Private credit is interesting to people because the returns available are attractive,” Salisbury stated. “Investors like the idea of owning something a little more defensive but high yielding in the current economic environment.”
Goldman Sachs’ asset management arm closed a fund of greater than $15 billion earlier this month to make junior debt investments in non-public equity-backed companies. Private credit score property in the trade have greater than doubled to greater than $1 trillion since 2015, in accordance with information supplier Preqin.
Investors are additionally rising in non-public fairness funds and are attempting to buy positions in the secondary market when current traders promote their stakes, Salisbury stated.
The U.S. investment-grade main bond market started the brand new yr with a lot of new offers.
Salisbury stated the market rally has “more legs” as a result of traders are prepared to purchase bonds with longer maturities whereas additionally searching for larger credit score high quality because of the unsure financial setting.
Goldman Sachs economists predict the Federal Reserve will increase rates of interest by 25 foundation factors every in February, March and May earlier than holding regular for the remainder of the yr, Salisbury stated.
Reuters contributed to this report.