Why wealth management is Goldman Sachs' new 'crown jewel' with dealmaking at a standstill

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  • One of David Solomon’s top goals is to grow Goldman’s asset and wealth management business.
  • That means more money for hiring private wealth advisors and in the Ayco unit.
  • The CEO hinted at future acquisitions for the wealth business, especially if valuations drop further.

Goldman Sachs posted its worst quarterly results since the pandemic on January 17. With dealmaking at a standstill, investment banking fee revenue plummeted to $1.78 billion in the fourth quarter of 2022, down 48% from a year ago. 

CEO David Solomon acknowledged that a stronger wealth and asset management business would have helped the bank weather the storm. 

“Would I like it to be further along? Yes,” he said in an earnings call Tuesday. “If it was further along, there would have been less volatility, particularly in the context of this year in the fourth quarter.” One of Solomon’s three key priorities for Goldman Sachs is growing management fees in the asset and wealth management arm.

The bank is pulling back on Marcus, its costly consumer banking unit, but other business lines within the division are ripe for growth in the form of hiring and acquisitions down the road. Solomon touted the potential for its workplace wealth offering Ayco in October, but private wealth management is another opportunity. 

The private wealth unit is “a crown jewel,” recruiter Louis Diamond told Insider.

“They don’t have a massive advisor force like Merrill, Morgan Stanley, and UBS do, but the advisors they do have are amongst the best in the industry,” he said. “Their advisors are all focused on the ultra-wealthy.”

Goldman Sachs does not break out results for the division, which caters to clients with at least $10 million in investible assets, but private banking and lending revenue reached $753 million last quarter, a 77% increase year over year, about a fifth of the asset and wealth management arm’s total net revenue. (Overall revenue for the wealth and asset management unit dropped 27% due to lower revenue from equity and debt investments.)

“Quite frankly, private wealth management at Goldman Sachs has never been as much of a focus for the firm as it is today,” John Mallory, co-head of the division, told Insider in July.

The bank has been bolstering its wealth business for the last few years, marked by its acquisition of investment advisor United Capital in 2019 for $750 million. It’s since hired hundreds of client-facing professionals to help it catch up to firms like Morgan Stanley that manage trillions. 

The bank’s wealth management potential came into stark relief on Tuesday when Goldman reported a $3.8 billion loss tied to Solomon’s effort to diversify via a consumer bank. Morgan Stanley, by contrast, reported better-than-expected results as robust wealth management revenue offset other losses.

The growth potential is already showing up in the form of job openings. In the wake of brutal layoffs, Goldman Sachs has more open positions in asset and wealth management as well as internal audit, respectively, than banking and markets. Of 43 job postings in asset and wealth management based in the US, 15 are within the private wealth unit.

Bolstering the bank’s wealth business could boost its stock price

The business is far less volatile than investment banking and markets. More than half of its 15,000 high-net-worth family clients have worked with Goldman for at least 10 years, according to Mallory. Approximately 85 to 90% of its revenue is in recurring fee-based business, he added.

“The multiple on our business, in context of how the analyst community would think about our business with regard to the firm stock price, is much higher than where the firm’s overall multiple is today,” he said. 

Stable revenue streams like management fees are more attractive to investors, analyst Steven Biggar told Insider. 

“Things like trading, investment banking, and M&A activity start every quarter at zero. You have to earn every deal,” said Biggar.

The wealth management business also boosts Goldman’s other services, as the bank’s co-head of asset management Julian Salisbury said in September.

“Just in the last year or so, we’ve had a number of private wealth clients or a number of transactions where we have bought a company, and an individual has done very well as a result of that,” he said. “We ensure we do our best that they become a private wealth client of the firm. And then that money cycles back into other funds that we’re raising to invest in other strategies.”

Solomon said that the bank will focus on its existing businesses rather than acquisitions this year. But he acknowledged that there is room for building on the wealth business and that with the market downswing, valuations have become more attractive.

“Certainly, there are opportunities in wealth for us to do things that are more significant,” he said. “Over the last five years, the prices have been eye-popping. Maybe we’re in a different environment where, well, that will normalize.”