Goldman's investment management business peeks out from trading's shadow

Tue Jul 15, 2014 5:39pm EDT
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By Lauren Tara LaCapra

NEW YORK (Reuters) - Late last year, Goldman Sachs reached an important milestone: its investment management business surpassed $1 trillion in client money under supervision.

But the achievement went largely unnoticed as shareholders focused on troubles in Goldman's fixed-income trading business instead. Even inside the investment management division there was little fanfare.

"We absolutely didn't have a party at a trillion," says Eric Lane, a Goldman partner who co-heads the group with Timothy O'Neill.

The number is a sign the business has regained its footing after the financial crisis, and comes at a time when it is becoming ever more important to Goldman's bottom line with a much higher return-on-equity than the trading operations.

Interviews with current and former Goldman executives, investors and clients show that the Wall Street bank is increasingly turning to investment management as the centerpiece of its growth strategy in the much more regulated banking world that is hurting returns elsewhere.

The bet on investment management is one of the first signs that, much like arch rival Morgan Stanley, Goldman is coming around to the view that the years-long slump in fixed income trading is here to stay.

It has a long way to catch up its rivals. It trails JPMorgan Chase & Co, which had $2.5 trillion in assets under management on June 30. That business is the most directly comparable to Goldman's.

And while Morgan Stanley's investment management business had only $382 billion in assets at the end of the first quarter, the investment bank has a massive wealth management business - built on the brokerage services it provides retail clients - with $1.9 trillion in assets at the end of March. Goldman doesn't directly compete in that area.   Continued...

The Goldman Sachs logo is displayed on a post above the floor of the New York Stock Exchange, September 11, 2013. REUTERS/Lucas Jackson