Goldman Sachs eyes trimming £48bn alt investment book after big profits miss

Wall Street titan Goldman Sachs could shift billions of dollars worth of underperforming private equity and real estate investments that have dogged its finances, its top money manager hinted today.

In an interview with Reuters, Julian Salisbury, chief investment office of asset and wealth management at the firm, said the bank will “see a meaningful decline” in its alternative $59bn (£48bn) investment book.

“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,” he added.

Alt investments are typically money stored away in private equity funds, private credit vehicles and real estate.

The bank is looking to raise money from third party investors to create funds to invest in alternative assets instead of relying on its own balance sheet. This means while the alt investments themselves will sit elsewhere, Goldman’s real exposure to the assets will not shrink.

The company is targeting raising around $200bn (£161bn) of money to inject in alternative assets between 2020 and 2025 as a part of long-term plan to shift them off its balance sheet.

In last week’s earnings, Goldman said gross third party alternatives fundraising topped $70bn (£56bn).

The move has been given added impetus by Goldman posting one of its worst set of results in recent memory.

It missed targets by a large margin, plagued by the global deal making environment being rocked by central banks globally in unison hiking interest rates to tame inflation. 

That has made it costlier to finance deals, putting firms off listings and buyouts, trimming a key source of income for Goldman and other major investment banks.

The lender is also sacking 3,000 bankers to trim costs in its biggest scale back since the financial crisis. Other top US lenders are also ditching workers.

Goldman Sachs’ asset and wealth management arm notched a 39 per cent decline in net revenue to $13.4bn (£10.8bn) in 2022, according to earnings out last week.

Although Salisbury suggested the bank will use its money less frequently on alternative investments, he did say markets are keen to park their money in private equity and credit “because the returns available are attractive”.

The US Federal Reserve’s aggressive interest rate rise cycle has had a “chilling effect” on the world’s largest economy, he added. Hiring is slowing, but so is the rate of price increases.

City A.M. has contacted Goldman Sachs for comment.