Goldman Sachs Actually Better at Marketing Than Managing Assets

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Lloyd's smile in repose. Photo: Bloomberg Markets Magazine

Things had been going south at the Goldman Sachs Asset Management division well before it deftly hyped and then botched the execution of a deal to sell Facebook shares to private investors. Clients like Netscape founder Jim Clark, who bought cheaper Facebook shares elsewhere, weren't happy about 4 percent placement fees. Not when it came with half-percent "expense reserve fees" and surrendering 5 percent of the profit for "carried interest" and especially not when the offer was yanked for U.S. clients due to legal concerns. As Bloomberg Markets Magazine shows, that flub was just the tip of a sinking iceberg, staying afloat thanks more to Goldman's marketing prowess than its ability to, you know, actually make wealthy and institutional investors promising returns. But — here's where it gets just so Goldman — they've still managed to add tens of billions of assets since 2000.

In the past eight years, Lloyd Blankfein has dispatched eight investment heads, including members of his inside circle, known as Lloyd's Boys. But revenues have fallen, Goldman lags behind its competitors in 73.8 percent of the categories for pools of money from private and institutional investors, and 338 mutual-fund share classes "trailed the average return of their respective peers in every broad category."

Why when pension funds from California and Nevada withdrew $900 million last year are investors still forking over their assets?

“Given the golden reputation of Goldman, it’s amazing,” says Anton Schutz, founder of Rochester, New York-based Mendon Capital Advisors Corp., an asset management firm that specializes in financial stocks and doesn’t own Goldman Sachs shares. “What we thought was investing acumen has turned out to be a tribute to the firm’s marketing muscle.”

Revelations about GSAM's performance come at a time when the firm's trading divisions dropped off 37 percent and limitations on proprietary trading could stifle its ability to invest its own accounts.

“The results are, No. 1, surprising and, No. 2, disappointing,” says Richard Bove, an analyst at Stamford, Connecticut-based Rochdale Securities LLC. “First, Goldman has sold this business as one they can grow and grow very strongly. Second, they pride themselves on being able to deliver results for high-net-worth people.”

Eh, if Lloyd can bag the Facebook and the Groupon IPO before the tech bubble bursts then no will even remember it underperformed for the better part of a decade.

Blankfein Flunks Asset Management as Jim Clark Vows No More Goldman Sachs [Bloomberg Markets Magazine]