Goldman Sachs Asset Management has been under intense pressure with an estimated US$26.7 billion worth of investments pulled out from its mutual funds in 2017, making it the “worst-selling fund manager in 2017” according to Financial Times.
Its asset management division has seen falling revenue nearing 7.0% in 2016, and this continued in 2017 as revenue dropped by another 7.0%.
The chief financial officer Martin Chavez stated back in April that they are “not immune to what is happening generally across the industry: fee compression of various kinds, a shift in the mix of strategies”, which has resulted in reduced earnings at the firm.
The increasing trend of investors choosing passively managed funds that track an index has hurt Goldman which mainly deals with actively managed funds. Investing in an exchange traded fund (ETF) is typically cheaper as investors do not have to pay high fees for managers to actively try to beat the market.
However, this problem is not unique to Goldman alone. Its competitors such as Federated (a global investment manager) has also experienced about US$14 billion worth of withdrawals. Other firms such as Fidelity, Morgan Stanley and Franklin Templeton have also recorded multi billion-dollar withdrawals.
Looking at the longer term, Goldman’s investment management division saw a tremendous increase in asset from US$965 billion to US$1.3 trillion since 2012. This is despite a fall of $6 billion worth of asset in the first quarter of 2017.
The cash outflow mostly came from funds based in the US, and specifically from the money market funds (short-term investment securities with high liquidity and short maturities, serving as an alternative to cash).
Goldman also faced further challenges in the US with new rules in the money market sector to strengthen investor protection and liquidity. According to the firm’s spokesperson, excluding the money market funds, the company’s mutual fund range would have recorded cash inflows.
Furthermore, Goldman is also said to be reviewing its commodities business after the poor performance from the first half of 2017. The commodities industry has been on a decline with falling revenue and tougher regulations. Many other firms like Morgan Stanley and JP Morgan Chase & Co have been cutting back, or have exited from commodities trading in recent years.
In 2017, it has been noted that the firm had “significantly lower” net revenue received as client volumes suffered in the commodities industry which has contributed to the poor performance in the first quarter.
Overall, the challenges faced by Goldman seem to be affecting everyone in the industry, but Goldman appears to be hit the hardest to date.
Those who are interested in investing in overseas stock exchange markets should be more careful. Keep up with the latest news since we have seen in the case of the Lehman Brothers – no one single firm is too big to fall.