Goldman Sachs announced a reduction in asset management investments

Goldman Sachs Group Inc The asset management division will make significant cuts on the $59 billion in alternative investments that hit its earnings.

Alternative assets can include private equity or real estate rather than traditional investments such as stocks and bonds.

According to Julian Salisbury, chief investment officer of Asset and Wealth Management at Goldman Sachs, the company will divest its positions over the next few years and replace some of that money on its balance sheet with outside capital.

“I expect to see a significant decline from current levels,” Salisbury told Reuters. “It will not go to zero because we will continue to invest in the funds in tandem, as opposed to individual deals on the balance sheet.”

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Goldman Sachs underperformed in the fourth quarter, when it missed Wall Street’s profit targets by a wide margin. The bank is firing more than 3,000 employees in the biggest round of job cuts since the 2008 financial crisis.

The bank’s Asset and Wealth Management reported a 39% drop in net revenue to $13.4 billion in 2022, with its revenue from equity and debt investments declining 93% and 63%, respectively, according to earnings announced last week.

the $59 billion in alternative investments Its balance sheet is down from $68 billion last year, according to the results. The positions included $15 billion in equity investments, $19 billion in loans, and $12 billion in debt securities, as well as other investments.

“Obviously the asset exit environment was much slower in the second half of the year, which means we were able to post smaller portfolio gains compared to 2021,” Salisbury said.

Salisbury expects to see a “faster decline in legacy balance sheet investments” if the asset sales environment improves.

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“If we had two years of normalization, you would see the reduction happen” over that period, he said.

He also said that customers are showing interest in private credit due to weak capital markets.

“Private credit is interesting to people because the returns available are attractive,” Salisbury said. “Investors like the idea of ​​owning something that’s a little more defensive but has a high yield in the current economic environment.”

Goldman Sachs’ asset management arm closed a more than $15 billion fund earlier this month to make small debt investments in private equity-backed companies. The industry’s private credit assets have more than doubled to more than $1 trillion since 2015, according to data provider Preqin.

Investors are also increasingly interested in private equity funds, Salisbury said, and try to buy positions in the secondary market when existing investors sell their stakes.

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The new public investment grade US primary bond market started with a number of new deals.

Salisbury said the market rally has “more legs” because investors want to buy bonds with longer maturities while also looking for higher credit quality due to the uncertain economic environment.

Economists at Goldman Sachs Salisbury said the Fed will raise rates by 25 basis points each in February, March and May before holding them steady for the rest of the year.

Reuters contributed to this report.