Inside Goldman Sachs’s Aggressive Push to Fix Its ‘Problem Child’

In the steel-gray afternoon of Mar. 13, 2020, markets ran amok. The White House declared a Covid emergency. Sirens wailed across New York City, the pandemic’s U.S. epicenter. Credit markets froze. And the Dow Jones Industrial Average had just turned in its worst daily performance since Black Monday, 1987.  

At Goldman Sachs headquarters in New York’s financial district, Marc Nachmann, then-co-head of Goldman’s vaunted trading business, Global Markets, ricocheted around the firm’s sprawling trading operations.

Among other tasks, Nachmann was leading an unprecedented Dunkirk-like evacuation, directing the immediate winnowing of Goldman’s onsite trading staff to a skeleton crew. Software and other tools were dispatched to the traders’ homes in preparation for remote work.

 “We went from hundreds of people to tens,” Nachmann recalled in a telephone interview just before the holidays. The trading chief huddled with top Securities and Exchange Commission officials and Goldman’s management committee to keep markets open amid the onslaught of the pandemic.

One ex-Goldman executive who was with Nachmann recalls a trader asking him whether a new rule change allowed him to close a particular transaction. “Do it,” Nachmann ordered.

“It was crazier than 9-11. It was crazier than the financial crisis,” the ex-Goldmanite said.

At over six feet tall, with salt and pepper hair, the blunt-talking Nachmann downplays his role managing the crisis that day. “A big focus was on supporting senior traders as we adjusted to an unprecedented environment,” he said. “Volatility went through the roof. Volume went through the roof.”

Yet, the day stands as evidence of Nachmann’s management and operational chops. 

Nachmann, 53, faces another daunting challenge now. Named head of Goldman’s Asset and Wealth Management division in October 2022, the reticent German native is tasked with accelerating growth at what has long been a problem child – one that oversees as much as $2.68 trillion, including the vast fortunes of pensions, billionaires, endowments and sovereign wealth funds. 

Goldman CEO David Solomon and President John Waldron have made the division a keystone of their turnaround strategy for the firm, banking on it to balance the bank’s otherwise cyclical business mix. “It’ll be a much more sustainable, durable, resilient business,” Waldron told a conference in June. 

If Nachmann pulls it off, despite having never managed money himself, it will further his bona fides as an operational heavyweight and recognized people motivator, one who has been mentioned by insiders as CEO material. “What he is is a very good manager,” says one former managing director. “He identifies people who are good at client relations, winds them up and points them in the right direction.”

He is also liked. In more than a dozen of interviews, the very worst criticism of Nachmann was his lack of oratorical panache compared with past Goldman leaders such as Lloyd Blankfein, whose witticisms made headlines. In today’s common parlance, Nachmann is bereft of  “rizz,” or charisma. 

“He’s prodigiously bright but as dry as toast,” gripes one former Goldman partner, who has spent time with him. “Sitting next to him on an eight-hour plane flight, you’re going to want to shoot yourself—or him.”

Humbling Retreat

Goldman’s situation remains fraught. The storied firm’s two other main lines of work, investment banking and trading, are still slogging through multi-year, industrywide downturns. In the third quarter, equity and debt underwriting were down 73.6%, and 42.7%, respectively, from the comparable period two years earlier. Advisory and equities were down 49.6% and 4.6% respectively. Only fixed income and commodities trading rose. 

The firm under Solomon has beaten a public, costly and humiliating retreat from its ill-conceived push into consumer banking and finance, writing off more than $1 billion as it sold loan portfolios and unloaded its GreenSky consumer finance business. It is also reported to be exiting credit card partnerships with Apple and General Motors.

On January 16, Goldman is scheduled to report fourth-quarter and full-year 2024 earnings. While analysts will be looking for traction in asset management, which last quarter accounted for more than a quarter of revenue, they are more focused on a rebound in banking and trading. “I don’t spend a lot of time focusing on it because it’s such a small portion of the pie,” says Richard Bove, chief financial strategist at Odeon Capital Group. “There are too many people out there who are asset managers.”

There is good reason for Wall Street skepticism about asset management: relentless top-level turnover over the years. 

When Nachmann was named sole global head of the expanded division in 2022, the move meant reassigning co-head Julian Salisbury, who was made chief investment officer – and soon announced plans to leave. 

Salisbury, with years of asset management experience, joins a conga line of executives who have left or have announced plans to leave the division or various related lines of business. 

That includes former GSAM co-heads Luke Sarsfield and Eric Lane; Dina Powell McCormick, ex-head of Goldman’s sovereign wealth fund business and a former Trump administration deputy national security advisor; Katie Koch, former chief investment officer of GSAM’s public equity division; and Takishi Murata, head of GSAM’s Asia-Pacific private markets business. 

Such high-level churn has, in fact, gone on for well over a decade. 

More than most, the asset management industry puts a premium on continuity. Who wants to hand over money without knowing who will be overseeing it six months down the road? 

Delivering on Growth

But Goldman is betting otherwise.  Acknowledging the churn, Nachmann says that most of the  turnover has been management level, not the people that touch the money. 

Clients have indeed expressed concerns, he says. Their perspective, according to Nachmann: “I invest with you because I like the portfolio manager, I like the team.” And those relationships have remained largely intact. 

As for the paucity of Nachmann’s asset management experience, one former partner points out Nachmann was never a trader before taking over the global markets position. 

Most important is this: Despite turnover and Wall Street skepticism, the numbers reported by Goldman, as well as those from third parties, show asset management is delivering on its promise of growth.  

Firmwide assets under supervision, Goldman’s term for the money it oversees, has risen steadily, at 11.69% annually, on average, from $1.55 trillion in the third quarter of 2018, just before Solomon took the top job, to $2.68 trillion in September 2023.

Goldman breaks those assets down into four classes–equities; fixed income; alternatives, which includes hedge funds, private equity and credit and real estate; and what it calls “liquidity”, which is Goldman-speak for what in normal parlance is money market funds that come in all manner of styles and sizes. 

Each of those has grown well over 50% cumulatively since 2018. Think of them as cylinders that power the asset management engine.

‘Biggest Buckets’ 

The huge surprise: Humdrum money market funds, which have more than doubled to $775 billion, as of September. That, of course, was helped by an industry-wide deluge as the Federal Reserve tightened and more than $1 trillion flooded into money funds in the 12 months ended September 2023.

“This is a business that has gone from zero to hero,” says Peter Crane, president of Crane Data, which tracks money market funds. Money markets account for more than a quarter of Goldman’s total assets,  “It’s raining hard, and whoever has the biggest buckets wins,” he says.  Goldman Sachs, with some 25 money market funds, has plenty of buckets. 

Because Goldman has renamed and reconfigured its business segments not once but twice under Solomon, shifting different lines into the division, it’s a dicey proposition for an outsider to accurately compare overall revenue during the five-year span.  

There’s also the firm’s peculiar, preferred metric for the money it oversees, eschewing the common term “assets under management,” or AUM, for “assets under supervision.” That term of art provides Goldman wide discretion over how it counts  its money stash. A securities filing discloses that as of Mar. 30, 2023,  GSAM had $2.18 trillion in AUM, versus a firm-wide $2.71 trillion for AUS as detailed in its other financial statements for the same date.

“It allows them to put a higher number in front of people,” snarks the CFO of a small asset management firm.  

Counting assets, of course, is just one way to gauge success in the money management  game. Performance is another. 

Industry Headwinds

Goldman has launched about 150 mutual and exchange traded funds globally since just before Solomon took over in October 2018 – including ETFs based on narrow thematic strategies. Consider such curiosities as the Goldman Sachs Bloomberg Clean Energy Equity ETF and the Goldman Sachs Future Planet ETF. 

Strip those newcomers away, and returns on mutual funds with longer histories are solid: 76% of the firm’s funds and ETFs with five-year track records through December have on balance bested their category peers. That’s a blunt way to measure performance, but it’s solid enough to keep assets in place and gather more.

All told, Goldman Sachs mutual funds and ETFs assets rose to $891 billion globally in September 2023 from $506 billion at year end 2018.

Actively managed funds face headwinds. Downward pressure on expenses has been relentless industrywide, reinforced by the trend towards indexing. Asset-weighted fees on stock mutual funds have fallen by more than half since 2000, to 44 hundredths of a percentage point,  according to the Investment Company Institute, an industry trade group. 

Even the most highly regarded active managers are suffering. Asset outflows at T. Rowe Price Associates were $53.5 billion in the first nine months of 2023, on top of outflows of $61.7 billion in 2022. The firm had total assets under management of $1.35 trillion at the end of September.  

Tech, Plus Brain Power

So Goldman has ramped up sales of so-called separately managed accounts (SMAs), which are portfolios that unlike mutual funds or ETFs can be tailored to an individual’s or institution’s particular tax situation or other idiosyncratic needs.  

It’s a growth business, far bigger than funds.  Since the third quarter of 2018, just before Solomon took the CEO spot, flows into SMAs, both institutional and retail, totaled $202 billion through last September, when they hit $1.43 trillion.  

Nachmann says technology, combined with human brain power,  can be used to provide sophisticated asset allocation and other strategies to SMAs, allowing the business to be scaled further.

It is devilishly difficult to get a grasp on Goldman’s fortunes in some of its other asset management business lines – specifically “alternatives” such as private equity, real estate and hedge funds. As a group, these have trailed the growth of Goldman’s three other asset classes. 

Still, incentive fees from these and similar investments continue to add to the bottom line — varying from as much as $148 million in the third quarter of 2018 to as little as $24 million in the same quarter of 2023. 

That unpredictability fetches a lower valuation in the stock markets versus steadier management and other fees, which totaled $2.41 billion last quarter for the asset management group. They are on track to hit $10 billion next year, a recent Goldman goal. 

Profits from alternatives are driven in part by Goldman’s balance sheet investments  – something Nachmann is at pains to reduce as he seeks to shrink the division's cost of capital. 

Those profits can be volatile. Example: Markdowns to asset management’s real estate lending portfolio and equity investments contributed to a $1.15 billion pre-tax earnings hit in the second quarter. 

Nachmann is brazenly optimistic about asset management growth prospects. By his estimation, the top five players in investment banking and trading together control 80% or more of those markets. In the asset management segments Goldman seeks to compete in, the figure is just 10%. There’s room for more market share.

One way to do that is by building on relationships like that of banking client BAE Systems, which under a new program called “Outsourced CIO” turned over responsibility for its $28 billion pension allocation and management program directly to Goldman. Plenty of companies with assets of $5 billion to $10 billion question whether they are suited to managing such troves, Nachmann says. 

Despite Wall Street speculation, acquisitions of other money managers, he adds, are not part of his strategy.

Ultimately, as is often the case, success or failure will boil down to what kind of value investors deign to put on the franchise. Goldman shares recently changed hands at $382 apiece, or 1.2 times book value. Morgan Stanley traded at 1.7 times book and BlackRock more than three times, comparisons that surely gall some Goldman investors.

Goldman Lifer

Nachmann grew up near Stuttgart, in Karlsruhe (Estimated 2019 population: 313,092), home to museums, palaces and Germany’s top federal courts. After notching a B.A. in 1991 from elite Wesleyan University, where he majored in physics, economics and mathematics, it was on to Harvard, where he earned a Phd in economics under a joint program between the university’s business school and economics department. 

In 1994, Nachmann joined Goldman’s investment banking department – destined from the start to be “a Goldman lifer.” At the time, investment banking wasn’t siloed by industry the way it is now, giving the yearling banker the opportunity to dip into various industries, including natural resources, and to dabble in financing. He oversaw Latin America for a spell. 

In 2017, Nachmann was named co-head of the firm’s investment banking division and soon bolstered Goldman’s less-than-stellar standing in the debt underwriting. Nachmann did so by expanding Goldman’s coverage universe. “We increased the number of companies we covered into the middle markets.”

Next up was trading, which Nachmann helped lead as co-head beginning in September, 2019.  One goal was increasing the firm’s “wallet share” of its clients which included financing for customer trades.

By 2022 when Goldman reorganized, merging  trading and investment banking into one business segment for reporting purposes, Nachmann inherited a business with a history. In the wake of the 1929 crash, Goldman Sachs Trading Corp, an investment fund, lost 98% of its value. Lawsuits were filed, including one by the immensely popular comedian Eddie Cantor, who used the disaster as grist for his act. He eventually settled with Goldman for undisclosed terms in 1936.

For decades later, Goldman steered clear of asset management, though by the late 1980s profits being minted from the business by rivals like Salomon Brothers caught management’s attention.

Legendary hedge fund manager Leon Cooperman founded GSAM in 1988 and served as its first CEO for three years. “I was a man ahead of my times,” Cooperman chuckled in a telephone interview. 

Goldman co-heads Stephen Friedman and Robert Rubin (later Treasury Secretary in the Clinton administration) pushed for growth. “They were interested in capturing assets,” Cooperman said. “I was interested in finding the next hot stock.” He left to start Omega Advisors in 1991.

Acquisitions followed: Pension fund CIN Management, Liberty Investment Management and Commodities Corp, the storied fund of funds co-founded by Nobel laureate Paul Samuelson, that launched the careers of Tudor Investment Corp’s Paul Tudor Jones and Moore Capital Management’s Louis Moore Bacon.

But in 2007, Goldman got a black eye when its $12 billion flagship hedge fund, a quantitative juggernaut called Global Alpha, lost 40%. It was shuttered four years later.

Through it all, turnstile management was the rule at GSAM, something that continues to bedevil the organization. Now, as the company de-emphasizes balance sheet investments and consolidates certain business lines, Nachmann acknowledges that attrition is natural.  

Three of the the five groups within GSAM that Nachmann inherited relied in large part or entirely on Goldman’s capital; the Special Situations Group, a multi-strategy hedge fund-like investment business; TSI, for fintech investing; and UIG, the Urban Investment Group,  which provides financing to underserved communities in accordance with the Community Reinvestment Act.

A fourth group, Goldman Sachs' merchant bank, manages private equity funds like Capital Partners VIII, which is a mix of firm assets, those of current employees–and the balance of outside money. 

The drain on Goldman’s balance sheet has been cut in half, to $15 billion from $30 billion. 

The fallout from people who ran balance-sheet businesses, however, contributes to attrition. 

That’s part of the firm’s DNA. “Goldman Sachs doesn’t value continuity,” says one former managing director. “You become a partner, you make hay, you move on.”

The Network

The departing, though, don’t just ride off into the sunset. Not at Goldman Sachs.

They head to private equity shops, hedge funds, family offices or sovereign wealth funds. “Generally, when they leave they are going to pretty smart outfits,” says Kenneth Leon, research director at CFRA, an analysis firm. “They are able to generate more wealth.”

Katie Koch, ex-CIO for public equity, landed the top job at TCW Group, the Los Angeles money manager, and former GSAM co-head Luke Sarsfield took the CEO spot at P10, an alternatives  firm.

Others start their own firms: for example, Tom Connolly and Michael Koester, two ex-Goldman merchant bank executives, last year founded 5C Investment Partners, which specializes in private credit. 

But every former Goldman executive, managing director or partner interviewed for this article remains invested with Goldman through a  private wealth management broker.

And there are scores of successful hedge fund managers who continue to use “Mother Goldman” for prime brokerage needs like securities lending, including Cooperman’s Omega Advisors and a bevy of the firm’s spawn.  

The Office of Alumni Engagement is overseen by investment banking chairman Alison Mass to encourage dealmaking between the firm and those who have left the firm, whether they be hedge fund managers, CFOs, CEOs, or central bankers.

“The network is an amazing thing,” says Nachmann. ‘’It’s kind of like a virtuous circle.” 

Nachmann himself points to one recent deal that underscores the benefits of that network for Goldman as well as the departed. 

Goldman in October sold the GreenSky home improvement lending business, acquired just two years ago for $1.7 billion, to Sixth Street Capital for a reported $500 million. The Sixth Street executive club includes co-founder Alan Waxman, former chief investment officer of Goldman’s proprietary trading desk, as well as ex-Goldman Chief Information Officer Martin Chavez and  a bevy of other former Goldmanites. And Goldman’s private credit team in particular has co-invested with Sixth Street. 

Sixth Street has a new chief investment officer, too. That would be Julian Salisbury, former co-head of GSAM. He announced his departure from Goldman in March.