Goldman Sachs’ (NYSE:GS) asset management unit intends to significantly bring down its $59 billion alternative investments, Reuters reported. The decision reflects Goldman’s strategy to reduce its on-balance sheet investments and enhance earnings from fees. Alternative assets refer to categories like real estate or private equity, unlike traditional asset classes like stocks and bonds.
Goldman Sachs recently delivered poor Q4 2022 results due to a significant decline in its investment banking revenue as a result of a slump in dealmaking. Moreover, revenue from the Asset and Wealth Management division plunged 27% in Q4 2022 and 39% in the full year 2022. Alternative investments on Goldman Sachs’ balance sheet fell from $68 billion to $59 billion in the prior year.
Julian Salisbury, chief investment officer of asset and wealth management at Goldman Sachs, said that the firm will divest its positions over the next few years and replace some of those funds on the balance sheet with outside capital. Salisbury expects to see a “meaningful decline” from the current levels.
“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,” said Salisbury. The company intends to provide further details about its asset plan during its investor day scheduled on February 28.
According to Mark Narron, senior director of North American banks at Fitch Ratings, shedding investments on a bank’s balance sheet can lower earnings volatility. Moreover, it reduces the amount of risk-weighted assets that regulators use to decide the amount of capital a bank must hold.
Is GS a Buy Now?
Wall Street is cautiously optimistic about Goldman Sachs due to a challenging macro environment. The firm is expected to lay off about 3,200 employees. Overall, a Moderate Buy consensus rating for GS stock is based on six Buys and six Holds. The average price target of $405.19 implies 16.1% upside potential. Shares have advanced by a modest 1% since the start of this year.