The average Goldman Sachs Group Inc (NYSE:GS) client has $40 million under management with the firm, as assets under supervision climbed to a record $1.08 trillion and investment banking advisory net revenues continued to remain at the top of the industry, almost double that of the next competing firm.
World class franchise
Speaking Wednesday at a Sanford C. Bernstein Strategic Decisions Conference, Goldman Sachs Group Inc (NYSE:GS) Chief Operating Officer Gary Cohn painted a positive picture of the prodigious investment bank going forward. Cohn cited “continued leadership in a world clash franchise” as he noted the ability to adapt to industry trends, obtain greater “wallet share” of clients and benefit from developments such as the rise merger and acquisitions activity, where the firm was number one in announced and completed M&A, equity & equity-related underwriting and IPOs, he noted in prepared remarks.
Cohn announced with optimism that M&A activity was rising and the firm continued solid underwriting activity despite market uncertainty and a slowing improving macroeconomic environment where hedge funds are underperforming the S&P 500 (INDEXSP:.INX) year to date amidst muted client risk appetite..
Current market environment features abnormally low volatility
Cohn, like many professional traders, notes with interest the historically low volatility across a variety of asset classes that discourages hedging and delays opportunistic investing. Volatility is impacted by low real yields, fewer central bank surprises and limited forward GDP visibility. His presentation slides did not mention the impact quantitative easing has had on volatility reduction across a variety of markets.
Goldman Sachs’ strong diversification
A key to Goldman Sachs Group Inc (NYSE:GS)’s success is their diversification across a number of client types and strong management discipline. The firm services institutional investors, hedge funds and sovereign governments providing over the counter SWAPs as risk management tools and providing various services to help organizations manage their market exposure and risk over a somewhat challenging market environment. The firm has a growing presence with corporates and the average trade it executes exceeds $50,000 in value per trade.
In terms of its business revenue mix, the investment bank generates the highest percentage from commissions and fees, followed by equity client execution and securities services.
While growth has been steady, Goldman Sachs Group Inc (NYSE:GS) has reduced headcount by 10% since 2010 and continues to focus on the balance sheet and capital reserves. Cohn touted the firm’s technology platform while noting that they are expanding into both high and low touch product lines while focusing on efficiency and protecting its market leading profit margins.
Considering various macro trends the bank will seek to capitalize on, Cohn looked to cross border activity in investment banking, a return to a supply and demand driven market model and in asset management a shift to professionally managed money and a defined contribution market environment. In investing and lending the company sees demand for growth capital.