Goldman Revamps U.S. Stock-Picking Unit, Spurring Manager Exits

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(Bloomberg) -- Goldman Sachs Group Inc. has shaken up management of its U.S. stock-picking unit after billions of dollars in outflows and mediocre performance.

The bank’s asset-management business this month merged teams overseeing fundamental U.S. equity value and growth strategies, sparking the exit of three senior portfolio managers, according to the New York-based company. At least eight U.S. equity funds got new leadership, according to Morningstar Direct.

Goldman is shuffling portfolio managers as investors continue to move money from higher-fee active strategies into cheaper exchange-traded funds. The bank’s U.S. equity mutual funds suffered about $5 billion in net outflows last year, the most of eight sectors, according to Morningstar. Over the past two years, outflows totaled $11.1 billion.

Goldman Sachs has sought to increase revenue from its asset-management division as more volatile business lines, including stock and bond trading, suffer from muted client activity. The bank has called on the investment-management division, run by Eric Lane and Timothy O’Neill, to contribute $1 billion of a $5 billion revenue growth plan over the next three years. In 2017, the division posted a record $6.22 billion in revenue.

Net Inflows

BlackRock Inc., the world’s largest asset manager, took similar steps last year by firing managers in its stock-picking business and moving assets into cheaper products that rely more on computer-driven strategies.

Goldman Sachs attracted just $2 billion of net inflows into equity assets across all investment types last year, according to a statement this month. In total, the bank supervised $321 billion in equity strategies out of $1.15 trillion in long-term assets at the end of last year. It boasts a fast-growing exchange-traded fund franchise.

“This change reflects our belief in the power of collaboration,” spokesman Andrew Williams said in an emailed statement. “We made similar moves in emerging-markets teams and found we can serve clients better by sharing investment perspectives and leveraging high-conviction ideas.”

In April, the bank named Sam Finkelstein global head of emerging markets for the asset-management unit. International equity funds attracted $2.4 billion in net inflows last year, according to Morningstar.

Managers Departing

This month’s changes mean John Arege, Tim Leahy and Lawrence Tankel, all managing directors, have been removed from overseeing funds, according to filings. The bank confirmed that those three, as well as four junior employees, are leaving the firm.

The merged group will now be led by co-chief investment officers. Sean Gallagher, who had been CIO of value strategies, will share duties with Steven Barry, who had overseen growth strategies.

Several of the funds getting new management haven’t done well compared with competitors. The Goldman Sachs Large Cap Value Fund returned 9.7 percent last year, trailing 95 percent of its peers, according to data compiled by Bloomberg. The fund’s assets fell by almost half since the end of March. The Goldman Sachs Blue Chip Fund trailed 74 percent of its peers, while the Goldman Sachs Focused Value Fund lagged behind 77 percent.

Other funds seeing changes did better. The Goldman Sachs Technology Opportunities Fund returned 38.5 percent last year, better than 58 percent of its peers, according to data compiled by Bloomberg.

The shakeup echoes an earlier upheaval at the broader unit, when the 2011 consolidation of the U.S. growth team in New York led to “considerable turnover,” Morningstar Inc. analysts wrote in a report this month.

The analysts said they don’t like seeing instability: “This announcement and subsequent portfolio managers’ changes are taking place at a time when the U.S. growth team, which disappears as such as a matter of fact, had just started to stabilize.”

©2018 Bloomberg L.P.

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