Core Goldman Sachs Won't Flee New York for Florida
(Bloomberg Opinion) -- Goldman Sachs Group Inc. traces its roots back more than 150 years to 1869, when Marcus Goldman, a German immigrant, moved to New York City and opened a one-room office in a basement next to a coal chute at 30 Pine Street. Today, that address represents the heart of Manhattan’s financial district: One block north of Wall Street and one block south of the Federal Reserve Bank of New York.
Goldman Sachs Asset Management, by contrast, was formed in 1988.
This difference is important context to keep in mind after reading the scoop from Bloomberg News’s Sridhar Natarajan that Goldman is considering a new Florida hub to house its asset-management division. The news naturally set off alarms about the end of New York City as the undisputed financial capital of the U.S., given the surprise decision by AllianceBernstein Holding LP in 2018 to move its headquarters to Nashville and, more recently, the increased presence of Blackstone Group Inc. and Citadel in the Sunshine State.
Make no mistake: Goldman is a powerhouse in asset management, managing $1.46 trillion as of the end of the third quarter, up 19% from a year earlier and more than Morgan Stanley’s investment management division stands to oversee even after the bank acquires Eaton Vance Corp. But even if Goldman is prioritizing fee-based businesses like asset management under the leadership of Chief Executive Officer David Solomon, when push comes to shove, high-stakes trading and investment banking will always be the lifeblood of Goldman and the areas that set the bank apart from its competition. Crucially, there’s no indication those units are going anywhere in any meaningful way.
In fact, it’s unclear exactly how many Goldman employees would work out of a hypothetical Florida asset-management headquarters, given that the bank doesn’t publicly break down its headcount of almost 41,000 by division. According to people with whom Natarajan spoke, a decision to create a central location for the business in Florida would include back-office staff as well as some investment professionals, with a shift carried out over time. They added that Goldman has looked at potential office space in the corridor north of Miami that covers places like Palm Beach County and Fort Lauderdale.
That region’s demographics can change, of course, but places like Jupiter and Boca Raton conjure up a very different image (read: retirees) than the bustling streets of Manhattan. The town of Palm Beach had the 18th-highest average household income of any municipality in the U.S., at $314,090, according to the Bloomberg Richest Places Index, up 17 spots from 2019. That’s the biggest jump among the top 40 and about $80,000 more than the next-highest ranked Florida localities. About a quarter of Palm Beach County’s residents are older than 65 — in the town itself, that share is 62%.
In general, asset managers don’t necessarily need the turbocharged, cutthroat environment that defines traders and investment bankers. That makes it a natural division to begin moving to cheaper regions, which is part of Goldman’s plan to cut $1.3 billion in costs. Goldman, JPMorgan Chase & Co. and the other large U.S. banks have already started shifting around non-client-facing workers to lower-cost hubs. A push into asset management seems to be the next logical step.
Even if Goldman is considered to be a Wall Street trendsetter, it’s not exactly a secret that asset managers are under significant pressure to lower costs. That’s why so many brand-name companies are left with no choice but to join forces and scale up, like the aforementioned Morgan Stanley and Eaton Vance, along with Franklin Resources Inc. and Legg Mason Inc. earlier this year. Even Vanguard Group, the company synonymous with cutting fees in money management, has experienced slowing net flows in 2020 as its rivals offer similar products, forcing it to retreat from some of its boldest plans for global expansion.
GSAM seems to be big enough, at least for now, to avoid the kind of purgatory faced by midsize money mangers. The fact that asset-management revenue rose in the third quarter by a whopping 71% from the same time in 2019 and 32% from the previous three-month period should be enough evidence that it’s worthy of remaining a top priority for Goldman executives as they focus on their goal of managing more client money to generate steadier income.
Still, even in that banner third quarter, Goldman’s traders accounted for 42% of total revenue, better than the 35% to 40% average from 2017 to 2019. Its investment bankers brought in $6.81 billion in the first nine months of the year, compared with asset management’s $4.77 billion. Like the potential move to Florida, Goldman’s shift to more consistent business lines is about playing the long game. And that involves cutting expenses wherever possible.
In the meantime, Goldman’s top traders and investment bankers are by all accounts staying put. While they’re far removed from the days of a one-room basement office, they’re not so detached from Wall Street that they’ll yet move some 1,300 miles away. The bank’s beating heart will stay in New York City.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.
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