Goldman Sells Platform for Debt Aimed at Mom and Pop to Rivals

(Bloomberg) -- Goldman Sachs Group Inc. sold a majority stake in SIMON, its proprietary platform that distributes complex investment products, to a cohort of Wall Street rivals.

The New York-based bank spun off the six-year-old outfit to a group that includes JPMorgan Chase & Co., HSBC Holdings Plc and Credit Suisse Group AG’s NEXT Investors, according to a release. Goldman retains a minority interest in the service, which will operate as an independent entity. Financial terms weren’t disclosed, though people familiar with the deal have said it values SIMON at just over $75 million.

The bank started the platform to help retail brokers offer structured notes, and it was meant to attract rivals to sell the securities, but Goldman’s ownership made competitors slow to embrace it. The separation into an independent entity is aimed at easing some of those concerns, the people familiar have said.

Goldman Sells Platform for Debt Aimed at Mom and Pop to Rivals

“We are very, very bullish on what an industry platform with those participants can do in terms of growth for the market,” said Jason Broder, who leaves his position as head of Goldman’s private investor products group to become SIMON’s chief executive officer.

Timur Kocaoglu and Joseph Giordano will also exit the bank and join the new company, which has 35 employees, 25 of whom are engineers, Broder said in an interview.

The banks will compete to sell structured products via the service to a network of financial advisers that includes Raymond James Financial Inc., one of the largest users of SIMON. Prudential Financial Inc., which is also an investor, will sell insurance products via the platform, according to Broder. Barclays Plc and Wells Fargo & Co. are also investors and issuers.

The service had 14,000 financial advisers on board in 2016, Broder told Bloomberg News at the time.

Higher Interest

Structured products have grown increasingly attractive to retail investors because they often pay higher interest than regular corporate debt. Typically linked to the performance of another asset class, such as stocks or rates, the securities mimic options strategies by providing downside protection or leverage.

Their complexity has drawn warnings from regulators about their suitability for mom-and-pop investors, who might not understand the risks.

Goldman is among the most prolific issuers, competing with banks such as JPMorgan and Credit Suisse for the top spot in annual rankings.

“In order to truly grow the structured products industry, an independent, multi-issuer platform is essential,” said Jason Barsema, co-founder of Halo Investing, which runs a rival service. “Investors want to feel like they have access to all options, without the platform itself being run by one single issuer.”

The bank’s decision to cleave out the internally developed technology product is in line with its recent efforts to monetize such tools. Earlier this year, it sold cybersecurity software it developed to a market specialist in exchange for an equity stake.

©2018 Bloomberg L.P.