Goldman Sachs Group Inc. (GS), the Wall Street bank that once generated millions of dollars in fees from its Global Alpha hedge fund, is turning to beta strategies for growth.
Goldman Sachs Asset Management, which oversees $30 billion in such products, agreed this week to buy Westpeak Global Advisors LLC, without disclosing terms. Westpeak, which supervises just $300 million of assets, can help spur growth in the firm’s beta products, which are drawing more interest from clients, Armen Avanessians, head of GSAM’s quantitative business, said in an interview. Beta refers to how much an asset’s price moves in relation to the broader market.
While many indexes are weighted based on market capitalization, Westpeak develops so-called active beta strategies by investing in groups of stocks using other characteristics. The idea is to offer the low fees and liquidity that have drawn investors to passive exchange-traded funds, while providing more value than a proxy for the Standard & Poor’s 500 Index.
“Anyone who wants to be in the passive space has already shifted into that space, and they enjoy a certain degree of liquidity and transparency,” said Avanessians, a partner and 29-year veteran of New York-based Goldman Sachs. “The question is, ‘Can they do something more than just slavishly follow the market cap?’”
Goldman Sachs, which has avoided large mergers throughout its history, has made several purchases in the past two years to grow an asset-management business that saw outflows in three straight years ended in 2012. Chief Executive Officer Lloyd C. Blankfein, 59, said in May that he’s devoting a “very high percentage” of his attention to improving the division’s performance.
Last year, assets under supervision topped $1 trillion for the first time and pretax profit climbed 20 percent to $1.11 billion. The division produced $1.57 billion of revenue in the first quarter, a 20 percent increase from a year earlier.
Avanessians, 54, declined to set a growth target for the advanced beta strategies business. He said only that it can get “much bigger” and will help the bank attract a bigger slice of clients’ portfolios.
“We see it as being purely additive to our business,” he said.
Goldman Sachs shut Global Alpha in 2011 as clients pulled money from what was the firm’s biggest hedge fund.
To contact the editors responsible for this story: Peter Eichenbaum at firstname.lastname@example.org Dan Reichl, David Scheer