Goldman Sachs Goes After Your Retirement MoneyAmy Feldman
As Goldman Sachs (GS) fights an SEC lawsuit accusing it of misleading investors, it is trying to persuade more Americans to trust it with their retirement money. To appeal to 401(k) investors and the companies that sponsor the plans, it is promoting its alternative asset funds and designing target-date funds that will offer guaranteed income. "We understand risk and we understand asset allocation," says Bill McDermott, head of Goldman's defined-contribution business, who joined the firm in February. "We're looking to leverage that for the 401(k) market."
Goldman, a giant on Wall Street in trading and other businesses, is a relatively small presence in the retirement market. Its 401(k) plan assets totaled $17.5 billion as of Mar. 31, according to the firm. Fidelity Investments, the largest 401(k) asset manager, held $347.8 billion as of Dec. 31. Total assets in 401(k) plans may increase 41 percent, to $3.8 trillion, by the end of 2014, from $2.7 trillion today, according to data from Cerulli Associates.
The retirement savings business has been dominated by firms such as Fidelity and Vanguard, both of which administer plans and manage assets. Goldman and BlackRock (BLK), the world's largest asset manager, don't run plans and have been seeking to have their funds included in more 401(k)s.
The Securities & Exchange Commission filed a lawsuit on Apr. 16 accusing Goldman of misleading investors in a mortgage-linked investment. Goldman denies those allegations and says it will fight the charges. The asset management division that McDermott works in is separate from the mortgage unit that sold the securities at the center of the SEC's fraud suit. A key difference between the two businesses is that the asset management division operates under a fiduciary duty to its clients, while the sales and trading division doesn't. So far, there have been no reports of plan sponsors dropping Goldman funds. "Having issues certainly isn't going to help," says Teresa Epperson, a partner at Mercatus, a financial consulting firm. "But all the signs so far are telling us that clients are sitting tight."
Alternative assets, such as commodities and real estate, can increase a portfolio's return and lower risk. The market drop of 2008, when the Standard & Poor's 500-stock index declined 38 percent, showed "there were very, very, very few safe havens," says Bud Pernoll, senior managing director of Bay Mutual Financial, which advises corporate retirement plans on their investment options and works with Goldman. "You're starting to see plan sponsors look outside the traditional asset classes."
Pernoll has added Goldman's Satellite Strategies Portfolio to more than a dozen 401(k) plans he advises. Satellite Strategies invests in other mutual funds that put money into assets such as real estate, commodities, and emerging markets. The fund, with $585 million in assets, returned 17.1 percent in the 12 months through May 25, according to data compiled by Bloomberg.
Goldman's alternative asset push "is ahead of the curve, so they see an opportunity to dominate that niche," says Steven Dimitriou, managing partner of Mayflower Advisors, a retirement plan consultant. "As soon as these funds start gaining traction, they're going to get copy-catted."
The bottom line: Alternative assets, and the Goldman name, may appeal to retirement investors worried about market volatility.