Markets

Goldman Tests The Waters With Hedge Fund Product For The Masses

The decision by Goldman Sachs' ( GS ) asset management arm (GSAM) to launch the Multi-Manager Alternatives Fund last month generated considerable interest in the industry due to the two unique prospects the fund proposed; for one, it was the first time Goldman targeted retail investors with an investment product, as anyone with $1,000 to spare could consider this fund, and secondly, the fact that the fund was the first of its kind, to offer retail investors access to a hedge fund - something that only the ultra-rich had access to earlier. Although the one month time frame over which the fund has been active is clearly insufficient to comment about its performance (especially since the fund lists long term capital generation as its goal) it has done quite well to raise $58 million in assets under management during this period.

While this figure is but a fraction of the $748 billion in assets that GSAM managed at the end of Q1 2013, the fund highlights the revenue opportunity that exists in the industry for asset managers by targeting retail investors with alternative investment options. After all, the low interest rate environment has resulted in a demand for high-return investment options across the board, and it only makes sense for the financial giants to tap this potential. We wouldn't be surprised if competitors like Morgan Stanley ( MS ), Bank of America ( BAC ) and UBS ( UBS ) come up with similar investment options in the near future.

We maintain a $160 price estimate for Goldman's stock , slightly above the current market price.

See the full Trefis analysis for Goldman Sachs

As can be seen from the chart above, Goldman Sachs' asset management business contributes towards a small, but a definitely significant 7.5% of the investment bank's total value. The unit is an important part of the bank's overall business model, as it offers a stable source of revenue as opposed to its money-minting trading units which are highly volatile.

Goldman Sachs' foray into alternative fund options for retail investors with the launch of the Multi-Manager Alternatives Fund comes with several benefits. Firstly, there is no doubt there is a latent demand for high-yield products among retail investors, who remain largely underserved by the world's biggest asset managers. Secondly, as the manager of the hedge fund, Goldman Sachs can pocket a fee equal to 2% of the assets managed each year - a figure which is well above the 1.4-1.5% fee that is demanded by regular actively managed funds. And not to mention, a 20% share of the profits. And finally, Goldman will not need to put in a lot of additional effort towards the fund as it already does a lot of in-house research on alternative investment options.

What remains to be seen is how the market reacts to the offering over the coming months - something that will almost entirely depend on the performance of this fund. If it were to prove successful, then we should see more demand for similar funds from Goldman in the years to come - helping it amass more assets under GSAM.

Submit a Post at Trefis Powered by Data and Interactive Charts | Understand What Drives a Stock at Trefis

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

GS BAC MS UBS

Other Topics

Investing Stocks US Markets