Summer 2022
Issue No. 3
Alternatives Return Drivers
A di erent lens or port olio onstr
tion
The Energy Transition Trinity
A eleratin t e est or a orda le lean
and se re ener y
Preparing for the Rising Tide of Rates
Ne
a tors to onsider in private de t
The Macro Realities for Real Estate
o in lation rates and re ession present
ne ris s and opport nities
Life Sciences
nterin a olden era o innovation
Disruptive Technology
y in lation is ood or
siness
Asset Management Perspectives
INFLECTION POINTS
is nan ial promotion is provided y oldman a
s an
rope
SUMMER 2022 | ISSUE 3
IN THIS ISSUE
INFLATION
The portfolio construction
playbook that worked so
well in recent decades may
be less effective going
forward, forcing a re-think
in approach.”
06
Inflection Point: Risks and Opportunities
in a Changing Global Economic Order
12
Preparing for the Rising Tide of Rates
18
The Economy, Investing and Sustainability:
A Discussion with David Solomon and
Valentijn Van Nieuwenhuijzen
22
The Macro Realities for Real Estate:
How Inflation, Rates and Recession
Present New Risks and Opportunities
28
Drivers Wanted: Sources of Returns
in Alternative Investments
Page 7
“Mapping to historical
recessions is an easy enough
exercise; digging more
thoughtfully into how the
triggers of this hypothetical
recession would play out is
more challenging.”
Page 26
TECHNOLOGY
36
Disruptive Technology:
More Relevant than Ever
40
Digital Infrastructure
41
Life Sciences:
Entering a Golden Era of Innovation
Perspectives | 3
SUMMER 2022 | ISSUE 3
49
Growing Cyber Threats to Supply Chains
and the Potential Solutions
52
Staying Ahead of the Digital Curve
55
Robotics in Ecommerce
“Technology is allowing
investors to source and
underwrite pools of risk that
historically could not scale.”
Page 53
EVOLUTION
56
Beyond the Headline: Examining Recent
Dispersion in Growth Equity
61
Fundraising Frenzy: Managing Private
Market Manager Selection
66
The Energy Transition Trinity
72
Europe: Recovering to a New Regime
76
The March of the Women: Increasing
Diversity in Asset Management
84
lic fi
fit la
Investing in a New Era
4 | Goldman Sachs Asset Management
“In an industry that is
so familiar with
benchmarks, we think that
a benchmark approach to
diversity can help.
Page 78
Past performance does not guarantee future
results, which may vary. is material is provided
or ed ational p rposes only and s o ld not e onstr ed as investment advi e or an o er or soli itation
to y or sell se rities
ere is no arantee t at
o e tives ill e met
e e onomi and mar et oreasts presented erein are or in ormational p rposes
as o t e date o t is p li ation
ere an e no
ass ran e t at t e ore asts ill e a ieved lease
see additional dis los res at t e end
PERSPECTIVES AT A TIME
OF INFLECTION
I
nvestors today are a in several
in le tion points a s i tin ma ro
e onomi lands ape ne
eopoliti al
inter onne tions a elerations in t e
adoption o ne te nolo ies ei tened
sensitivity to s staina ility onver en e
and innovation in mar ets all on rontin
t eir port olios and people at t e
same time A ter e perien in years o
a ommodative s al and monetary
poli y investors no a e an n amiliar
environment
ere traditional approa es
and onventional pattern re o nition may
e o limited val e
At t e same time amidst t ese allen es
and a idenin dispersion o investment
o t omes investors sense t at t is ne
environment reates ne opport nities
in a orld re s aped y several on e in a
li etime events
ese are t e moments
ere investors need perspe tives o
e pansive readt and n s al dept
trian latin a ross p li and private
mar ets spannin all eo rap ies and
ima inin an array o s enarios e tendin
lon into t e t re
el ome to t e s mmer edition o t e
oldman a s Asset ana ement
erspe tives o r arterly ompilation
o insi ts rom o r more t an
investment and lient sol tions
pro essionals or in a ross
offi es
aro nd t e orld n t is edition e
Julian Salisbury
lo al o ead o oldman a
Asset ana ement
e plore o in lation is s apin investment
opport nities e amine ne tools or
eval atin port olios and s are ideas
on mana er sele tion e also loo at
te nolo i al disr ption parti larly
in t e onte t o di ital in rastr t re
li e s ien es y er se rity and re ent
developments in ro t e ity investin
And e onsider o mar ets are evolvin
over near term ori ons and a ross lon er
term trends to etter rame o investors
are preparin or tomorro
At oldman a s Asset ana ement
e apitali e on o r lo al reso r es
and ni e position at t e enter o
t e orld s apital mar ets to serve o r
lients e onne t t e private mar ets
and p li mar ets empo erin o r
investment teams to s are and de ate
ma ro e onomi perspe tives and
to et er re le t on t re t emes and
trends e se t e readt and dept o
o r alternatives and traditional investment
strate ies omplemented y t e s ale o
o r operatin apa ilities to desi n a ide
array o e e tive stomi ed sol tions
e re e ited to rin t ese insi ts
and sol tions to yo
e loo or ard to
ontin in o r dis ssions and e re rate l
or t e opport nity to or it yo n
lian
e
ar fi l
s
lo al o ead o oldman a
Asset ana ement
s
Perspectives | 5
SUMMER 2022 | ISSUE 3
INFLECTION POINT:
RISKS AND OPPORTUNITIES
IN A CHANGING GLOBAL
ECONOMIC ORDER
6 | Goldman Sachs Asset Management
Maria Vassalou is o
ie
nvestment ffi er o
lti
Asset ol tions at oldman
a s Asset ana ement
KEY TAKEAWAYS
•
a roe onomi onditions are
an in nterest rates and
in lation are risin Attra tively
pri ed assets are s ar e And
ro in eopoliti al nrest is
ma in t e orld less sta le
•
Navi atin t is ne reality de ned
in part y de lo ali ation ill
reate ris s and opport nities
and alls or an a tive investment
approa t at om ines p li and
private assets
•
nvestors s o ld prepare to
lean into lon term e onomi
trans ormation em ra e re ional
diversity and play de ense
reatively
The last several decades have been good ones for most
investors. Robust economic growth, relative geopolitical
stability, persistently low inflation and interest rates,
and supportive global central banks have translated to
strong portfolio performance with relatively low volatility.
T
oday t e orld is at an in le tion
point
e
D
pandemi
a elerated di iti ation a ross
many ind stries disr pted s pply ains
and elped spar demo rap i s i ts as
remote or e ame t e norm or many
pro essionals nterest rates are risin
to om at persistent in lation
ile
e onomies loo to se re s pply ains
and reverse de ades o lo ali ation
levated sensitivity to limate iss es is
sp rrin investment in de ar oni ation
and s staina ility
ile eopoliti al
insta ility as roiled ener y mar ets
and in reased overall n ertainty
ese
iss es are reatin mar et onditions and
demandin poli y pres riptions t at many
o today s mar et parti ipants mana ers
traders and even most poli yma ers ave
little e perien e it and are provo in
estions a o t
at t e orld ill loo
li e in t e de ades to ome
ile s pply disr ptions s o ld ease
as
D
related restri tions and
s orta es ade o t and t e ar in raine
ltimately rea es resol tion t ese
press res o di iti ation de lo ali ation
demo rap i s i ts de ar oni ation and
eopoliti al desta ili ation are li ely to
end re or some period o time leadin
to a rise in dispersion a ross vario s
dimensions and an in t e o tloo
or investors n t is ne environment
t e port olio onstr tion play oo t at
or ed so ell in re ent de ades may e
less e e tive oin or ard or in a
re t in in approa
e elieve a tive
mana ement and a dynami approa
to port olio onstr tion t at om ines
p li and private assets may elp provide
improved per orman e resilien e as
mar ets a e t ese disr ptions t at are
li ely to ave pro o nd e e ts on t e
orld e onomy
TIME TO ADAPT
n o r vie t e ollo in important
str t ral developments ill spar
pro o nd an es to t e lo al e onomy
it t e potential to alter t e tra e tory
o o ntries ompanies and t e ay e
invest ome are li ely to eep pri es i er
t an t ey ave een in re ent de ades
ereas ot ers ill ave de lationary
e e ts All ill enerate n ertainty and
ave t e potential to ontri te to an
elevated level o mar et volatility
Deglobalization: A partial s i t a ay rom
a orld in
i
oods people apital
and ideas lo reely a ross orders
e an e ore t e pandemi it it
pop list movements rom ot sides o
t e politi al spe tr m risin and o ntries
t rnin in ard em ra in in lationary
poli ies s
as tari s over ree trade and
restri tions on immi ration
e
and
rope ave in re ent years so
t to
restri t orei n investments parti larly
rom ina t at tar et t e a
isition o
te nolo y ompanies deemed important
to national se rity
e pandemi
a elerated some o t ese trends and
started ne ones or e ample s pply
disr ptions are e innin to en o ra e
ompanies to so r e materials lo ally
en
possi le and overnments are loo in or
ays to s pport prod tion o more oods
domesti ally to improve t eir o ntry s
e onomi resilien e t may sometimes e
possi le to divert prod tion lo ally at a
similar ost t er times it ill not
Digitization:
ile lo s o oods apital
and people ave slo ed trade in di ital
servi es is still on t e rise a trend t at
may o nter any in lationary press res
res ltin rom t e de lo ali ation pro ess
ports o omp ters and omm ni ation
servi es ave risen si ni antly sin e t e
early
s and ross order internet
Perspectives | 7
SUMMER 2022 | ISSUE 3
Whereas globalization
tended to reduce prices
for goods and labor as
capital flowed to the
lowest-cost producers, a
partial unwind would likely
increase them, leading
to potentially higher
medium-term inflation
than pre-2020.
Decarbonization: e move to ard reen
ener y is important or t e ealt o t e
planet and e e pe t e orts to move a ay
rom ossil els to a elerate
tt e
pro ess may also lead to i er in lation
at least in t e s ort r n
staina le ener y
prod tion still only represents a ra tion
o total demand and rin in additional
so r es online ill ta e time and si ni ant
amo nts o in reasin ly e pensive metals
and minerals
o rse t e need to
invest in reen ener y in rastr t re
8 | Goldman Sachs Asset Management
Explosive Growth of Cross-Border Data Flows; Global Digital Platforms
2,500
Terabytes per Second
2,000
1,500
1,000
500
0
2005
Non-US Share of Monthly Active Users (%)
and idt as ro n
times lar er
As o r ollea es at oldman
sin e
a s lo al nvestment Resear p t it
re ently lo ali ation may e slo in
in tan i le areas t a eleratin in
intan i les n t e
remote or in
as saved or ers time t at o ld
ot er ise ave een spent omm tin
t an no
e anneled into more
prod tive a tivities t at an elon ate
t e nat ral e onomi y le and lead to a
de reasin in lation environment t er
developments t at may ontri te to lo er
in lation oin or ard are t e advan e
o telemedi ine and ot er di itali ed
ealt are as ell as di ital ommer e
and t e rise o nan ial te nolo y
idespread di iti ation o
siness t e
rise o e ommer e and t e a tomation o
a tories are li ely to serve as de lationary
or es in t e lon r n it ene ts
a r in to rms a le to adopt and adapt
i ly to t e ne paradi m
2010
2015
2020
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Google
o r e ele eo rap y
e ser s ares are as o
Facebook
Instagram
Youtube
Twitter
insey ensor o er oldman a s lo al nvestment Resear
ar
or all servi es e ept or oo le
ne A
st
data
s o ld also e ood or t re e onomi
ro t and may present attra tive
investment opport nities
e s i t to more
s staina le orms o ener y ill also ta e
time to play o t
rope or instan e as a
stron in entive to a elerate onstr tion
o rene a le po er so r es in l din
ind solar and even reen ydro en
t
t e transition ill not appen overni t
And it may r n into eopoliti al road lo s
or instan e a s i t to more ele tri po er
ill si ni antly alter t e ommodity
lands ape and in rease t e importan e o
a and l o o ntries ri in opper ni el
and lit i m ome o t e riti al minerals
or ele tri ve i les and ele tri ve i le
atteries are on entrated in o ntries
it nsta le politi al re imes and s spe t
man ri ts re ords
Destabilization of the geopolitical order:
onomi and politi al allian es rarely
an ed m
in t e era o lo ali ation
ey loo li e t ey are an in no
A orld t at divides into lo s or
e ample t e
rope apan and
ot er developed o ntries on one side
and R ssia
ina ndia and ma or oil
prod ers on t e ot er is li ely to e one
in
i in lation r ns otter t an it as
in t e past
amples already e ist t e
Demographics: a or or e parti ipation
rates ave een de linin in developed
o ntries or some time as t eir
pop lations a e
t t e trend pi ed
p steam d rin t e pandemi as layo s
rose and many or ers ose not to
ret rn to t e la or or e as emer en y
stim l s payments temporarily s pported
t eir earnin s and ealt and ild are
on erns made t e ret rn to or more
allen in
e evolvin demo rap i s
and t e in reased a ility to or remotely
may an e ons mption patterns it
more people movin to more a orda le
se ond tier to ns and a ay rom i
pri ed and overpop lated i ities
e
importan e o illennial ons mers t e
ma ority o
om live in emer in mar et
e onomies is also a e tin ons mption
patterns it more o it movin online
IMPLICATIONS AND
THE NEW INVESTMENT
PLAYBOOK
Any o t ese in le tion points and t e
n ertainty t ey rin o ld lead to a
str t ral repri in o ris a ross asset
lasses or no
orporate earnin s
e pe tations are oldin p
t as
in lation ontin es to r n i and real
a es str
le to eep pa e some
ompanies are already str
lin to pass
on ost in reases to ons mers
i may
res lt in a reset o orporate pro ta ility
it ne ative impli ations or e ity pri es
levated in lation n ertainty d e to t e
drivers o tlined a ove leads to elevated
monetary poli y n ertainty and possi ly
on e a ain to red ed poten y o entral
an poli y as it relates to a ievin t eir
in lation tar etin and an orin in lation
e pe tations aro nd
e ederal
Reserve and ot er entral an s ere a le
to s pport ris assets sin e t e
lo al
inan ial risis y providin ample li idity
and en ineerin nan ial repression on t e
a o an in lation rate t at nevert eless
ontin ed to r n persistently elo t e
tar et rate eir tas no is ar more
ompli ated as some o t e or es t at eep
in lation elevated today s pply disr ptions
and soarin ener y and ot er ommodity
pri es are eyond poli yma ers ontrol
et t eir redi ility depends on t eir
a ility to re an or in lation e pe tations
and doin t at it a ressive monetary
ti tenin r ns t e ris o pl n in t e
e onomy into re ession and red in t e
attra tiveness o ris assets
LEANING INTO THE SILVER
LININGS
As t e environment and onditions
aro nd s an e e need to an e o r
investment approa
it t em
at is
important in t is pro ess is also to re o ni e
t at ere t ere is an e and p eaval
t ere are opport nities
Deglobalization, for
instance, will likely widen
the gap between winners
and losers, which can
create opportunities
for active investment
managers. Every cloud
comes with a silver lining,
and we can certainly see
several in the current
environment.
Inflation Likely to Stay Elevated in 2022
12%
Q4 2022E (%Y/Y), GIR, 1 month ago
Q4 2022E (%Y/Y), GIR, Latest 7/7/22
Q4 2021 (%Y/Y)
10%
Expectation for 2022 Inflation
(Q4 2022 vs. Q4 2021, %Y/Y)
ar in raine and s eepin san tions on
R ssia y t e o ntries in one lo ave
red ed t e s pply o ener y and ot er
ommodities in l din metals salts ood
and ertili er potentially leadin to ood
s orta es in developin o ntries a in
ommodity s pplies o t o t e mar et over
prolon ed periods o time s
est t at
some o t e temporary omponents o
in lation ill e ome more persistent Ne
allian es may also reate a more n ertain
environment t at ei s on ons mer and
orporate on den e and possi ly an es
overnments s al spendin priorities
amples may in l de in reases in de ense
spendin or more s pport or domesti
ind stries
is mi t res lt in i er
ta es and more overnment orro in
potentially s ellin overnment de t
levels in some o ntries and p s in
interest rates i er
8%
6%
5.5%
4.9%
4.6%
4%
1.7%
2%
0%
World
U.S.
Eurozone
China
o r e
lti Asset ol tions oldman a s lo al nvestment Resear
oldman a s and loom er
ly
e e onomi and mar et ore asts presented erein ave een enerated y oldman a s
As o
Asset ana ement or in ormational p rposes as o t e date o t is p li ation
ey are ased on proprietary
models and t ere an e no ass ran e t at t e ore asts ill e a ieved
Perspectives | 9
SUMMER 2022 | ISSUE 3
Free Trade or Optimal Trade?: A allmar
o lo ali ation in re ent de ades as
een t e em ra e o n ettered ree trade
t is o ever no
idely a epted t at
lo ali ation as not spread its ene ts
e ally
en it omes to individ als or
e onomies ide e e ts ave in l ded
risin in ome and ealt ine ality a
ollo in o t o t e middle lass and t e
ompartmentali ation o prod tion and
lo al s pply ains res ltin in red ed
levels o prod tivity and innovation A
side e e t o t is pro ess as een t e
in reased spe iali ation o e onomies
i in t rn made t em less resilient to
e onomi s o s ver on entration in
one ind stry an rt a o ntry s ind strial
diversity ma in it less a le to it stand
e ternal s o s and eat er re essions
D rin t e lo al inan ial risis t e
o n ed a more i ly t an t e
e ro area t an s in lar e part to a more
diversi ed e onomy a partial roll a
o lo ali ation elps s i t t e o s rom
n ettered ree trade to optimal trade
e elieve e may see some lon term
ene ts as more e onomi and ind strial
diversity may ontri te to more ro st
e onomi ro t and sta ility over
time
en t e ne t s o
omes more
e onomi ally diverse o ntries s o ld e in
a etter position to a sor it 2
Deglobalizing the Supply Chain:
lo ali ation as also reated an
in reasin ly lo al s pply ain o ten
it ea individ al omponent o a ood
prod ed in di erent o ntries aro nd
t e orld A s i t to ard reater domesti
prod tion and more lo ali ed s pply
ains may ell raise pri es in t e s ort
to medi m r n not least e a se it o ld
ta e time or o ntries t at previo sly
relied on lo
ost o ntries or ey parts
o t e prod tion pro ess to ild t eir
o n ost effi ient prod tion apa ilities
to repla e t em
t t is pro ess may also
rin o t syner ies as a s ared pool o
la or and te nolo y an oster rt er
innovation or instan e s illed la or it
te nolo i al e pertise in one ind stry
may e a le to apply its no led e to
anot er ind stry it in t e same e onomy
oosts in innovation and prod tivity
are ard to a ieve
en prod tion is
10 | Goldman Sachs Asset Management
spread o t a ross t e lo e e nolo i al
innovation may also spill over into ot er
ind stries somet in t at is less ommon
in i ly spe iali ed e onomies Anot er
potential ene t may e a partial roll a
in t e level o lo al in ome ine ality
t at as ro n it lo ali ation
ile
a tomated la or ill not disappear a less
lo ali ed s pply ain o ld li ely raise
demand or domesti la or parti larly
in developed o ntries t at ave relied
eavily on lo er ost emer in mar et
la or n t e s ort term t is too o ld p t
p ard press re on pri es n t e lon er
r n it may elp to raise livin standards
more roadly it a orrespondin
in rease in e onomi ro t
ven
t e s pply ain or mi ro ips and
semi ond tors r ial omponents o
ey te nolo ies or nations aro nd t e
orld may event ally see some s pply
ain diversi ation t o
t is pro ess
may e len t y and s stit tions may in
some ases t rn o t to e imper e t
The Rise of Tier 2 Cities: ven e ore t e
pandemi e an
sinesses ere a tively
relo atin to ier
ities it lo er
ta es more a orda le real estate and
or employees t e opport nity to stri e
a etter or li e alan e oday it
part or ll time remote or e omin
mainstream many o t ese ities are li ely
to t rive
i may lead to investment
opport nities in real estate in l din ne
m lti and sin le amily d ellin s and
in rastr t re
A PUBLIC-PRIVATE
APPROACH
nvestors may e a le to apitali e on
trends li e t ese y em ra in a olisti
strate i vie t at loo s or opport nities
a ross mar ets mat es reso r es and
oals and
en appropriate ses a
t emati rat er t an an asset lass spe i
lens e elieve some o t e trends t at
mar ets a e s
as a partial p ll a
rom lo ali ation and a s i t to ard reen
ener y may est e a essed t ro
private alternatives s
as private e ity
in rastr t re and real estate ot
residential and ommer ial t ers s
as t e ro t o t e nan ial te nolo y
ind stry t e di iti ation o ealt are and
ot er se tors and t e ro in orporate
and investor o s on s staina ility s
est
opport nities or p li e ity strate ies
t at loo eyond en mar s to nd
ompanies in t ne it ey se lar ro t
trends om inin private and p li assets
an also allo investors to ta e potential
advanta e o di erentials in val ation
ro t opport nities and a ess lendin
t e t o tends to reate omplementary
e pos res and may ive investors more
opport nities to add val e y e ploitin
s ort term pri in dislo ations
e elieve it may e elp l to t in
a o t port olio onstr tion in t e onte t
o a e
road investment t emes and
t eir asso iated ris s as spe i asset
allo ation de isions ill vary idely
dependin on investment oals reso r es
or ani ational restri tions and ot er
a tors n o r vie t in in in t emes
rat er t an asset lasses may elp ide
investors optimal lend o e pos res
needed to etter a ieve t eir ret rn and
ris o e tives
Lean into Long-Term Economic
Transformation: ompanies ot p li
and private t at o s on ne and
trans ormative te nolo ies resear and
ind stries may elp to orever an e t e
pat o e onomi ro t and o it is
distri ted
ey may also a ord investors
opport nities to ain e pos re to a potential
ne e onomy and a more diversi ed
stream o ret rns in l din t ro
early
sta e and vent re apital investments
rac
i al i r ificati
A an in lo al e onomy ill a e t
di erent o ntries and re ions in di erent
ays
e
or e ample as een a
ma or ene iary o lo ali ation it
assets o tper ormin in re ent years
at o tper orman e may ell persist
t
a s stained reversal o lo ali ation o ld
reate se mentation a ross apital mar ets
and li ely in rease t e ene ts o re ional
diversi ation ome re ional distin tions
may e arder to tease o t espe ially
in emer in mar ets nders orin t e
importan e o partnerin
it diverse
mana ers t at ave a presen e on t e
ro nd in m ltiple lo ations aro nd t e
orld and a stron nderstandin o o
re ional politi s and mar ets or
Factor in Structural Limitations and
Resource Constraints: very investor
is di erent A lar e orporate pension
nd s asset allo ation pro ess ill di er
materially rom t at o a o ndation
ins ran e ompany or vent re apital
rm or or ani ations it a len t y
and omple pro ess a tin
i ly is
not al ays possi le or t ese investors
reatin a dedi ated opport nisti sleeve
in t eir overall allo ation may elp t em
a t more i ly
en mar ets are volatile
and opport nities s ort lived t ers may
ant to revisit some aspe ts o t e overall
approval pro ess or t ose t at annot
e e te t eir o n opport nisti trades it
may ma e sense to o tso r e t at n tion
e elieve doin t ese t in s e e tively
amid a an in investment lands ape
and t e repri in o investment ris ill
re ire an a tive investment strate y as
ell as a olisti approa t at sees p li
and private assets as omplementary
omponents in a ell diversi ed port olio
e elieve t is approa a ords investors
t e est opport nity to apitali e on
innovation in rease ris ad sted ret rn
potential and navi ate port olios t ro
t re storms n
o r es
2.
oldman a s lo al nvestment Resear
lo al onomi s omment s t e orld
De lo ali in
lo ali in or Ne ali in As
o April
Ramey
and Ramey
ross o ntry
viden e on t e in et een olatility and
ro t Ameri an onomi Revie
and edia R
addad and
a aly
Resilient ta le
staina le
e
ene ts o
onomi Diversi ation trate y
ormerly oo
ompany
Play Defense Creatively: t may e time
to reima ine t e ay e t in a o t t e
de ensive omponent o overall asset
allo ation
e need to dedi ate a portion
o any port olio to de ensive assets or
strate ies on t an e
t in today s
an in and allen in investment
environment
ere lo in lation allin
interest rates n ettered ree trade and
eopoliti al sta ility are no lon er t e
norm t e type o assets or strate ies
investors se to play de ense mi t
De ensive se tors today or e ample
may e ate ori ed as domesti a in
and relatively more ins lated rom lo al
s pply ain disr ptions as ell as ost
inp t and la or in lation
Perspectives | 11
SUMMER 2022 | ISSUE 3
PREPARING FOR
THE RISING TIDE
OF RATES
Stephanie Rader is a mem er o
t e lient ol tions and apital
ar ets team at oldman a s
Asset ana ement
12 | Goldman Sachs Asset Management
KEY TAKEAWAYS
•
yo t a tivity as risen to re ord levels it
transa tions in reasin ly a ed y levera ed loans
t at eat re loatin rates
•
As t e interest e pense rises on loatin rate de t it
represents additional in ome and an in lation ed e
or reditors t an in reased ost to t e nderlyin
ompany at a time
en inp t pri es are risin
n a re ate sponsor a ed ompanies are ell
positioned to a sor t e impa t o risin rates o ever
investors s o ld nderstand o to assess potential
areas o ea ness it in t eir port olio
As rates ave e n to rise investors and orro ers ave ne
a tors to onsider stemmin rom t e loatin rates asso iated it
most private de t prod ts
ile loatin rates provide additional
in ome or investors t ey also represent an in reased ost to t e
nderlyin ompany at a time
en inp t pri es are risin
it
in lation and rates in erently interlin ed
How are leveraged loans priced?
Almost All New Loans Reference SOFR
$70bn
loatin rates are esta lis ed sin a re eren e rate
pl s a spread Re eren e rates are repri ed at a re lar
interval o ten in l din a loor t en added to t e
pre determined spread to al late interest payments
preads ave ran ed rom
ps over t e last
de ade or levera ed loans a in
yo ts it
narro er spreads or lar er deals
e ondon nter an
ered Rate
R istori ally
oi e
ta i
pro le
as een t e re eren e rate o
s andal as prompted a ide s ale s i t to an alternative
Ne levera ed loans ere pro i ited rom sin
R
as o year end
t o tstandin loans are allo ed
to maintain
R re eren es ntil ne
ile
t ere are several re eren e rates to oose rom t e
e red verni t inan in Rate
R as e ome
t e pre erred metri ommandin
mar et s are in
an ary
as t e mar et made a rapid re latory
ind ed move rom
R
R is reported on a daily
asis it t e rate ompo nded to al late one or
t ree mont erm
R
i is sed to pri e loans
ile t e mar et remains ndamentally n an ed t e
s i t as re ired some an es or e ample most loans
no in l de a redit spread ad stment e a se
R is
a ris ree rate nli e
R
Loans Tied to LIBOR
Loans Tied to SOFR
$60bn
New-Issue Institutional Loan Volume
•
yo t a tivity as rea ed npre edented levels in re ent
years d e in lar e part to relatively eap and readily
availa le de t nan in
i levera e levels ave een
mana ea le it rates at istori ally lo levels
t many yo ts
are a ed y loatin rate levera ed loans it investors
optin or t e le i ility t at private redit an o er ompared to
traditional de t prod ts a trend t at as on display d rin t e
disr ptions o t e pandemi At t e same time many investors ave
een dra n to private redit in a sear
or yield
ile interest rates
ere at istori ally lo levels
$50bn
$40bn
$30bn
$20bn
$10bn
$0bn
Sep-21
Oct-21
o r e evera ed ommentary
t ro
an ary
Data
Nov-21
Dec-21
Jan-22
D Data e l des add ons Data
Perspectives | 13
SUMMER 2022 | ISSUE 3
3.0%
SOFR
2.5%
2.0%
1.5%
1.0%
0.5%
0%
Jan-22 Jul-22 Jan-23 Jul-23 Jan-24 Jul-24 Jan-25
o r e
oldman a
s
ar
ee As o
ne
The Backstop Provided by Private Equity Sponsors
0.40%
RHS
LHS
4.0%
0.35%
3.5%
0.30%
3.0%
0.25%
2.5%
0.20%
0.15%
0.10%
2.0%
Sponsored
bonds
outpeform
0.05%
1.5%
1.0%
0.5%
Sponsored bonds
underpeform
0%
0.0%
-0.05% Jan-20 Jul-20 Jan-21 Jul-21 Jan-22
o r e i o
ed ed As o
oldman a
ne
s lo al nvestment Resear
-0.5%
Ret rns are rates
The Distress Ratio Continues To Hover Around 2.5% As The U.S.
Default Rate Remains Low
12%
Distress Ratio
Default Ratio
90%
80%
10%
70%
8%
60%
50%
6%
40%
4%
30%
20%
2%
10%
0%
o r e evera ed ommentary
14 | Goldman Sachs Asset Management
1 month ago
0%
Data
D As o
ne
Distress Ratio By Par Amount
astly t an s to stron alan e s eets e ity s ions and re ent
re nan in s de a lt rates are at istori ally lo levels
ile de a lts
are some at a
ard loo in distress ratios a more or ard
loo in indi ator also remain m ted ven i t e e onomy slo s it s
li ely t at de a lts ill remain relatively lo in t e near term
1 week ago
20
0
20 3
2004
0
20 5
0
20 6
2007
0
20 8
0
20 9
2010
1
20 1
1
20 2
2013
1
20 4
2015
1
20 6
1
20 7
2018
1
20 9
20
20
2021
22
e ond virt ally every levera ed loan orro er too advanta e o
lo rates in re ent years and re nan ed As a res lt no levera ed
loans are mat rin in
and t e amo nt omin d e in
as
allen y a o t t ree
arters sin e t e start o
ile more
diffi lt to anti y a s set o rms ill ave tili ed interest rate
ed in to miti ate risin rates Additionally many orro ers also
li ely too advanta e o attra tive s ap rates over t e last year to
term o t a si ni ant portion o t eir loatin rate de t Re nan in s
are still easi le in today s mar et it spreads remainin relatively
lo
t t ey ave started in in p and istori ally ave idened
d rin periods o nan ial stress s
as
Spot
CCC-Rated Bonds
irst alt o
de t levels in yo ts may e elevated so are e ity
s ions or ne deals e ity as represented ro
ly
o t e
p r ase pri e in re ent years ompared to a o t
in
it val ations at istori ally i levels t e e ity s ion serves
as a
er to lenders i asset pri es all ompanies it i
yield
de t an imper e t pro y or t e levera ed loan mar et ave
orti ed t eir alan e s eets d rin t e avora le environment o
re ent years it as to asset ratios at de ade i s
rt ermore
private e ity sponsors ave a re ord amo nt o apital to deploy
servin as a allast to invest more e ity i needed to se re
additional redit nan in
is ass med ndin and li idity
a drop is one potential reason
y sponsored onds ave tended
to o tper orm in periods o ea er ma ro ris appetite
3.5%
B-Rated Bonds
e daily
R rate no t e main re eren e rate or levera ed
en t e ederal Reserve raised rates
loans s r ed in mid ar
or t e rst time sin e
ile t e move rom ps to a o t
ps is relatively lar e t e rate remains lo on an a sol te asis
parti larly
en ompared to t e spread omponent o levera ed
loans
t t e e pe tation is t at rates ill ontin e to rise rom
ere it t e mar et pri in in
R to rea a ran e o
in
t e omin years 2 e rise in rates omes as de t sed in yo ts
as risen to istori ally i levels at
DA 3 leadin some
mar et ommentators to dra parallels to t e yo t oom and
st o t e mid
s
ile ertain metri s today appear similar
to t at period t ere are ndamental di eren es and in a re ate
ompanies are ell positioned to a sor t e impa t o risin rates
or several reasons
Reference Rates Have Increased Sharply in 2022 and Are Expected
to Rise Further
Jan-22 Jul-22 Jan-23 Jul-23 Jan-24 Jul-24 Jan-25
LTM $ of Defaults/ Total Outstanding
CURRENT ENVIRONMENT
Unlike Prior Downturns, Distress Is Likely to Come from NonCommodity Sectors
RISING RATE STRESS TEST
Broadcast Radio and Television
Leisure
April
March
February
Publishing
Utilities
Automotive
Healthcare
Oil and gas
Telecommunications
Home Furnshings
Retailers (other than food/drug)
o r e evera ed ommentary Data
D
or i
Represents se tors it an inde s are o
5%
10%
Distress Ratio
15%
ompanies a ility to pass alon t e in reased interest e pense to
stomers to alan e t e in reasin denominator is al ays limited
t t at is parti larly t e ase in t e rrent environment as
in lationary press res ave already driven p la or and material
osts irms an olster
DA y introd in ne prod ts
and servi es it more attra tive mar ins a allen e in an
in lationary environment As a res lt t e only miti ation availa le
to mana ement teams a in as lo
allen es ill e to nd
ost red tion else ere
A evera ed oan nde
er As o ay
EBITDA Addbacks
DA is t e pre erred metri or pri in
yo ts and a in
a ompany s as lo availa le to repay de t
t t e metri
is s s epti le to s e tivity Add a s are e penses t at are
e pli itly removed rom t e nan ials it ertain add a s
easily ate ori ed as one time osts e transa tion osts
ile ot ers e nonre rrin operatin are less tan i le
e p rpose o add a s is to provide a more a rate
vie o t e assets typi al operations
t t is also opens an
opport nity or misleadin a o ntin pra ti es
An analysis y
lo al ar et ntelli en e
i
provides data on t e de t mar et o nd t at mar etin
DA in l din add a s enerally does not provide a
realisti indi ation o
t re
DA and t at ompanies also
onsistently overestimate de t repayment
ese ndin s
ave real impli ations or investors as
DA o ten serves as
t e asis or al lations o levera e and nan ial ealt
e pl rality o add a s in re ent years ave ome rom
e pe ted ost savin s
i may e parti larly ard to
a ieve amidst ei tened in lation As a res lt rms t at
ave istori ally relied on mar in e pansion rat er t an top
line ro t to drive ret rns may en o nter allen es in t e
rrent environment
EBITDA Addbacks Have Risen in Recent Years
70%
Company Pro Forma
Reported LTM
60%
Average Addacks/EBITDA at Inception
0%
ile si ni ant near term stress seems nli ely i t e e onomi
slo do n orsens or e tends or a meanin l period o time
ertain ompanies ill inevita ly en o nter str
les Risin ra
material osts and la or rates ave already translated into i er
pri es or ons mers and are startin to impa t pro ta ility
parti larly in ompanies it i ener y or transportation
e penses Rate in reases are no also p ttin press re on mar ins
it i er interest e pense or ompanies it relatively i
de t loads investors are payin lose attention to t e interest
overa e ratio
DA interest e pense as a ey metri to
eval ate repayment a ility
50%
40%
30%
20%
10%
0%
o r e
2015 2016
2017
2018
lo al ar et ntelli en e As o
2019 2020 6-yr avg
e r ary
Perspectives | 15
SUMMER 2022 | ISSUE 3
tress in prior y les as enerally een on entrated in ommodity
t t e ma ro a drop ma es t at less li ely
se tors li e ener y
today e ompanies rrently s o in t e most ea ness are
in le a y se tors li e road astin and p lis in
i
a e
lon term str t ral allen es De t loads are rrently i er
or te nolo y yo ts at
ompared to
or t e roader
mar et and t at se ment no a o nts or a re ord i
o
t e yo t mar et i er ro t prospe ts or te nolo y an
sti y i er val ations and levera e parti larly or ompanies
it stron as lo pro les t ro
ontra ted reven e
Re ardless o t e se tor o ever di erentiation as een on t e
rise et een rms as t e operatin environment as ro n more
allen in
roa tive mana ement teams ave already ta en steps
to prepare or ead inds
ile ea er operators ill a e mo ntin
allen es to as lo s and operations
e nolo y as een a ma or t eme in t e yo t spa e not only
as an investment
t also as a means o en an in e istin man al
pro esses and ineffi ient models
e pandemi as a elerated
t is p enomenon in noti ea le ays in l din tele ealt remote
or and onta tless orderin and e o t e nolo y is
also ein deployed to streamline a offi e operations a ross
ind stries in l din lo isti s and nan e
e om ination o
m ltiple in lationary press res ill li ely sp r rt er o s on t e
implementation o de lationary te nolo y sol tions and may in a t
an e t e al l s aro nd t e apital investments re ired today
Rising Rates Have an Immediate Impact on Company Financials
Old Regime
New Regime
ompany al e At
A
isition
DA
Annotations
sin a re ate ind stry statisti s
or a yo t deal
ltiple
e enerate a eneri pro le
DA
evera e sed
e amo nt o levera e remains n
an ed as rates rise
evera e sed
nterest
Re eren e Rate
e re eren e rate is e pe ted to rise rom istori ally lo levels
ile t e re eren e rate e
remains onstant or t e loan
pread to Rate
nterest
Ann al
pense
R may
an e t e spread
e interest e pense in reases as t e re eren e rate rises
a Rate
a es
i
nterest overa e
arnin s de line
Interest/
Reference Rate
o r e
oldman a
s Asset
es t e ta
rden
i er interest e pense res lts in a lo er interest overa e
ratio and earnin s n t is e ample ape is ass med to e ity
depre iation i
mar in sinesses it t e a ility to e pand
ape are ell positioned to o tper orm
arnin s
ct
er interest e pense red
i
r
t
t r
t at
Interest Coverage
l
Earnings decline
ana ement or ill strative p rposes only
16 | Goldman Sachs Asset Management
Companies can work to control interest
expenses by refinancing or issuing new
equity, but that takes time. As rates
rise, it has an immediate impact on the
interest coverage ratio of every company
regardless of the underlying operations.
n t e ot er side o t e e ation on e t e loan terms are lo ed
t e interest e pense is di tated y o mar et or es move t e
re eren e rate ompanies an or to ontrol interest e penses y
re nan in or iss in ne e ity
t t at ta es time As rates rise
it as an immediate impa t on t e interest overa e ratio o every
ompany re ardless o t e nderlyin operations ome a o
t e envelope mat
ased on a re ate ind stry data ill strates
t e potential impa t o risin rates on interest overa e ratios
and earnin s
nterest overa e ratios rrently are stron on an a re ate asis
it t e avera e a ove
eadin into
oans a in
levera ed yo ts ave lo er interest overa e at
t t at
is istori ally i
or t e o ort sin t at as a aseline t e
ill strative e ample s o s t at interest overa e ratios remain
a ove even i rates rise to
i is possi le iven rrent
ore asts
ile t ese data points an e reass rin investors need to loo
res to nderstand o t eir port olio oldin s
eyond eadline
are positioned
e ottom artile rrently as interest overa e
o a o t
istori ally t is is a stron
re rom t e ottom
tier o ompanies
t t ese sinesses ave little i le room as
mar ets s i t ndeed t e res lts rom t e a ove s enario analysis
are m
di erent i a startin interest overa e ratio o
is
sed n t is ase earnin s t rn ne ative and t e interest overa e
ratio drops elo
as rates rise rom
to
n addition to ein a elp l metri to a e a ompany s a ility to
repay de t t e interest overa e ratio an e in l ded as a ovenant
on a loan ovenants in eneral ave e ome m
less ommon
it ov lite loans no representin nearly
o t e mar et
nder ov lite loans lenders still ave re o rse
en orro ers
en o nter diffi lties
t only
en t e iss er ta es ertain
orporate a tions e ne de t iss an e a
isition dividend
payment no in
ere loans sit in t e apital sta is also
important as t e proportion o rst lien loans as risen in re ent
years leavin less o a
er or s ordinated de t
Dispersion in performance is likely to rise
as weaker operators encounter cashflow
challenges and refinancing deadlines.
D rin t e pandemi lenders s o ed a i de ree o le i ility
y rantin ovenant relie on an npre edented n m er o loans
in
i
as led orro ers to t rn to t e strate y in
as mar et volatility as risen and stalled t e p li i
yield
mar et any private lenders ave yet to e perien e a more severe
or prolon ed do nt rn t at reates real stress in t e mar et
o ever As a res lt many private redit rms may nd t ey la t e
e pertise and reso r es to mana e t ro
a ompli ated or o t
or an r pt y pro ess
THE BOTTOM LINE FOR INVESTORS
yo t a tivity and sponsor a ed ompanies appear to e in
t all else e al risin rates detra t rom earnin s
ood ealt
i impa ts val ations even in private mar ets
ere mar
to mar et moves are slo
ort olios need to e analy ed at t e
ompany level to nderstand e pos res to spe i se tors re ions
lient ases and ot er a tors t at an lead to relative stren t
and ea ness o at er a ll pi t re investors s o ld nderstand
o
eneral artners are al latin levera e and assessin ris at
ot t e asset and nd level
n
DA add a s ertain aspe ts o nder ritin and val ation
an e some at s e tive nvestors s o ld nderstand t e
ass mptions t at are ein made
en loans are nder ritten
and added to port olios parti larly as t e ma roe onomi
environment presents more ead inds and n ertainty Dispersion
in per orman e is li ely to rise as ea er operators en o nter
as lo
allen es and re nan in deadlines
e most allen ed
ompanies ill e t ose it little s ort term pri in po er t at
are a in a r n
rom a ressive overa e ratios and too m
relian e on add a s
ile ein saddled it too m
de t
A ross private mar et strate ies levera e is in reasin ly ein
em edded at t e nd level via apital all lines and NA a ilities
Despite mar et onditions
yo t a tivity as remained at elevated
levels And
ile traditional de t apital mar ets ave dried p
amidst eavy investor o t lo s private redit mana ers ave a
re ord amo nt o dry po der to deploy rivate e ity mana ers
ave proven t eir a ility to move nim ly to pivot ompanies and
e e t an es as mar et onditions an e
ile private redit
o ers le i ility and t e stomi ation needed amidst n ertainty
oin or ard s ess in t e yo t mar et ill stem rom a
o ndation o t o
t l nder ritin t at onsidered t e potential
or ot i er rates and lo er ro t an a ility to navi ate
potential periods o diffi lty and t e nim leness to pivot and adapt
sinesses to ta e advanta e o te nolo i al advan ements to
drive ot top line reven e and ottom line pro ta ility n
o r es
2.
3.
e ederal Reserve an o Ne or As o
oldman a s ar ee As o ay
evera ed ommentary Data
D As o
oldman a s lo al nvestment Resear
oldman a s lo al nvestment Resear
lo al ar et ntelli en e
DA Add
e r ary
D As levera e tops
or e
yo ts
As o April
D As o an ary
ay
ar
As o ay
As o ay
a s ontin e o ta
itter itri oin nan in
As o
e e
Perspectives | 17
SUMMER 2022 | ISSUE 3
THE ECONOMY, INVESTING
AND SUSTAINABILITY:
A DISCUSSION WITH
DAVID SOLOMON
& VALENTIJN VAN
NIEUWENHUIJZEN
18 | Goldman Sachs Asset Management
David Solomon, Chairman and CEO of Goldman Sachs, recently sat down with
Valentijn van Nieuwenhuijzen, CIO of NN Investment Partners and global head of
Sustainability for Public Investing at Goldman Sachs Asset Management. Their
conversation covered a range of topics, from the state of the global economy,
recession risks and the geopolitical landscape, to the growing importance of
sustainable investing and the background of Goldman Sachs’ acquisition of NN IP.
is is an edited trans ript o episode
o t e
ar et al pod ast
ne
n ase o dis repan ies et een t e pod ast and t e trans ript t e spo en ord prevails
Perspectives | 19
SUMMER 2022 | ISSUE 3
David Solomon
Chairman and CEO of Goldman Sachs
David is airman and ie
e tive ffi er and a mem er o t e
oard o Dire tors o
e oldman a s ro p n
revio sly e as resident and ie peratin
ffi er and prior
to t at e served as o ead o t e nvestment an in Division
rom
to
e ore t at David as lo al ead o t e
inan in ro p
i in l des all apital mar ets and derivative
prod ts or t e rm s orporate lients e oined oldman a s
as a partner in
rior to oinin t e rm David eld leaders ip roles at rvin
ompany Dre el rn am and ear tearns
r st
David is airman o t e oard o r stees o amilton olle e and
serves on t e oard o
e Ro in ood o ndation e also serves
on t e oard o r stees o Ne or res yterian ospital
David earned a A in oliti al
ien e rom amilton olle e
Valentijn van Nieuwenhuijzen
CIO of NN IP and Global head of
Sustainability for Public Investing at
Goldman Sachs Asset Management.
alenti n van Nie en i en is t e ie nvestment ffi er or NN
staina ility or
nvestment artners and lo al ead o
li
nvestin at oldman a s Asset ana ement
rior to e omin
alenti n eld t e role o
ie trate ist and
ead o
lti Asset rom
to
and rom
to
e as
ead o trate y it in
lti Asset e is a ey spo esperson or t e
ompany and appears re ently at lient events and in t e media
alenti n earned a
Amsterdam
in
onomi s rom t e niversity o
Valentijn van Nieuwenhuijzen: ne o t e ey aspe ts o yo r
role as t e leader o oldman a s is to e very lose to lients
yo spea to lients ri t no in t is environment
at is t e
temperat re
at are t e ey topi s t at t ey tal a o t and
at
are yo tellin t em
David Solomon: e i est o s as yo
o ld e pe t is on t e
e onomi environment it a parti lar o s on in lation t e
o rney o t o t e pandemi and o t at o rney is a e tin
e onomi ro t and a tivity ere s a lot o de ate aro nd
monetary poli y and o t at ill a e t t e demand side o t e
e ation and t e demand side o e onomi a tivity And t ere s also
a lot o dis ssion a o t s pply ains and t e disr ptions on t e
s pply side o t e e onomy and o t at s oin to et resolved
o ld say t at road topi is t e n m er one o s
en yo re o t
tal in to lients
et er it s
s or it s
s or it s instit tions
roadly or individ als ertainly iven
at s oin on in raine
and
at s oin on in t e relations ip et een ina and t e
est t ere s also a lot o o s on eopoliti s and t e impa t o
eopoliti s
ose o ld e t e i pi t re ma ro topi s t at are
ettin an a
l lot o attention
van Nieuwenhuijzen: A lot o lients are still loo in or idan e
are still loo in or
at s oin to appen in t e ne t
to
mont s a ead
at are yo tellin t ese lients s it even possi le
to ive t em lear idan e in t e rrent environment
Solomon: ell t ere s a lot o n ertainty and don t t in e re in
a position to tell t em
at s oin to appen
t t in e an
empat i e it t e a t t at t ere s a lot o n ertainty o t t ere
e try to tal a o t t in s t at e re t in in a o t e re a i
mana er o ris
e re a i mana er o assets And
en yo ave
an environment
ere n ertainty in reases iven
at s oin on
in t e ma ro environment yo ave to e t in in a o t yo r ris
appetite di erently
eople may need to e pe t t at t e orld is oin to e more
volatile and it s oin to e more diffi lt to ma e ret rns on assets
t an
at e ve e perien ed
en monetary poli y as easy e re
ti tenin monetary poli y at s oin to ave an impa t on asset
pri es t s oin to ave an impa t on demand o t in yo ave
to e prepared or t at volatility and t e impa t o t at volatility
m not oin to predi t any o t ome
t ertainly e re oin to
operate it ti ter e onomi onditions and t at ill ave some
very dire t and predi ta le onse en es
van Nieuwenhuijzen: rope s een very lose to t e latest tension
it t e ar in raine
at s yo r t in in a o t t e ropean
ontinent and o to loo at t at in terms o its prospe ts s it part
o t e roader n ertainty t at e st dis ssed or are t ere some
spe i
ropean elements t at need to e ta en into a o nt
Solomon: rope is a i part o t e lo al e onomy and t e
is oin to ontin e to e a i part o t e lo al e onomy t in
t ere s no estion t at t e ar in raine is or in a ret in on
ertain orei n poli y positions t at a variety o
o ntries ave
ta en
et er it s aro nd se rity ener y s pply or ood s pply And
so t in t at ertainly t ere s a re sort o t e eopoliti al lands ape
20 | Goldman Sachs Asset Management
t at s or in
rope to t in more are lly no
y t e ay it s
or in t e
to t in more are lly a o t a variety o t in s too
t it s st loser to ome and a little it more ampli ed in rope
parti larly iven rope s dependen y on ener y rom R ssia
i pi t re t e
ill ontin e to e a very very important part
o t e lo al e onomy
t t ere s a reater an e o e onomi
ead inds slo in do n e onomi a tivity in rope in t e near
term t an t ere is in t e
or e ample And so t in e ve ot to
at t at very are lly t in t e an e o a re ession in rope
is i er t an t e an e o a re ession in t e
an t predi t
at t at per enta e an e is
t iven everyt in t at s oin
on t in t ere are ead inds to ro t ere t at are a little it
more prono n ed t an in t e
t o
t ere are ead inds to
ro t in t e
too
van Nieuwenhuijzen: o on rope and t e pro a ility o an
e onomi slo do n an yo ela orate a it more on at yo t in
really drives t at
ere are learly some ris s on t e ori on
t y
is rope in a more ra ile position in yo r opinion t an t e
Solomon: e i t in t at t in in reases t e pro a ility o a
re ession in rope is t e s i ts t at are oin on it respe t to
ener y s pply
rope is as e all no very dependent on R ssian
ener y iven t e ar in raine t ere s a ret in o all o t at and
t at s oin to reate disr ption And it s also very in lationary
as it also p s es pri es p and it a e ts t e demand side m
not predi tin t at it a sol tely ill appen t s st t at ener y
press re
i is s
an important part o a e tin t e demand
side is st more a tely disr pted ere e a se o t e pro imity to
t e on li t in R ssia and raine
van Nieuwenhuijzen: oo in
rt er a ead eyond t e near term
allen es
ere do yo see some opport nities and
at e ites
yo rom a siness perspe tive
Solomon: e re see in to inte rate s staina ility prin iples into
o
e operate and invest and in line it o r val es o erin a
ider ran e o sol tions to elp lients meet t eir s staina ility
re irements and address t eir ni e needs At oldman a s
e re very o sed on t e allo ation o apital to a elerate a
limate transition
t e re also on entratin on investments
t at sp r e onomi ro t and ene t so ieties more roadly to
ens re a st transition or e ample e ve la n ed a pro ram
in t e nited tates alled ne illion la
omen
i aims
to improve t e e onomi prospe ts and opport nity set or la
omen t ro
D
n o investment ommitted over a
de ade ot oldman a s and NN
ave really interestin
s staina ility initiatives and e an no onne t and reate ot er
ne opport nities to et er t s a reat e ample o one pl s one
ein
ort more t an t o
van Nieuwenhuijzen: omet in t at is really inspirin is earin
yo tal a o t o to develop t e or ani ation and o to develop
t e people in t e or ani ation o emp asi e t e importan e o
ein a t enti and ollo in yo r passion And ein very visi le
as t e
o oldman a s it is very visi le t at yo also ave a
passion or m si A lot o people mi t onder o yo an even
nd t e time or t at
Solomon: ve al ays loved m si and it s one o my passions avin
t in s t at yo re interested in and ant to invest yo r eart and
rain in t in ma es yo a more interestin person and eeps yo
stim lated elieve it s important t at yo nd ays to do t at
t ro
o t t e o rney o yo r li e ve learnt t at t ere are times
en yo an ollo yo r passions more t ere are times en yo
an do it less t at o rney evolves
t yo s o ld al ays old t e
t in s dear t at are important to yo and nd ays to parti ipate to
a ess t em ere are di erent ays t at yo an ma e t at appen
and it s important to
re o t on yo r o n at or s or yo n
Solomon: At oldman a s e ontin e to invest in and
stren t en o r sinesses and e eel ood a o t t e pro ress
e re ma in Asset mana ement is one area
ere e see real
opport nity to ro and t at s one o t e reasons
y avin NN
e ome part o oldman a s is somet in
e re very e ited
a o t A ross oldman a s e re set on ro in t e rm and
diversi yin t e d ra ility o o r reven e ase e re e ited a o t
t e opport nity e see in ront o s and e ill eep o r lients
interests ront and enter as e move or ard
ere s a lot oin
on in t e orld
t ltimately e ta e a lon term approa to
ro in and stren t enin t e rm
van Nieuwenhuijzen: staina ility is a massive opport nity
and is somet in t at really e ites s at NN
t s one o t e
trans ormational or es t at e see r nnin t ro
t e investment
ind stry and more roadly it s s apin t e e onomi evol tion
at
are t e ne t steps in t e investment ind stry s s staina ility o rney
Perspectives | 21
SUMMER 2022 | ISSUE 3
THE NEW
MACRO
REALITIES
FOR REAL
ESTATE:
HOW INFLATION,
RATES AND
RECESSION
PRESENT NEW
RISKS AND
OPPORTUNITIES
22 | Goldman Sachs Asset Management
Nora Creedon is a ort olio
ana er and lient trate ist
or Real state investin at
oldman a s
KEY TAKEAWAYS
•
e risin tide or all environment
in real estate seems to ave ended
li ely to e ollo ed y a period o
more n ertainty and dispersion
•
Real estate as istori ally
provided a stron in lation
ed e
t t e orollary o
in reasin rates and t e loomin
t reat o a re ession represent
o nter alan in on erns
•
tr t ral an es are leadin
to s i ts in demand or di erent
types o real estate p ttin a
premi m on assets it inelasti
demand n a i ly an in
ma ro environment real estate
investors need to o s on
diversi ation and nderstandin
a port olio s nderlyin drivers o
ret rn and so r es o ris
T
raditional isdom s
ests in lation
an e a riend to real estate imply
stated rents re pri e and e istin
assets appre iate in val e as onstr tion
osts rise
t on t e eels o one o t e
most rapid in reases in in lation in
years
t e t eory o real estate as an in lation
ed e is ein p t to t e test n response
to in lationary press re interest rates ave
moved steeply o t e post pandemi lo s
in many mar ets
i is less riendly to
real estate
r in in lation as led entral
an s to ards more a ressive ti tenin
parti larly in t e
and rope
i
o ld potentially tri er a re ession or at
least an e onomi slo do n Asian mar ets
may ene t rom a more dovis interest
rate environment
t t e re ion ill
ontend it ot er ma roe onomi ris s
A ter more t an a de ade o a ndantly
availa le apital de linin interest rates
and improvin as lo s or almost all
property types aro nd t e orld ear o a
an in ma ro environment is palpa le
lo al listed real estate s are pri es
ave de lined nearly
t is year and
transa tion a tivity in many private mar ets
as ta en a pa se
e elieve a ne investment re ime or
real estate as e n
e risin tide
or all environment seems to ave ended
li ely to e ollo ed y a period o more
n ertainty and dispersion Real estate
ret rns over t e ne t de ade ill li ely
e ome more dispersed
i s o ld also
o er more alp a opport nities lo ally
ree de ates are ormin t e ne
RRs
o real estate o
ill i er in lation
impa t di erent se tors o real estate
at
appens as interest rates rise and o
ill
real estate per orm in a re ession
THE NEW "IRR" REALITIES:
INFLATION, RATES,
RECESSION
Inflation
Real estate as istori ally provided
a stron in lation ed e ey to t is
is t e a ility or landlords to re pri e
rents p ard i er onstr tion and
materials osts t eoreti ally in rease t e
repla ement ost o e istin assets
ile
also restri tin ne s pply
i tends to
eep rents i
Additionally real estate is
enerally nan ed it de t
i means
o ners an se in lated dollars in t e t re
to pay o today s lia ilities
istori al analyses o se tor per orman e in
di erent in lationary environments interest
rate re imes or re essionary periods o t e
past may e o limited se in predi tin t e
t re e nolo y demo rap i
an e
and s staina ility are se lar s i ts t at
are alterin t e ate o real estate any
pandemi ind ed an es in t e or
environment ave proven to e end rin
alt o
pre eren es are diver in in
di erent parts o t e orld astly t e pat
o interest rates in ea developed e onomy
is ni e
e end res lt varian e in real
estate per orman e is li ely to e ome even
more prono n ed in t e years to ome
ile istory an e a elp l ide
in lation omes in many orms ome
in lationary press res s
as t e ood
and ener y pri e s o s stemmin rom
t e ar in raine and lo do ns in ina
may prove s orter lived
t rom a ertain
vanta e point it an seem t at in lation is
s r in d e to m ltiple lon term drivers
in l din e tended e pansionary monetary
poli y d rin t e pandemi and possi ly t e
early sta es o de lo ali ation
i may
not e resolved so i ly any e onomists
t s ar ave ta en a more san ine vie
o sin on t e de eleration in se ential
meas res o ore personal ons mption
e pendit re
in lation
t
a no led e t at po ets o in lation ill
li ely persist o etter assess t e potential
e e ts o in lation real estate investors
s o ld o s on t ree spe i
omponents
rents la or rates and materials
n o r vie real estate is positioned to
play an even more important role in lient
port olios in t e midst o t e evolvin
ma ro onditions iven t e a ility o
many types o property to eat er a so ter
e onomy and provide a ed e a ainst
in lation ven it road tail inds e
elieve investors still ave t e a ility
to e on t e ri t side o t e se lar
trends in te nolo y demo rap i s and
s staina ility as international dynami s ill
di er vastly n s ort t e oppier aters
a ead all or a more n an ed strate y t at
i e e ted properly an potentially res lt
in more alp a ased ret rns
e rst onsideration is t e impa t on
in ome rom an es in ommer ial rents
and s elter rates nli e a ond it a
ed o pon many orms o real estate
an e perien e a relatively i re
pri in o rents to li t as lo s alon side
in lation
e s orter t e lease d ration
t e more i ly rents an e repri ed
lti amily leases avera e nder a year
and pri es ave een lim in steadily
sin e in lation too old nitially driven y
a re o nd rom pandemi level rent ts
t e s stained in rease in o sin osts
no re le ts a si ni ant s pply demand
im alan e
r in ome pri es and i er
Perspectives | 23
SUMMER 2022 | ISSUE 3
Multifamily Rents Have Risen Sharply Alongside Broader Inflation
40%
Asking Rent Annual Rate Change
35%
Zillow
Apartment List
Average
REIS
Costar
Q4
Q1
Census
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
Q1
Q2
Q3
Q2
2019
o r e
illo
Apartment ist R
ostar Department o
mort a e rates ave om ined to ma e
ome o ners ip more diffi lt reatin
a parti larly attra tive a drop or
m lti amily rental investin As in rents
ave de elerated rom t e pea in mid year
t remain si ni antly i er t an
pre
D
t er s ort d ration areas in l de sel
ere leases an repri e on a
stora e
mont ly asis and otels
i
ene t
rom rents t at literally repri e every ni t
nd strial assets ave lon er leases t are
e perien in stron demand t e lar est
p li ompany in t e spa e elieves t ere
is a
p ard mar to mar et in its
lo al port olio
e se ond in lation area o o s is la or
i impa t ot t e ost to develop
rates
ne assets and on oin operational
e penses n t e
t e rrent ap
et een availa le o s and or ers is t e
idest in post ar istory and is li ely to
eep p ard press re on a es n any
ind stry i er a es typi ally translate
to mar in ompression and indeed e are
o servin or ard earnin s estimates ein
red ed or many e ity se tors n real
estate o ever several asset types operate
it relatively li t la or re irements
and o ners are in reasin ly attemptin
24 | Goldman Sachs Asset Management
Q3
Q4
2020
ommer e
oldman a
s As o
Q1
Q2
Q3
2021
Q4
Q1
2022
ar
to a tomate or se te nolo y or la or
intensive roles or e ample many landlords
are permanently transitionin to eat res
t at ere introd ed d rin t e pandemi
s
as onta tless
e in at otels and
sel
ided apartment to rs As mar ets
remain ti t real estate is relatively etter
positioned to maintain mar ins as la or and
ot er varia le operatin osts remain lo
ere may even e a real estate opport nity
to servi e less
ilt mar ets t at are
ene tin rom in reasin
a es
e t ird ey in lation omponent is t e
ost o onstr tion materials it many
ate ories s r in to re ords in
amid
s pply ain iss es and in reased demand
i er osts an e o set it i er rents
in some ases
ile ot er pro e ts simply
ail to ma e sense on paper istori ally
i er development osts ave served to
s pport real estate val es as repla ement
osts in rease and additional s pply is
averted
t real estate investors need
to monitor ey materials mar ets losely
as s i ts may re ire ne ass mptions
or development
lo ali ation trends
do indeed reverse it o ld lead to
str t rally i er material osts or t e
oreseea le t re
ile a ead ind to
ne onstr tion e orts t is o ld present
promisin opport nities in ind strial
development as more man a t rin is
ro
t a on s ore
Despite enerally avora le positionin
i er in lation is not a niversal
y
si nal or real estate
e i est and most
o vio s ris is in lon term leases it
lo
ed rate in reases or even orse no
rental rate in reases
ese eat res ere
a epta le
en in lation as mild and
reas ry yields ere depressed
t t ey
pose a t reat in t e rrent environment
Rents in offi e mar ets may eep pa e
it in lation
t t at o ten omes it
ommens rately i
apital e pendit res
and tenant improvement dollars
i
means less o a net in lation ed e to
o ners e ave seen remar a ly stron
otel rates in leis re and resort properties
t today t ere are more overnors on
pri in po er t an ever e ore as travelers
ene t rom real time pri in data and
re oo in options as ell as alternative
options li e Air n t at didn t previo sly
e ist otels also arry some o t e i er
la or ost omponents amon real estate
asset lasses
i a ain l nts t e
ottom line to o ners
ertain lon term leased assets or la or
intensive leis re properties may still
per orm ell despite t e allen in
a drop Ne ly developed offi e ildin s
it top o t e line s staina ility eat res
are still i ly so
t a ter in mar ets
ere or rom ome is less attra tive
A re overin otel asset in a mar et
servin ons mers loo in to spend t eir
i er a es it proa tive mana ement
installin la or savin ro oti s
ere
possi le o ld ene t rom an in
mar et dynami s And i str t red it o t
any e pos re to risin e penses a triple net
leased asset i e
ere t e tenant pays all
e penses in l din ta and maintenan e
to t e ri t redit o ld e an opport nity
n addition to di erentiation et een asset
types nan in osts aro nd t e lo e
are diver in
i is rt er impa tin
ret rns rom similar assets
e overridin
t eme is dispersion it a ei tened
importan e or t e spe i
ara teristi s
and operatin per orman e o ea asset
it many e onomists e pe tin t e pea
o in lation to e near t e s se ent
de eleration is anti ipated to e led y ore
oods e
sed ars ele troni e ipment
ile o sin osts are e pe ted to
remain elevated
is o ld e onsidered
a oldilo s s enario or real estate
eadline in lation t at moderates eno
to slo interest rate in reases t s
ests
pri in po er or real estate assets
Core PCE Inflation Is Expected to Decline by the End of 2022
GS Forecasts
May 2022
End 2022
End 2023
End 2024
Weight
YoY
YoY
Contribution
to Change
YoY
Contribution
to Change
YoY
Contribution
to Change
Core PCE
100.0
4.7
4.2
-0.5
2.5
-2.1
2.3
-2.4
Core Goods
27.6
5.5
2.6
-0.8
-1.6
-1.7
-0.6
-1.5
-2.0
-0.3
-0.3
New Vehicles
Used Vehicles
-0.3
-0.3
-0.2
Household Appliances
0.0
0.0
-0.1
0.0
0.0
-0.1
0.0
0.0
0.0
0.0
0.0
0.0
Video, Audio,
Computers
2.3
Recreational Vehicles
-3.2
3.2
3.2
Jewelry, Watches
Clothing & Footwear
3.3
3.3
0.3
-0.2
0.3
-0.2
Pharma & Medical
0.0
-0.2
-0.1
0.0
Pets Products
0.0
3.3
0.0
0.0
0.0
-2.3
0.0
0.0
Expenditures Abroad
0.2
-2.2
Residual Core Good
Core Services
-0.3
72.4
4.4
Housing
4.7
0.2
3.9
-0.6
0.0
-0.6
-0.4
3.3
-0.8
0.2
-0.1
-0.2
0.0
0.0
0.0
Air Transportation
-0.3
-0.3
Food Services &
Accommodation
-0.3
-0.3
Financial Services &
Insurance
0.3
0.3
0.2
Ground Transportation 0.3
-0.3
Medical Services
0.0
0.2
Foreign Travel
0.0
-0.1
Residual Core Services
-0.2
o r e oldman a s lo al nvestment Resear as o ay
e ran e o olors represent t e dispersion et een t e n m ers
presented erein are or in ormational p rposes as o t e date o t is p li ation
ere an e no ass ran e t at t e ore asts ill e a
dis los res at t e end o t is p li ation
3.2
-0.1
-0.4
e e onomi and mar et ore asts
ieved lease see additional
Perspectives | 25
SUMMER 2022 | ISSUE 3
This could be considered
a “Goldilocks” scenario
for real estate—headline
inflation that moderates
enough to slow interest
rate increases but
suggests pricing power
for real estate assets.
Interest Rates
e rea o t in in lation as een met
it a steep rise in interest rates in t e
as t e ederal Reserve ed attempts
to rein in pri es
e yield on
year
reas ries as more t an do led d rin
to appro imately
today
and erman
year onds ave also
moved dramati ally i er al eit at lo er
nominal levels
is ris ree rate is a
ey omponent in t e dis o nt rate t at
is t eoreti ally sed to pri e all assets
in l din real estate Real estate val ations
are o ten oted in ap rates or t e yield
at t e time o property p r ase
i
an
e ompared to yields on onds As a res lt
many investors ass me t at ap rates m st
in rease it interest rates t ere ore
de reasin real estate val es
t t e data
tell a di erent story
nt e
some periods o ed ti tenin
over t e last
years e perien ed ap rate
e pansion
ile ot ers sa ompression
learly t e ro t o tloo plays a
ma or role
t apitali ation rates are
in l en ed y orei n apital lo s as ell
rt ermore real estate per orman e at
t e s se tor level as diver ed more t an
ever today it di erent asset types avin
ndamentally di erent ro t prospe ts
ven as interest rates in rease or e ample
residential and ind strial real estate o ld
see val ations e pand d e to str t ral
tail inds
e asset s lease d ration is
anot er ey a tor as t e a ility to in rease
as lo s an miti ate t e potential
ne ative impa t o risin rates on ap rates
Real estate o ners an also levera e ot er
tools s
as te nolo y and investment
apital t at an ave a meanin l impa t
on t e as lo o t omes o a property
e most dire t impa t o risin rates
ill e to in rease orro in osts
i
ave already in reased a ross t e oard
in re ent mont s All else e al t is ill
ave a ne ative impa t on ross ret rns a
star reversal rom t e stron per orman e
tail ind rom lo rates sin e t e nan ial
risis
t as dis ssed a ove e see no
asis or movin ap rates at a ed spread
to reas ries and e elieve in reased
per orman e dispersion is li ely amon
asset types se tors and eo rap ies as t e
ris ree rate moves i er e also note
t at lar e pools o apital raised or private
real estate dry po der
ave s pported
real estate val ations over t e last several
years a dynami t at may ontin e i
investors reallo ate some apital o t o
ed in ome and as in t e omin years
The Relationship Between Cap Rates and Interest Rates Is Inconsistent
12%
Strong Correlation
2,400
Weak Correlation
2,200
10%
2,000
9%
1,800
8%
1,600
7%
1,400
6%
1,200
5%
1,000
4%
800
3%
600
2%
400
1%
200
0%
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
o r e oldman a s lo al nvestment Resear R A reenstreet
R
arterly
year treas ry data provided in t is p li ation represent t e rate at t e end o ea
t e arit meti avera e o t e offi ial daily rates As o De em er
26 | Goldman Sachs Asset Management
arter
rior to
t e
arterly data as al
lated y sin
Spread (bps) 10 Year UST
Private Market Cap Rates
11%
Spread Between 10 Year and Cap Rates and Yield
10 Year UST*
ffi e ap Rate
U.S. All Property Types Cap Rate
U.S. Apartment Cap Rate
U.S. Hotel Cap Rate
U.S. Industrial Cap Rate
Recession
e nal ma ro reality to ontend it
today is t e in rease in re ession ris s
ile t e near term li eli ood o a
re ession in t e
remains lo
iven
ro st la or onditions mar et implied
ris s ave een on t e rise As a res lt
investors need to in orporate re essionary
onditions into t e do nside s enario
en
nder ritin ne investments appin
to istori al re essions is an easy eno
e er ise di in more t o
t lly into
o t e tri ers o t is ypot eti al
re ession o ld play o t in real estate is
more allen in
or e ample m lti amily
and ospitality are o ten ass med to
e o tper ormers in an in lationary
environment
t t at does not old
tr e in a re ession
ere o losses and
spendin restri tions e ome important
a tors onversely lon term leased assets
to ood redits
i
o ld are orse in
an in lationary environment are li ely to
per orm est in a re ession
ne area e e pe t o ld per orm
relatively ell are assets in s pply
onstrained mar ets it demand t at is
not e onomi ally sensitive in ot er ords
assets it inelasti demand t at li ely
ill ave some pri in po er ne s
mar et o ld e li e s ien es real estate
n a re ate t e entire li e s ien es real
estate mar et in t e
is still only aro nd
mm s are eet and
ile t ere are
no n diseases only
are
rrently ein medi ally treated a ordin
to t e lar est p li ompany in t e spa e
Resear and development investment into
disease treatment as istori ally een
airly ins lated rom t e e onomi y le
Residential o sin as also istori ally
proven airly de ensive it relatively s ort
and s allo e onomi do nt rns ime ill
tell
at parti lar allen es t e ne t
re ession ill old
t it is li ely several
orms o real estate ill prove resilient
istory to e a per e t ide
ese t ree
ma ro a tors ill ave impli ations
or one anot er
it i er in lation
and rates tri erin re ession si nals
and onversely in reasin re ession
si nals potentially stemmin rate i es
t slo in ro t does not e ate to
e onomi ontra tion and many lo al
e onomies remain in redi ly resilient
nderneat all t e ma ro ris s ore
t an any ot er time in t e last de ade
e elieve investors need a n an ed real
estate strate y to position t emselves or
more alp a opport nities as dispersion
in reases
ile in lation an e a riend
to real estate t e est riend to a real
estate port olio is alan e or olsterin
t e a ility to o tper orm re ardless o t e
ma roe onomi environment n
Future Implications
Real estate as an asset lass as many
attra tive eat res in a i er in lationary
environment
t t e orollary o in reasin
rates and t e loomin t reat o a re ession
represent o nter alan in on erns
ese ma ro a tors de ne t e ne
RR
a tors in real estate and e don t e pe t
o r es
2.
Re nitiv
rolo is
ay
earnin s all
Perspectives | 27
SUMMER 2022 | ISSUE 3
DRIVERS WANTED:
SOURCES OF
RETURN IN
ALTERNATIVE
INVESTMENTS
Dan Murphy is t e ead
o port olio sol tions or
Alternatives apital ar ets
trate y at oldman a s
Asset ana ement
28 | Goldman Sachs Asset Management
Juliana Hadas o ses
on port olio sol tions or
Alternatives apital ar ets
trate y at oldman a s
Asset ana ement
Michael Hillman is a mem er
o t e Alternative nvestments
ana er ele tion ro p
at oldman a s
Asset ana ement
KEY TAKEAWAYS
•
Alternative investment
strate ies an provide a ess to
di erentiated so r es o ret rn
i
an e roadly onsidered in
t o ate ories alternative eta
a tors and alp a so r es rom
mana er s ill
•
ese distin t ret rn drivers
rat er t an a sin le illi idity
premi m may e plain t e
istori al per orman e o private
mar ets strate ies
•
ie in ed e nd strate ies
t ro
t e lens o t eir
nderlyin ret rn drivers an elp
tailor port olio onstr tion or
spe i port olio sol tions
ort olio onstr tion strate ies and
te ni es are e omin in reasin ly
sop isti ated Asset o ners and
mana ers are see in to etter nderstand
t e spe i ret rn drivers and e pos res o
t eir investments an approa t at an elp
de ne ea investment s strate i port olio
role and positionin a ross di erent
mar et re imes Alternative investments
in parti lar private mar et and ed e
nd strate ies an ene t rom a more
ompre ensive nderstandin o t eir
nderlyin ret rn drivers a o t ese
asset lasses en ompasses a ide variety
o strate ies it e pos res to di erent
ret rn drivers ome o t ese ret rn drivers
an also e a essed in traditional e ity
and ed in ome mar ets ot ers may e
str t rally ni e to alternatives oo in
eyond t e asset lass la el t ere ore
an ena le etter di erentiation and
port olio positionin or instan e one
port olio onstr tion approa
o ld e to
emp asi e alternative strate ies t at o er
e pos re to t e most diversi yin ret rn
so r es relative to t e port olio s traditional
assets Anot er approa mi t o s on
strate ies it t e reatest potential ret rn
impa t iven t e investment or ani ation s
reso r es and availa le opport nities
onsideration an also e iven to ret rn
drivers t at may e espe ially val a le in
parti lar mar et re imes
PRIVATE MARKETS
A ro in ody o resear
as s o n
t at private mar et strate ies ave
istori ally o tper ormed p li assets
over a variety o time rames and not
simply d e to di eren es in levera e
se tor or style omposition ompared to
t e most appli a le p li en mar s
op per ormin mana ers ave enerated
o tper orman e meanin lly i er t an
t e ind stry in a re ate 2
eadlines o ten attri te t is
o tper orman e to an illi idity
premi m e elieve o ever t at t is
o tper orman e is t e res lt o e pos re to
a set o distin t di erentiated ret rn drivers
ese an e onsidered in t o ate ories
alternative eta a tors and alp a so r es
Alternative eta a tors are systemati
e pos res to ompensated ris in areas
ed e
o t e mar et it lo or no orrelation
it road mar et dire tion Alp as are
s ill ased sit ation spe i
and i ly
dependent on t e s illset o t e investment
mana er ese e pos res an drive ret rns
and provide diversi ation to traditional
p li e ity and redit ret rn drivers
Traditional Beta Exposures in Private
Markets
e ore delvin
rt er into t e diversi yin
so r es o ret rn it is important to
a no led e t at private mar et strate ies
ave eta e pos res to traditional mar et
a tors as ell orporate and real asset
e ity and redit trate ies vary in t eir
de ree o sensitivity to t ese a tors and
in t e effi ien y it
i t ey an ain
e pos res to t em ompared to p li
mar et strate ies or instan e ot
private and p li e ity strate ies o er
e pos re to orporate e ity eta
t t is
e pos re is more effi iently a essi le in
p li mar ets deployment is immediate
monitorin osts are enerally lo and
e e tive e pos re is readily availa le via
lo
ost
s n t e ot er and real
asset e ity eta may e tar eted more
e e tively in private assets as p li real
asset se rities are dominated y road
e ity eta or instan e sin e
R s
e ame a omponent o t e
nde
t ey ave ad a orrelation o
to t at
inde
is is do le t eir pre in l sion
3
s
estin t at a
orrelation o
meanin l idiosyn rati ris and ret rn
omponent as een s s med y t e
mar et dynami s o mana ers it road
p li e ity mandates investin in and
mana in t eir R
e pos res similarly
to ot er e ities in t eir port olios and
mind l o tra in error to t e road
mar et inde
Accessing Diversifying Sources of Return
ese alternative eta a tors and alp a
so r es are not o nd ni ormly a ross
individ al strate ies ome s
as
str t ral s pply demand im alan es
t at a e t t e ost and availa ility o
nan in permeate t e road set o
private mar ets strate ies al eit to
di erent de rees t ers are enerally
limited to a smaller s set o strate ies
nds and ot er alternative investments are only s ita le or sop isti ated investors meetin t e appropriate nan ial
ali
ation and a reditation standards
Perspectives | 29
SUMMER 2022 | ISSUE 3
Alternative Beta Factors
PRIVATE MARKETS DIVERSIFYING SOURCES OF RETURN—A FRAMEWORK
Private Capital
Beta
apitali in on str t ral im alan es et een t e s pply and demand o apital m alan es an
arise rom an o tri t s ar ity o p li apital or instan e or early sta e ompanies or rom a
pre eren e or private nan in
ompanies may pre er private apital despite its i er ost relative
to p li apital e a se it as lo er indire t e administrative and re latory osts and e a se
it provides reater ertainty o e e tion and visi ility into pri in
e ormer may elp e plain
y
ompanies ave een oosin to stay private or lon er over t e past t o de ades
ile t e latter
an elp e plain
y ompanies are in reasin ly t rnin to private lenders
Innovation,
Secular Trends,
Population Shifts
nvestin in ompanies and assets t at apitali e on lon term t emes trends se tors and
ile typi ally asso iated it vent re and ro t strate ies t is eta eat res
demo rap i s i ts
more roadly amples in l de yo t strate ies a in mat re ompanies adaptin to in reasin ly
te nolo y ena led paradi ms and real asset strate ies providin real estate and essential servi es
or t e e onomy o t e t re
Tailored Capital
Solutions
ptimi in apital str t res and spe i ris ret rn parameters aided y t e str t ral advanta es
o a simpli ed str t re it a sin le or e o ners or lenders or e ample redit sol tions are o ten
tailored to t e parti lars o t e orro er s sit ation and may e str t red to eat re ot do nside
miti ation and pside parti ipation provisions
Alternative Risk
Premia
Derivin val e rom e pos re to ris premia it little or no sensitivity to overall mar et dire tion or
instan e spe ialty nan e strate ies are levera in data s ien e to nder rite an in reasin ly road
and omple set o redits rom rail ars and s ippin ontainers to intelle t al property li e media
ontent and p arma e ti al royalties
Alpha Sources
Insight
o r in identi yin and e e tin on individ al investments t at o tper orm t e roader niverse
ile present a ross strate ies t is alp a may e parti larly important or strate ies it t e
reatest idiosyn rati omponent o ret rns ent re apital and distressed are t o e amples
Capital Flexibility
ivotin opport nisti ally and i ly providin
temporary asymmetries in s pply and demand
e amples o t is alp a so r e
Complexity
val atin str t rin and reali in val e rom omple idiosyn rati sit ations or rom assets
it spe ialty or omple nderlyin ollateral An e ample is a ildin onstr tion loan eat rin
provisions aro nd delayed dra s interest reserves interest rate aps and ot er terms
Operational
Expertise
A eleratin val e reation o port olio assets via initiatives to drive sales ro t operations
effi ien y and ot er aspe ts
is alp a so r e is e omin an in reasin ly prominent part o ret rn
eneration a re ent st dy as o nd t at reven e ro t rat er t an t e e e t o levera e relative
to p li mar ets as een t e lar est driver o val e reation o post
private e ity nds
Network Effects
evera in t e investor s net or o relations ips it ot er investors ompanies and val e add
is s ill is
operators to so r e opport nities and reate val e or port olio ompanies and assets
parti larly prominent amon vent re apital and ro t e ity investors
o levera e net or s o
ot investors and operational and talent e perts and amon val e add and opport nisti real asset
investors
o partner it operatin and onstr tion or ani ations or asset development
30 | Goldman Sachs Asset Management
apital sol tions in times o dislo ation or o
rnaro nd and opport nisti strate ies are lassi
ri at
trat
i
a
i
r
tA
t
r t
t
tial Alt r ati
ta act r a
Al
a
Alternative Beta Factors
Real
Assets
Private
Credit
Private
Equity
rivate
apital
eta
nnovation
e lar
rends
op lation
i ts
ailored
apital
ol tions
rc
Alpha Sources
Alternative
Ris remia
nsi
t
apital
le i ility
omple ity
perational
pertise
Net or
e ts
yo t
ro t
ent re apital
Distressed
rnaro nd
enior orporate redit
e anine
pe ialty inan e
Real Asset enior redit
Real Asset
nior redit
Real Asset ore
ore l s
Real Asset al e Add
Real Asset pport nisti
tron est ositive
o r e
oldman a
s Asset
pos re
imited
pos re
ana ement or ill strative p rposes only
pos re to some so r es an e o tained
in ot p li and private strate ies
t
may nd di erent e pressions et een
t e t o or instan e all a tive strate ies
ave t e potential to enerate alp a rom
insi t
t private e ity strate ies ave
an e panded set o opport nities to oose
rom as t e niverse o private ompanies
as e panded
ile t e niverse o
p li ompanies as ontra ted over t e
past t o de ades imilarly ompanies
apitali in on innovation are o nd in ot
p li and private mar ets
t t ose in t e
earliest most innovative i est ro t
p ases o t eir tra e tory are almost
e l sively privately nded
t er e pos res may e str t rally
parti lar to or si ni antly more e e tive
in private mar ets
is is parti larly t e
ase amon a tors t at rely on ontrol
over t e investment s
as tailored
apital sol tions and operational e pertise
o r in is also a i er omponent to
alp a eneration in private mar ets as
y de nition private opport nities are
not easily visi le to all And t e type o
omple ity nderta en y ertain private
sit ations may ar e eed t e amo nt
t at p li mar et investors o ld e
om orta le it
e e ess ret rn potential or a iven
strate y is not simply a n tion o t e
s m o its a tor e pos res pos res
di er y t e ma nit de o t eir potential
ret rns t e si e o t e opport nity and
t e onsisten y it
i t ey may e
availa le a ross t e mar et y le ertain
so r es o ret rn may e more val a le
in spe i environments ome o t is
may e int itive or instan e alternative
ris premia e ome more val a le
en
orrelations et een traditional e ity and
redit e pos res rise apital le i ility and
operational e pertise e ome more riti al
levers o val e reation and potentially
a sta ili in or e in re imes o reater
stress and mar et volatility t er dynami s
may e nder appre iated or instan e
private apital eta may o er investors
a steadier ay to navi ate an n ertain
mar et environment Re ent resear
as
o nd t at private e ity o ners s pport
o port olio ompanies t ro
do nt rns
a
translates into lo er osts o distress
ompany does en o nter distress a sin le
lender s o ld e etter positioned to or
alon side t e ompany s o ners to e e t
effi ient modi ations and or o ts
ompared to a roader syndi ate o lenders
it potentially ompetin interests n
addition periods o mar et volatility ma e
t e ertainty o e e tion asso iated it
private apital more val a le to ompanies
see in nan in
i
an translate into
a reater premi m in t e ost o apital
e e ess ret rn potential o e pos res
to t ese ret rn drivers also varies reatly
a ross mana ers it in ea strate y
istori al dispersion a ross nds in a iven
strate y o ers idan e as to t e impa t
t ese so r es may ave A orollary is t at
mana er sele tion and a ess to s perior
mana ers are riti al a tors in private
mar ets port olio onstr tion and an
in l en e t e set o strate ies t e investor
may oose to o s on
Exposures differ by the magnitude of their potential
returns, the size of the opportunity, and the consistency
with which they may be available across the market cycle.
Perspectives | 31
SUMMER 2022 | ISSUE 3
Dispersion of Returns by Quartile from Median IRR
i t rical ri at
ar
t
trat
i
t r
i
r i
a
r
i a c a t t
act
t r
ri
r
+30%
+20%
+10%
Median
-10%
-20%
-30%
Venture
Capital
Growth
Buyout
Distressed
Real Estate
Subordinated Senior Debt
Credit
Real Estate
Capital
Value-Add Opportunistic Opportunities
o r e
am rid e Asso iates as o
Net o ee Ret rns or ea strate y represents t e avera e o t e dispersion a ross nds o vinta e years
vinta e nds are onsidered too yo n to ave meanin l per orman e d e to t e e e t o t e per orman e
rve Past performance does not guarantee
future results, which may vary.
inally t e impa t o some o t ese so r es
may vary y t e ve i les in i t ese
strate ies are a essed or instan e nds
o nds mana ers an enerate ret rns
in e ess o t ose rom t e median sin le
nd mana er it t e est per ormin
onstit ent nds rin in p t e avera e
a ross investments o ever nds o nds
may not o tper orm t e i est per ormin
sin le nd mana ers diversi ation a ross
m ltiple nderlyin
nds elps miti ate
do nside ris at t e e pense o dil tin t e
pside impa t o top per ormin port olio
onstit ents e ondary ve i les may
o er t eir o n e pos res to a n m er o
diversi yin so r es o ret rn a ove t ose
o ered y t e nderlyin investments as
se ondary rms ave evolved to e ome
providers not st o li idity t o espo e
apital sol tions to nd mana ers and
investors omple ity and tailored apital
sol tions are t o s
ret rn drivers
HEDGE FUNDS
imilar to private mar ets a are lly
onstr ted s ill ased ed e nd port olio
may introd e parti lar n orrelated
so r es o ret rn to an asset o ner s
port olio And li e private mar ets ed e
nd ret rns an e separated into distin t
32 | Goldman Sachs Asset Management
omponents eta e pos re to traditional
and alternative ris a tors and alp a
enerated rom mana er s ill Alp a s ill
ased ret rns are t e ret rns enerated
in e ess o
at is e pe ted iven t e
ile not
ris s ta en to enerate t em
asso iated it any ommon ris a tors
ed e nd alp a an e se mented ased
on t e approa es sed to enerate it
is
yprod t o mana er s ill is enerally
vie ed as t e most desira le omponent o
a ed e nd mana er s ret rn and it t e
re ent elevated levels o mar et volatility
and i er orrelations o sto s and
onds t o ndamental ildin lo s
o most allo ators port olios
e elieve
t at in reasin e pos re to idiosyn rati
or s ill ased ret rns an address some o
t e i est allen es ed e nd investors
a e today
What Hedge Funds Seek to Capitalize On
e ed e nd niverse en ompasses a
plet ora o investin strate ies o sed on
a ide ran e o asset lasses and individ al
se rities ome nds ta e dire tional ets
in t eir port olios al eit it lo er e pos re
to traditional etas t an is t e ase in
traditional e ity and redit ve i les t er
nds p rs e mar et ne tral strate ies
i
o s on p re alp a eneration
o ever a ommon t eme a ross t ese
strate ies is apitali in on an es and
ineffi ien ies in t e mar et environment
nan ial mar ets ere per e tly
effi ient and evolved in an effi ient ay
diver en e in mar et pri es o ld not lead
to t e emer en e o opport nities it
a normally i ris ad sted ret rns n
reality a an in e onomi environment
and t e rea tion o mar et parti ipants
to t ese an es an move pri es a ay
rom effi ient levels reatin temporary
potential pro t opport nities istory as
s o n t is pro ess is not sim ltaneo s and
may evolve slo ly ntil pri es onver e
ar ets display varyin
to effi ien y
de rees o effi ien y at di erent points
in time ma in or onstantly an in
opport nity sets
e more n ertainty
and t e reater t e dispersion o potential
o t omes t e reater t e potential
opport nity to apitali e
en t ese
opport nities do arise ompetition or
idiosyn rati ret rns an e er e
Role of Hedge Funds in a Portfolio
e do not vie
asset lass it
investor s port
s ill ased ret
developin sol
ed e nds as a monolit i
one spe i role in every
olio Rat er e onsider
rns as omponents or
tions or di erent port olio
Alpha Sources
Alternative Beta Factors
HEDGE FUNDS DIVERSIFYING SOURCES OF RETURN—A FRAMEWORK
Uncertainty Beta
apitali in on dispersion reated rom n ertainty in t e pat or ard n ertainty an lead to ris
ein mispri ed or on li tin o t omes ein pri ed in it in di erent mar ets at t e same time or
instan e i t e sto mar et is pri in in a i er terminal ederal nds rate t an t e ond mar et a
dire tional mana er
o elieves t at t e sto mar et is too pessimisti an in rease e ity e pos re
and reali e val e i t e ris premi m de lines
Mosaic Beta
eneratin insi ts on ross asset onne tions so as to e press a t eme t ro
m ltiple an les or
e ample a ma ro mana er an e press a vie on str t rally risin ener y pri es y oin lon ener y
t res an alternative ener y
and t e rren ies o oil prod in o ntries
ile s ortin a as et
o t e i est ener y ons min orporations and rren ies o oil importin o ntries
Alternative Risk
Premia
Derivin val e rom e pos re to ris premia it little or no sensitivity to t e dire tion o overall
mar ets or e ample a arry trade an orro in t e lo er yieldin apanese yen to invest in
t e i er yieldin
dollar to ta e advanta e o
rren y yield di erentials A ross se tional
moment m trade may apitali e on te ni al a tors to o lon re ent o tper ormers and s ort
nderper ormers
e a ility to implement t ese strate ies it derivatives ena les a di erent ris
ret rn pro le t an a traditional lon
ased tradin strate y rt er de reasin orrelations to
dire tional e pos res
Liquidity
a in advanta e o pri e di erentials a ross assets it di erin li idity pro les and o evolvin
li idity osts in an in mar et onditions avin t e le i ility to p rs e lon er term sit ations
n ampered y onstraints aro nd providin daily li idity A distressed mana er o ld apt re a
premi m rom oldin a stressed investment or t e len t o t e restr t rin pro ess d rin
i
t e se rity is lar ely illi id it e investors illin or a le to ta e on t e asso iated ris ey to
arnerin t e ene t o illi idity is ens rin t at t e investment str t re o t e nd orresponds to
t e time ori on o t e opport nity set
Insight
denti yin and pro tin rom ar itra e opport nities in asset lasses se tors or individ al se rities
is re ires an nderstandin o o e onomi s and mar ets may evolve and t e a ility to ma e
orre t d ments ased on t is in ormation or instan e a relative val e mana er an posit t at
re ent diver en e et een t e pri es o t o similar sto s as an overrea tion t at de o pled pri es
rom ndamental val e
ortin t e re ent o tper ormer and oin lon its peer o ld e a et on
t e pri es re onver in
onversely a mer er ar itra e mana er elievin t at re lators ill re e t
an anno n ed mer er on anti tr st ro nds and a se t e pri es o t e nderlyin ompanies to
diver e to pre anno n ement levels an s ort t e tar et and o lon t e a
irer
Complexity and
Innovation
nvestin in sit ations too omple or many mar et parti ipants to properly eval ate or implement or
or val e reali ation or instan e volatility ar itra e strate ies
seein a di erent innovative approa
aim to apitali e on t e mispri in o volatility via trades a ross m ltiple derivatives ontrollin
or dire tional pri e movements and t e rates o
an e in pri e movements o t e nderlyin
se rity nnovation an also ta e t e orm o an a tivist investor advo atin or a di erent pat to
val e reation and en a in in potentially omple initiatives to e e te on t is pat
Capital Flexibility
ivotin opport nisti ally a ross asset lasses and opport nities and varyin t e port olio s
net e pos re An e ample is an event driven mana er pivotin et een mer er ar itra e in an
environment o ro st orporate onsolidation a tivity and spe ial sit ations event driven
opport nities in an e onomi do nt rn
is alp a an en an e ret rns
ile elpin limit a nd s
orrelation to any spe i ris premia over lon er time ori ons
Perspectives | 33
SUMMER 2022 | ISSUE 3
needs
e role or ed e nds ill li ely
vary y asset o ner ased on a port olio s
rrent e pos res desired o t omes and
an in mar et onditions it over
di erent ed e nds in t e mar et
today p rs in a ide variety o strate ies
identi yin t e desired mi o
nds alls
or a systemati approa
e rst step
o ld e to identi y elevated ris a tors or
potential s ort omin s in an asset o ner s
port olio
e port olio s istori al ret rns
an e de omposed to identi y ma or
mar et ris s
en a ran e o e pos res
and sensitivities to ndamental mar et
and ed e nd a tors an e assessed
in l din e ity pri es implied volatility
interest rates redit spreads ommodity
pri es and orei n e an e levels
nderstandin
an es in ret rn drivers
and t e port olio s ris pro le an elp
assess t e evol tion o port olio ris and
at opport nities an e omplementary
to t e port olio s pro le and o e tives
ret rns parti lar to ea investor s sit ation
ree se ases elo re le t ommon iss es
a in investors in today s environment
In an environment in which traditional
fi
i c
a
iti ar
iti l
c rr lat
r ca a i
t r fi
attractive sources of uncorrelated
returns? A diversi ed port olio o lo
orrelation strate ies it s ill ased
mana ers
o ave little or no dire t
str t ral e pos re to e ity mar ets an
elp o set elevated eta ris o er dire t
e ity e pos res may reate a ret rn pro le
it lo er e pe ted orrelation to e ity
ret rns
ese port olios typi ally ave
more e pos re to relative val e mar et
ne tral and ta ti al tradin strate ies
If a portfolio’s projected returns are
below the stated return objective, can
returns be enhanced without increasing
equity beta? or investors a in a
potential ret rn s ort all it limited
le i ility it t eir ris
d et t e o s
an e on a sol te ret rn sol tions
ose
primary oal is eneratin i er alp a
ere is a m ltit de o se ases or in l din
a ell desi ned port olio o s ill ased
an investor may onsider ed e nd
mana ers
o invest it a medi m term
time ori on and are relatively a nosti to
strate y styles or asset lasses allo in or
an e pansive opport nity set
Are there ways for an investor with a midduration time horizon to be opportunistic?
An investor an onsider opport nisti
e pos res in port olios o sed on
on entrated investments in a sin le t eme
nderta en in partners ip it an e ternal
mana er ten t ese opport nities are tied
to spe i
atalysts t at ill ta e a
year
investment ori on to lly materiali e
ey tend to e i est on t e ris ret rn
spe tr m o ed e nd strate ies
Identifying and Accessing Manager Skill
ed e nds ave many tools to see to
ma ni y t eir e ess ris ad sted ret rns
tili in s ortin and levera e to in rease
or red e ris e pos res ta in diversi ed
or on entrated positions and investin in
a manner n onstrained y en mar in
onsiderations o ever t ese tools also
Top Asset Owner Challenges and Potential Hedge Fund Solutions in the Current Market Environment
Asset Owner Challenge
Potential Solution
Finding attractive sources of
uncorrelated returns
Enhancing returns without
increasing equity beta
o orrelation ort olio
trate y
A sol te Ret rn n onstrained
Being opportunistic given a
mid-duration time horizon
ed e
o r e
ne
oldman a
s Asset
ana ement
nd o investments
or dis
34 | Goldman Sachs Asset Management
ssion p rposes only
Types of Strategies Used
Strategy Characteristics
a ti al radin
ar et Ne tral
Relative al e
ittle or no dire t str t ral
e pos re to e ity mar ets
trate y A nosti
eta A nosti
Dislo ation radin
pport nisti inan in s
ill ased omple ol tions
Alp a oriented it a sol te
ret rn o s
diosyn rati and tied to
ertain atalysts e ploitin
ineffi ien ies in a
year
investment ori on
ma ni y t e potential dispersion o ret rns
ma in tr e mana er s ill all t e more
riti al to nd
ile time series analysis provides a
istori al antitative assessment o a
mana er s a ility to enerate s ill ased
ret rns it is more riti al to assess a
man er s a ility to enerate persistent
alp a in t e t re e elieve a mana er s
or ard alp a prospe ts are more
dependent on t eir analyti al apa ilities
and pro ess t eir e avior and in entives
and t e or ani ational and lt ral val es
t an on istori al per orman e ma in
tra re ord an important
t in omplete
inp t into t e eval ation pro ess
in e investment ris s are m lti a eted
o r e perien e as s o n t at s ill ased
a tive mana ement or s est in an
environment o e er onstraints and
is est implemented it a diversi ed
set o mana ers apitali in on a
om ination o di erent so r es o s ill
ort olios diversi ed in t is manner tend
to demonstrate ot more attra tive
orrelation dynami s and etter do nside
miti ation t ro
vario s mar et y les As
s
a ell ra ted diversi ed port olio t at
prioriti es s ill ased investment strate ies
s o ld en an e ris ad sted ret rns and
may ltimately improve t e lon term
onsisten y o an asset o ner s per orman e
IMPLICATIONS
FOR PORTFOLIO
CONSTRUCTION
Alternatives private mar et and ed e
nd investments omprise myriad
strate ies t at an play di erent roles
in port olios
t t ese strate ies ave
t o eat res in ommon irst t ey
o er diversi ation to traditional p li
e ity and ed in ome instr ments
omplementin traditional investments
via di erentiated so r es o ret rn
e ond t eir nat re and str t re ma e
t em ill s ited to traditional mean
varian e optimi ation approa es As
s
onsiderin t ese strate ies t ro
t e lens o nderlyin ret rn drivers an
e in ormative Admittedly not all o t e
ret rn drivers noted in t is paper an e
anti ed As s
t is rame or is not a
repla ement or a more ro st optimi ation
approa Rat er it an e an additional
lens t ro
i to vie t ese asset
lasses a tool to omplement t e investor s
e istin port olio onstr tion pro ess or
reatin diversi ed port olios o traditional
and alternative investments n
o r es
2.
3.
ee or instan e Ro ert
arris im en inson
and teven N aplan o Do rivate
ity
nvestments er orm ompared to
li
ity
o rnal o nvestment ana ement
and as ersisten e ersisted in
rivate
ity viden e rom yo t and
ent re apital nds
RN ar
and er orman e Analysis and Attri tion
it Alternative nvestments atteo in are
re ory ro n Andra ent endy
ristian
nd lad Ri ard a ell
a n
nday and
i an ary
am rid e Asso iates ased on in eption to
date per orman e o nds a ross vinta e years
NAR
omp ted sin mont ly total
ret rns on t e
and
NAR
All R
indi es rom
to
and
t e rst mont o R
in l sion in t e
to
ased on avera e a e o ompany at
so r e
ro essor ay Ritter as o De em er
in are ro n et al er orman e Analysis
and Attri tion it Alternative nvestments
an ary
it
oo
orld an
insey as o
Diversi ation does not prote t an investor rom
mar et ris and does not ens re a pro t
ee or instan e a e
ar il Does rivate
ity ystemati ally ver ever ort olio
ompanies
ly
and elya ov
Ale ander
onomi s o evera ed yo ts
eory and viden e rom t e
rivate
ity
nd stry
ar
De nin Alp a t s ill Not
ess Ret rn
apital ne
oldman a s lo al nvestment Resear
Alternative nvestments ar et Diver en e
Dislo ation and oment m
loom er
oldman a s Asset ana ement A
ed e
nds eam ay
Perspectives | 35
SUMMER 2022 | ISSUE 3
DISRUPTIVE
TECHNOLOGY:
MORE RELEVANT
THAN EVER
Katie Koch is ie
nvestment ffi er o
ity at oldman a
Asset ana ement
li
s
36 | Goldman Sachs Asset Management
Sung Cho is a ort olio
ana er in ndamental
ity at oldman a s
Asset ana ement
Brook Dane is a ort olio
ana er in ndamental
ity at oldman a s
Asset ana ement
KEY TAKEAWAYS
•
n lation en o ra es sinesses
to invest in te nolo y e a se
it elps t em to do more it
less and identi y sol tions to
ottlene s and ineffi ien ies
•
e
ompanies o erin
innovative prod ts tend to
e ert onsidera le pri in po er
allo in t em to pass on inp t
osts to stomers
•
A tive mana ement is riti al in
t is environment as in reased
volatility and n ertainty are
li ely to drive reater sto level
dispersion movin or ard
I
n mid Novem er
t e e ity mar et
e an to p ll a driven initially y
on erns a o t risin interest rates and
i er in lation o date te nolo y e ities
ave e perien ed t e s arpest orre tion
iven t eir relatively reater sensitivity to
interest rates and startin point o elevated
val ations t e pri e to ne t t elve mont s
earnin s ratio o te e ities iss do n
rom its pea in eptem er
We see
t is orre tion as ma ro driven and lar ely
indis riminate te
ndamentals remain
stron and e elieve sele t te
ompanies
are ell positioned to o tper orm in an
in lationary environment
in e t e sell o e an in mid Novem er
t e road e ity mar et as allen y
and te e ities ave e perien ed t e most
severe sell o p llin a
y
e e ities ave e perien ed t e deepest
sell o lar ely e a se t ey ave t e
i est anti ipated ro t rates and derive
t e ma ority o t eir val e rom as lo s
e tendin ar into t e t re
en t e
mar et anti ipates i er rates it applies
a i er dis o nt rate to t ose t re as
lo s lo erin t eir present val e
ompanies are no ad stin to an
environment
ere apital is not ree
in lation is elevated and persistent and
investor appetite is transitionin rom
ro t at any pri e to ro t at near
term pro ta ility At t e same time t e
lo al e onomy is nder oin
idespread
ines apa le di ital trans ormation t at is
an in o orporations operate and
invest to advan e t eir siness oals
e elieve t at demand or innovative
te nolo y is not y li al t rat er is
deeply se lar and t at sinesses
olstered y t eir stron alan e s eets
ill ontin e to invest in t e te nolo ies
t at elp t em ma imi e effi ien y As
i roso t
atya Nadella e plained
on a re ent earnin s all
ave not
seen t is level o demand or a tomation
te nolo y to improve prod tivity
e a se in an in lationary environment
t e only de lationary or e is so t are
As a per enta e o D te spend is on
a se lar asis y t e end o t e de ade
oin to do le
Inflation Encourages Businesses to Invest
in Technology
e elieve t at as e s i t to t e p li
lo d and transition to ard so t are
as a servi e aa models te nolo y
ompanies ill elp ot er sinesses
improve operational effi ien y identi y
ottlene s and predi t dislo ations
e ore t ey o r or an tanley s latest
rvey o nd t at on avera e
s
e pe ted t eir te nolo y d ets to
ro y
in
nota ly i er t an
t e
year avera e o
o t are
p rades are e pe ted to drive t is
in reased spendin
it lo d omp tin
y erse rity and di ital trans ormation at
t e top o
priority lists e
enter
or n ormation ystems Resear
R
mean ile re ently o nd t at ompanies
t at omplete t eir di ital trans ormations
tend to see mar ins
i er t an t eir
ind stry avera e olsterin t e ase or
prioriti in t is spendin
Productivity Is the Main Motivation for Robotic Process Automation (RPA)
Increasing Productivity
Data Integration Purposes
Customer Experience
Improving Accuracy
Reducing Costs
Compliance/Audit Needs
Employee Experience
0%
20%
40%
60%
80%
100%
Where Organizations Are Looking to Implement
Robotic Process Automation (RPA)
o r e o en Resear
R A
rvey April
or ill strative p rposes only
Perspectives | 37
SUMMER 2022 | ISSUE 3
Selected Tech Equities Have Pricing Power
Demand or tr ly innovative prod ts
and servi es is o ten less dis retionary
and t ere ore more inelasti t an it
is or traditional oods and servi es
y erse rity sol tions are a ey e ample
o avoid t e devastatin nan ial and
rep tational impa ts o y eratta s
ompanies are in reasin ly relyin on
advan ed sol tions to se re t eir data
And ompanies are proa tively see in
innovative se rity prod ts one s
e ample is a ne te nolo y t at resolves
y eratta s in real time a ross net or
endpoint and lo d
e ompany t at
developed t is prod t as een a le to
pass on ost in reases to its end stomers
ile ontin in to see a eleratin
demand d e to t e ality o its
innovation
avin innovative prod ts an elp
ompanies sti y i er pri es and
38 | Goldman Sachs Asset Management
12%
9.4%
Budget Growth
10%
8%
7.7%
6%
5.0%
5.0%
4%
2%
0%
o r e
2021
2022
Security Growth
or an tanley s an ary
2021
2022
Software Growth
rvey or ill strative p rposes only
Semiconductor Margins Are Expected to Continue Widening
65%
Average Gross Margin
Average Operating Margin
40%
60%
30%
55%
20%
50%
Forecast:
Margins expected to
improve again in 2022
45%
10%
40%
35%
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 2E
20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 202
o r e a t et and e eries Resear
Semi Quarterly Operating Margin
e rrent in lationary environment as
proven espe ially allen in or small and
medi m si ed enterprises
s as t ey
o ten la t e time
d et and te ni al
teams to onne t to t eir stomers
in rease t eir offi e prod tivity and
drive reven e e pansion lo d ased
mar etin and sales sol tions an provide
lear visi ility to
s a ross t e stomer
o rney and i li t tan i le atalysts to
siness ro t
e elieve t ese sol tions
an i ly in rease
s traffi and
ontra t val e and de rease stomer
rn
Security Budgets Are Primed to Rise
Semi Quarterly Gross Margin
ne potential sol tion or ompanies is
in reased investment in a tomation so t are
As la or osts in rease ompanies ill loo
or ays to a tomate t e simplest most
repetitive tas s sin te nolo ies s
as ro oti pro ess a tomation R A R A
an ree p employees to o s on i er
val e add tas s res ltin in in reased la or
prod tivity and lo er overall osts or
e ample attended and nattended ro ots
may elp save t o sands o man al o rs y
red in t e time needed to olle t pro ess
and analy e data t ere y drivin millions in
savin s in operatin e penses
0%
ay
esta lis pri in po er is ro st
pri in po er an also e seen amon
semi ond tor e ipment man a t rers
t e pi s and s ovels ompanies
developin t e in rastr t re re ired
to reate t e ips t at po er lo d
mi ration ve i le ele tri ation
a tomation intelli ent a ri siness
and t e ildo t o rene a le ener y
in rastr t re all o
i
e elieve are
in t e very early innin s o ro t Despite
inp t ost in reases leadin semi ond tor
ompanies ave seen a eleratin
even re ord level ross mar ins
and
ese ompanies ave een a le to pass
on ost in reases to t eir stomers or
innovative prod ts
e need or more
ips per ar per data enter et and
more innovation is insatia le and e
elieve t at t e semi ond tor ompanies
providin di erentiated val e to t eir
stomers ill see s stained demand as t e
orld ontin es to di iti e
THE CASE FOR AN ACTIVE
APPROACH TO TECH
INVESTING
e elieve t e mar et as nderestimated
t e tail inds t at a ne in lationary
re ime ill provide to sele t te nolo y
ompanies t ose t at eit er elp
ot er ompanies miti ate t e e e ts o
risin osts or ave pri in po er d e
to t e ality o t eir innovation
is
nderestimation an e partly e plained
y o traditional a o ntin met ods do
not lly apt re t e val e o intan i le
investments t ose made not in p ysi al
assets s
as a tories t in intan i le
ones s
as so t are Resear and
development t e en ine o innovation is
e pensed instead o apitali ed and t ere
is virt ally no a o ntin dis los re o t e
ality o a iven ompany s R D
t
lon term o sed a tive ndamental
investors an ta e a deep dive into t e
ality o te
ompanies innovation and
invest sele tively in t ose t at ave t e
potential to in over t e lon term
Investing in Tech in the Public Versus the
Private Markets
ereas investin in private mar ets o ers
a ess to more nas ent te nolo i al
innovations
i o ten reate entirely
ne mar ets as e i li ted in t e last
edition o erspe tives investin in p li
e ities o ers omplementary e pos re
to te nolo i al innovation in areas it
i er apital intensity more e tensive
re lation and less inary ris or e ample
p li mar et investors an ain tar eted
e pos re to a apital intensive part o t e
te
niverse semi ond tor apital
e ipment ompanies
i
e elieve
ill potentially ene t rom road ased
moves to res ore semi s pply ains and
intensi yin ompetition et een t e ey
leadin ed e players nvestors an also
ain e pos re to to ers s e t to ar
rea in tele omm ni ations re lation
and primarily a essi le to investors t ro
p li ly traded R s
i
e elieve
may also potentially ene t rom o r
in reased relian e on data in rastr t re
n so t are private ompanies tend to e
s e t to more inary ris t an e see in
t e p li mar et y t e time most te
ompanies ome to t e p li mar et
t ey ave validated t eir prod t mar et
t and m
o t e siness model and
te ni al ris as y e tension een red ed
meanin t at t e investment de ision
enters aro nd i
ompanies ill ain
s are e elieve t at or t ese ey reasons
investin in p li te e ities provides
investors omplementary e pos re to
private mar et innovation
A Selective, Well-Balanced Approach to
Investing in Public Tech Companies
ile n ertainty and t e res ltin mar et
volatility are li ely to persist or some
time one t in is or s re n ertainty and
volatility drive in reased di erentiation
et een sto s ma in a tive mana ement
riti al e elieve t e rrent environment
also ei tens t e need or a tive mana ers
to
e sele tive sin a dis iplined
ndamental approa and
ild ell
alan ed port olios ali ned it d ra le
se lar ro t t emes is means investin
in sinesses it ro st alan e s eets
i pro t mar ins stron ree as
lo and lo levera e
i
e elieve
are est positioned to it stand i er
rates and risin osts n addition to ein
sele tive at t e sto level e elieve it is
in reasin ly important to invest lo ally and
a ross mar et apitali ations A alan ed
approa to investin in te innovation
means investin in ot i
ro t
so t are ompanies and semi ond tor
apital e ipment ompanies traditionally
onsidered to e more val e oriented sto s
it in t e te nolo y niverse
Looking Forward
istory s
ests t at investin in
te nolo i al innovation and disr ption
an e a innin strate y ver t e last
years t e ompanies e de ne as
disr ptors ave o tper ormed t ose t at
are v lnera le to ein disr pted y
o t e ompanies t at ere part o t e
years a o no lon er e ist eit er
d e to o soles en e or ein a
ired
At present e elieve t at over
o
t e ompanies in t e
o ld e at
ris o ein disr pted reatin potential
opport nities or innovative enterprises to
enerate meanin l val e over t e lon
term t is t ere ore riti ally important
or investors to loo eyond mar et
apitali ation ei ted en mar s
i allo ate too m
apital to t e past
inners and potentially leave investors
ndere posed to t e inners o t e t re
nvestors s o ld onsider leanin into
lon term se lar ro t t emes s
as
di iti ation and te ena led ons mption
to invest in t e most innovative te nolo y
ompanies no matter t eir si e or o ntry
o ori in oin or ard e elieve t at
te
ndamentals ill remain ro st
a ainst a a drop o stron orporate
and ons mer alan e s eets and t at
demand ill ontin e to ro as t e orld
ontin es to di iti e n a orld
ere
ro t is in reasin ly s ar e e elieve
t at t e te
ompanies
ose ro t
is eled y anti ipatin and respondin
to t e allen es ot er ompanies a ross
se tors are a in
ill e t e most val a le
and over t e lon term ill e pri ed
a ordin ly y t e p li mar et nvestors
an position t emselves on t e ri t side
o disr ption y investin in t e te nolo y
leaders o tomorro n
o r es
2.
3.
loom er
a t et as o
ne
All
ret rns are net
loom er as o
ne
All ret rns are
net road e ity mar et represented y t e
All o ntry orld nde A
loom er as o
ne
All ret rns are
net e e ities represented y t e
A
ele t n ormation e nolo y
omm ni ation
ervi es nternet Dire t ar etin Retail
nde
ll a Novem er
t ro
ne
i roso t
arnin s all April
2022.
or an tanley Resear As o an ary
2022.
D Realisin t e al e o Di ital
rans ormation
par line apital As o April
o international to ers are o ned y t ree
to er o sed p li real estate investment tr sts
o en omm ni ations n rastr t re o ers
art o t e ee
ne
oldman a s Asset ana ement as o
ne
e a on A
to er
Perspectives | 39
Insights On:
DIGITAL INFRASTRUCTURE
Leonard Seevers is on t e orporate
ity and
n rastr t re nvestment teams at oldman a s
Asset ana ement
How is the world of infrastructure changing?
e overar in t eme is a more n an ed approa to
at
onstit tes in rastr t re t is o r o servation t at investors are
onsiderin ris pro les and asset lass dynami s rat er t an
e lists o
ara teristi s And it t at e elieve t e apert re
roadens Di ital assets
er to ers and data enters ave
e ome lly a epted as in rastr t re
ile al a de ade a o
t ey ere lar ely onsidered private e ity assets
e an e
as ome a o t as di ital onne tivity as e ome an essential
servi e and as investors e amine ndamentals t ro
a more
analyti al lens or instan e in rastr t re s resilien e and reven e
sta ility ave traditionally een a ieved via lon term ontra ts
it lar e redit ort y o nterparts i er to t e ome on t e
ot er and eat res mont ly ontra ts it t o sands o individ al
lients o varyin redit ality and a o nt level
rn r ns at
per mont
t t e vast ma ority o t at
rn omes rom
people movin
ile t e er s s ription s ally trans ers rom
t e ome s prior tenant to t e ne one Normali in or t at ome
level
rn is in line it ot er resilient sta le in rastr t re
sinesses Anot er aspe t t at e elieve ma es er a resilient
siness is t e nderlyin p ysi s
ere s no aster or more effi ient
transmission me anism t an li t over lass so e elieve it s not
v lnera le to te nolo i al o soles en e
What are the implications of these changes for investors?
ere is no
reater overlap et een t e types o investors p rs in
ertain assets o ers and data enters or instan e are also t e
p rvie o real estate strate ies
ile some e ity investors
ontin e to p rs e er ese dynami s pl s stron in lo s into
di ital strate ies mean reater ompetition and a more allen in
investment lands ape
e potential impli ations are t ree old
irst investors m st e strate i in settin t eir nd si e to re le t
t eir investment o s oday smaller er assets trade at more
attra tive val ations onsiderin t ey re ire less e pansion to a ieve
attra tive ris ad sted ret rns t an lar e s aled ompanies
t
t ere is a limited amo nt o t ese assets lo ated in attra tive mar ets
it a avora le ompetitive lands ape nd si e s o ld ali n it t e
mana er s a ility to invest in order to avoid press re to p rs e lar e
i ly ompetitive tar ets or t e sa e o deployin apital
40 | Goldman Sachs Asset Management
Alejandro Batista is on t e n rastr t re nvestment team
at oldman a s Asset ana ement
e se ond impli ation is an in reased o s on operational
improvements it in rastr t re en ompassin in reasin ly
omple
sinesses t e operatin plat orm team and lt re
in reasin ly e ome di erentiators An investor s operatin s ill and
e perien e in addin val e to t e port olio assets an ma e or rea
an investment
inally reativity and a roader s ope an elp investors identi y
overloo ed opport nities or e ample e re seein es alatin
demand or di ital systems ildo t ompanies t at lay and
onne t er e onstr tion pro ess is ommoditi ed
t spli in
to et er strin s o
er is a i ly spe iali ed s illset ompanies
s illed in t is are seein tremendo s opport nities and improvin
e onomi s rom a ris and ret rn standpoint t ese opport nities
are t e p rvie o private e ity rat er t an in rastr t re
t an
or ani ation t at an invest a ross t e spe tr m o asset lasses
may e etter positioned to apitali e on s
opport nities
Where does connectivity go next as we move from 4G to 5G, and
beyond?
very ne
eneration o onne tivity introd es t e same estion
at to do it t e e tra speed and and idt
istori ally se
ases ave ollo ed t e ildo t o te nolo i al apa ilities it
t e transition rom
to
mo ile a i se ase as mo ile
video it
it mi t e a tonomo s ve i les
i need very
i levels o and idt to pro ess all t e data to ens re driver
sa ety r it may e a mented or virt al reality A mented reality
ena les easier a ess to in ormation or instan e lasses t at
tell yo t e pri e o everyt in yo
al y in a store or t e name
o every ody at a at erin
irt al reality s stit tes t e analo
orld it a di ital environment t at en an es so ial intera tion or
repla es less t an satis yin aspe ts o p ysi al reality is o ld
mean a virt al meetin t at eels li e ein in a room it people
or i om ined it a sensory dimension eelin a virt al to
e
ma e or rea a tor ill e t e inter a e e e tion
i is
ere
t in s an et really interestin n
o r e
li
ompany lin s As o
ar
LIFE SCIENCES:
ENTERING A GOLDEN
ERA OF INNOVATION
Amit Sinha is ead o i e
ien es nvestin at oldman
a s Asset ana ement
Josh Richardson, M.D. is a
mem er o t e i e ien es
nvestin team at oldman
a s Asset ana ement
Kevin Xu is a mem er o t e
i e ien es nvestin team
at oldman a s Asset
ana ement
Perspectives | 41
SUMMER 2022 | ISSUE 3
Life Sciences Comprises the Majority of Healthcare Venture Funding
5%
Healthcare Services
KEY TAKEAWAYS
•
•
•
18%
Healthcare IT
i e ien es is rrently
t e lar est se tor it in t e
ealt are ind stry and as
ontin ed to e pand rapidly
it ei tened demand or
t erape ti s driven y a in
demo rap i s and t e risin
prevalen e o
roni disease
rea t ro
s a ross s ienti
dis iplines ave ena led ne
t erape ti andidates to e
developed more i ly effi iently
and pre isely nnovation is
in reasin ly o rrin at small
iote start ps rat er t an lar e
p arma ompanies
Life
Sciences
10%
Medtech
54%
Biotech / Pharma
13%
Tools / DX
Life Sciences Has Grown to a $2tn+ Market
R&D Spending
As dr development evolves
e elieve ne approa es to
nan in and apital ormation
ill e needed
e s ala ility o
modern dis overy plat orms may
allo or reater opport nity
t
also re ires si ni antly more
apital
Revenue
$280bn
$160bn
o r e
H
it
oo As o De em er
$2tn
+110%
+74.9%
2010
$995bn
2020
2010
tatista As o
ealt are is an inte ral part o t e
lo al e onomy t at impa ts every
individ al e lar est se ment o t e
ealt are se tor is i e ien es
i
applies t e st dy o livin or anisms and
li e pro esses to ards t e development o
novel medi ines and related te nolo ies
e
D
pandemi i li ted t e
importan e and impa t o t e innovation
and str t ral an es t at are drivin
ro t lo ally e elieve t e rrent
lands ape provides opport nities to drive
resear
or ard in riti al areas and
e plore ne aven es or streamlinin dr
development and approval pro esses
42 | Goldman Sachs Asset Management
Innovative therapeutics
and vaccines
Research tools / reagents
and diagnostics products
e r ary
2020
rand ie Resear
As o
ar
n o r vie t e o ndation or
innovation is s pported y several ey
drivers nderpinned y de ades o stron
investment rom ot t e private and p li
se tors ail inds rom s stained ro t
in ndin and resear are leadin to a
proli eration o s ienti p li ations and
ne patents it rea t ro
s a ross
dis iplines in l din eneti s imm nolo y
and ell iolo y n parallel te nolo i al
advan ements s
as t e se o arti ial
intelli en e A are leadin to aster
dr development timelines and t e
reation o more personali ed t erape ti s
Advan ements in t e nderstandin o
disease and a onver en e o innovation
a ross many s ienti dis iplines are
ena lin t e development o ne dr
plat orms t at reate novel ays to treat
disease and solve patients nmet needs
eparately re latory odies are reatin
poli ies to etter levera e ne te nolo y
and reate ne approval pat ays it
a on erted e ort in many eo rap ies
to s pport domesti
innovation and
development
t e ne t de ade ill see an a eleration o
some o t e riti al trends t at ave s aped
p arma strate ies and pipelines istori ally
is ill reate allen es or in m ents
t opport nities or innovative ne
ompanies and te nolo ies to ome to t e
ore ront
Accelerating Life Sciences Product
Development
As t e dr development pro ess is evolvin
so are ompany ormation timelines reatin
a need or ne nan in models and apital
sol tions n t e ne t de ade
o t e
top sellin dr s in
ill lose patent
e l sivity res ltin in a loss o
n
in sales or lar e p arma ompanies As
s
lar e p arma is reeval atin its lon
standin strate y o developin most dr s
in o se and in reasin ly loo in to smaller
iote
ompanies as a ay to a
ire
innovative dr s to replenis pipelines
o ever small iote s o ten ave limited
a ess to nan in to effi iently pro ress
t ro
lini al trials ile remainin private
and independent oin or ard e elieve
Dr development is t e most reso r e
and time intensive se ment o
istori ally re irin a o t years
nvesti ational Ne Dr to approval
and
n to advan e a sin le dr
to approval
ese lon development
timelines are t e res lt o a traditionally
ri id re latory str t re t at as
developed to ens re t e sa ety and effi a y
o prod ts or man se
e dr
development pro ess ontin es to ene t
rom advan ements in tools dia nosti s
te nolo y and re lation As a res lt
e e pe t timelines to ompress and t e
pro ess to e ome more ost effi ient in
t e omin years
Ne appli ations o A and ma ine learnin
adaptation o mod lar dr desi n
and improvements in lini al trial desi n
and operations are reatin a paradi m s i t
rom a traditional model o dr dis overy to
an emer in model o rational dr desi n
is more en ineerin
ased approa
to dr development is ena lin aster
s ala ility in reased pro a ility o s ess
a elerated timelines and red ed ost
mproved omp tin po er and
advan ements in A
te ni es ave
made it possi le to lean insi ts rom an
e ponentially ro in set o ealt are
data As te ni es e ome more
sop isti ated A
as t e potential to
in rease effi ien y and red e osts at many
sta es o dr development ne re ent
appli ation is protein str t re predi tion
i is e pe ted to ave ro nd rea in
impli ations or s ien e and medi ine iven
t e pivotal role t at protein str t re as
or ena lin dr dis overy e orts and t e
ard o s e perimental approa es t at are
o ten needed to o tain protein str t re
any ot er e amples o t e val e o A
in dr dis overy ontin e to emer e
Innovation is Unlocking an Emerging Model for Drug Development
1. Target
tificati
Traditional
Model
2. Drug
Candidate
3. Preclinical
Testing
4. Clinical
Testing
Drug Discovery
perimental
Emerging
Model
i
ro
p t
reenin
tandard
odels
road op lations
Drug Design
A
na led
od lar Dr
Desi n
n
stomi ed
odels
De ned Narro
op lations
Advantages
ala ility
ro a ility o
ess
imelines
ost
Validated Platform + Modular Design = Rapid Product Cycles
o r e
oldman a
s Asset
ana ement or ill strative p rposes only
Perspectives | 43
SUMMER 2022 | ISSUE 3
it novel insi ts ein derived or aster
tar et identi ation and prioriti ation
more a rate identi ation o disease
relevant p enotypes streamlined
ompo nd desi n and optimi ation and
pre ise predi tions rom i
ontent
ima in and di ital pat olo y
ompanies en a e a road system o
sta e olders t at an es over t e
o rse o development ran in rom
a ademi and resear or ani ations
in early development to re latory
odies and payers i e ins rers t at
play a riti al role in t e approval and
ommer iali ation o dr s o t at end
advan ements in t e dr development
pro ess are omplemented y an evolvin
re latory environment
i is ena lin
reater le i ility Re ent re latory
modi ations ave more learly de ned
sit ations
ere t e lini al development
pro ess an e modi ed to etter meet
patient needs et i al onsiderations or
spe i re irements o t e disease or
dr modality n t e
i prod es
t e most iote patents orld ide t e
DA as introd ed ne poli ies t at are
providin s pport or a ess to innovation
and novel t erapies
e res lt as een
t at ann al DA approvals do led in
t e de ade rom
to
imilar
initiatives are ein nderta en y
re lators in ot er re ions in l din t e
A
rope and N
ina
Advancements in the drug
development process
are complemented by
an evolving regulatory
environment, which is
enabling greater flexibility.
REGULATORY FLEXIBILITY IN CLINICAL TRIAL DESIGN...
•
Breakthrough designation priority review and accelerated approval pathway to red
nmet needs
•
Concurrent clinical trials / adaptive design to modi y trial timelines
•
Real-world evidence (RWE) to red
e approval timelines or dr
s addressin
e trial osts and time
Example
n olo y prod
ts approved sin t e a
elerated approval pat
ay are ro
t to mar et
years aster t an traditionally approved
on olo y t erapies
...MORE CUSTOMIZED APPROACHES ARE ACCELERATING DRUG DEVELOPMENT
Priority Review
Desi nation or dr s t at s o si ni ant improvements in sa ety or
effi a y dire ts DA reso r es to s orten de ision timeline to mont s
Fast Track
ro ess desi ned to a ilitate development e pedite revie o
dr s to treat onditions it an nmet medi al need to et dr
to patients aster
Accelerated Approval
or dr s t at re ire an e tended period to meas re intended
e e ts approval an e ranted ased on s rro ate endpoints in
some ases
Breakthrough Therapy
A ility to ain approval ased on preliminary lini al eviden e i
data indi ates dr may provide s stantial improvement over
availa le t erapy
s
Use of Policies in Novel Drug Development
Priority Review
Fast Track
Accelerated
Approval
Breakthrough
Therapy
0%
o r e
44 | Goldman Sachs Asset Management
20%
40%
60%
2021 Novel Drug Approvals that
Used Expedited Review Programs (%)
ood and Dr
Administration As o De em er
80%
The Convergence of Breakthroughs is Creating New Drug Development Platforms with Robust Potential
Last 10 Years
Genetics
Whole Genome Cancer
Viral-Based
Sequencing
Genomics Gene Therapy
Gene Therapy
Insertion of a function
functional gene to address a
genetic mutation
CRISPR-Based Prime-Based
Gene Editing
Gene Editing
Gene Editing
ditin o a spe i
gene to correct a
genetic mutation
Immunology
Antibody
Therapies
Cell Biology
Immunomodulatory
Cytokines
Development
of Stem Cell
Applications
Induced Pluripotent
Stem Cells (iPSCs)
i pe i s
+ T-Cell
Engagers
Autologous
Cell
Engineering
Allogeneic
Cell
Engineering
AIBased AI-Based
Target Gene + Protein
Delivery Characterization
In Silico
Screening
Artificial
Intelligence
Checkpoint
Blockade for
Oncology
mRNA
Delivery of mRNA that
encodes vaccines or
therapeutics
Integration of
discoveries,
insights, and
technologies
AIBased
Drug
Design
Breakthroughs Across Multiple Disciplines…
RNAi
Suppression of gene
expression through
small RNA molecules
CAR-T
T-cells with engineered
receptors to target
cancer cells
Pluripotent Stem Cells
Stem cells that can
mature into required
cell types (e.g., for
regenerative therapies)
...Are Enabling New Drug Platforms
with a combined market potential of
>$5tn
o r e
oldman a
s Asset
ana ement DA
DA oli ies
Innovations in the Science of Life Sciences
Dr development is e omin in reasin ly
interdis iplinary it rea t ro
s a ross
ey dis iplines s
as eneti s imm nolo y
ell iolo y and A onver in to reate ne
modalities and dr plat orms ver t e
last ten years t e emer en e o R R
ased ene editin as reated an a ility
to pre isely edit and manip late enes
to orre t eneti m tations potentially
treatin eneti diseases at t e so r e A
reater nderstandin o imm nolo y as
ena led more tar eted t erapies t at se
a patient s o n imm ne system to
t
disease mm ne e point in i itors i e
se o
oli ies
or ill strative p rposes only
dr s t at lo si nals sed y an er ells
to evade t e imm ne system allo in t e
ody to re o ni e and ill an er ells are
no
idely sed to treat a ran e o an ers
n ineered imm not erapies reated it
i spe i anti odies and
ell en a ers
i e modalities t at dire t t e imm ne
system to tar et and ill an er ells are
reatin more tar eted an er t erapies
t at reatly in rease t e standard o are
over traditional emot erapy and radiation
approa es Advan ements in ell iolo y
o er a omple onte t dependent a ility
to treat disease it potential appli ations
in re enerative medi ine e rapid ro t
in A apa ilities provide a po er l tool not
only or improved omp tational s reenin
t also or t e identi ation o novel
tar ets and desi n o ne dr s olle tively
t e inte ration o dis overies insi ts and
te nolo ies a ross dis iplines yields a more
tar eted innovative and e e tive ay to
treat disease t ro
ne dr plat orms
Structural Changes Lead to New
Opportunities
ienti
rea t ro
s and improved
re latory rame or s are leadin to
str t ral an es t at are s i tin o
innovation ta es pla e e evol tion o
li e s ien es start ps an o ten mirror t e
Perspectives | 45
SUMMER 2022 | ISSUE 3
Illustrative Drug Development Process
1. Research & Development
5,000-10,000 compounds
Exploratory research to identify drug candidate
3. Phase I-II Clinical Trials
5-10 candidates
Phase I: Small-scale test for safety
ase
edi m s ale test or sa ety effi a y and dose
ndin
5. Approval
1 approved drug
Data submission and
review by FDA
4. Phase III Clinical Trials
1-2 candidates
Phase III: Large-scale test
or effi a y and sa ety
2. Pre-clinical
100-200 candidates
Animal testin to eval ate sa ety and effi a y
3-6 years
o r e
oldman a
s Asset
6-7 years
~1 year
ana ement or ill strative p rposes only
dr development pro ess it ompanies
e perien in di erent ris s opport nities
and nan in needs as t ey rea ne
milestones and p ases o development
As dr development pro esses evolve
t e timeline o ompany ormation and
mat ration is s i tin too
maller iote s are o ten more spe iali ed
a ile and loser to ey so r es o innovation
e
niversities t an lar e p arma ma in
t em etter s ited to advan e novel t erapies
rom on ept to lini al trials e ost o
la n in an start p and developin ne
as allen as te nolo y and pro esses
ave improved similar to o lo d
omp tin no ode pro rams and aa
prod ts ave red ed t e ost to la n
a te start p
ile it is no
eaper to
la n a ne ompany and esta lis an initial
proo o on ept it is more apital intensive
t an ever to navi ate lini al trial desi n
and operations as ell as t e ever an in
re latory approval pro ess
raditional nan in models or
ave
not yet adapted to t e an in lands ape
46 | Goldman Sachs Asset Management
Not only ave t e n m er o
start ps
in reased t t e s i t to more plat orm
ased ompanies as res lted in in reased
apital re irements eyond t e apa ity o
traditional so r es
ompanies in t e early
resear sta e rely eavily on overnment
or p ilant ropi apital t at is enerally
not see in a nan ial ret rn e
rants
to elp esta lis a via le idea e allin
osts o la n in a start p ena le t is
initial ndin to ta e a ompany rt er
t an e ore arly sta e vent re rms
ave een inte ral in s pportin ompany
ormation aro nd early ideas it ann al
investment more t an triplin to
n in
t e de ade t ro
raditionally
vent re rms nded ompanies or lon
periods t ro
initial lini al trials en
s ienti and lini al ris remained i
o ever
ile p ront osts ave one
do n lon er term apital re irements ave
intensi ed im ltaneo sly
nan in as
een ins ffi ient to meet t e needs o
start ps As a res lt e elieve t at private
ro t apital provides a ni e sol tion to
ompanies t at ave a di erent ro t
rve
Dr development at small ompanies is
o ten a ilitated t ro
partners ips it
lar e p arma ompanies
ose operational
apa ilities are more ond ive to lini al
trials dr man a t rin and distri tion
rat er t an dr development e more
re ent o s o developin plat orm
te nolo ies it non inary o t omes as
opposed to sin le assets also means t at
iote
ompanies an prod e diversi ed
prod t lines ile s alin more i ly t an
in t e past ar e p arma ompanies
o
are in reasin ly a in loss o e l sivity on
top sellin dr s loo to t ese prod ts
developed y smaller ompanies to replenis
e istin and t re dr pipelines
The Growth Gap
or ompanies t at oose to remain
independent t e in reased apital needs o
lini al development ave led t em to o
p li earlier in t eir development et een
and
t e per enta e o iote
ompanies oin p li in pre lini al or
p ase sta e s r ed rom
to
ile iote p arma ompanies a o nt
Lifecycle of Life Sciences Companies is Tied to Drug Development Stages
Company Stages
As ompanies a
ieve development milestones t eir ris pro le and investment needs evolve
Company Formation
Platform and Preclinical
sta lis via ility
property and esta lis team
Develop nderlyin
and resear
te
operations
ain approval s ale and
it
man trials to test sa ety
nolo y and identi y
potential dr
Commercial
Clinical Development
Development
i ense intelle t al
ommer iali e prod
t
and effi a y
andidates
Funding Sources
A ide variety o sta e olders ontri
te to i e
ien es ompany
ndin over t e o rse o a ompany s li e y le
VC
Growth Capital
Royalty Monetization
Common Exit Paths
ere are di erent e it pat s ased on investor pre eren e or ompany per orman e
IPO: nter p
li mar ets
Acquisition:
o r e
oldman a
or less t
ind stry
least
need or
s Asset
yo t y lar e strate i
ompany
ana ement or ill strative p rposes only
an
o
deals ann ally t e
as onsistently a o nted or at
o
a ed
s re le tin t e
ompanies to tap p li mar ets
any
ompanies today still ave i
lini al and re latory
levels o s ienti
ris at t e time o
o ten it inary
options or s ess is ris an e
diffi lt to pri e in p li mar ets it
many investors pre errin opport nities
at t e late lini al or ommer ial p ase
en s ienti and re latory ris as
lar ely een minimi ed o t at end
t e median ret rns
mont s post
de lined rom
in
to
in
Additionally t e daily volatility
o p li mar ets an lead
ompanies
to trade it road mar et onditions
rat er t an ased on t e development o
t e nderlyin te nolo y ese iss es
are parti larly pertinent en additional
nan in is needed to s pport rt er
lini al development as is o ten t e ase or
many early sta e ompanies enterin p li
mar ets today As a res lt p li mar ets
As the drug discovery and
development process is
evolving, so are company
formation timelines,
creating a need for new
financing models and
capital solutions.
Perspectives | 47
SUMMER 2022 | ISSUE 3
Private Growth Capital Gap & Drug Development Life Cycle
Early Stage
Research
Discovery
Preclinical
Phase I
Phase II
Phase III
Historic
Average Stage
at IPO
Public Equity
Venture Capital
Crossover and public
capital supported earlier
stage investments during
bull market
Recent
Private Growth Gap
Venture Capital
Public Equity
Average Stage
at IPO
o r e
oldman a
s Asset
Retrenchment has created a
funding gap better suited for
private ro t apital
ana ement or ill strative p rposes only
are o ten a s optimal nan in option or
nan in t ro
o t lini al trials
raditional s ontin e to s pport
ro st idea and ompany ormation
o ever t ese ompanies re ire
s stantial apital eyond t is sta e to
nd de nitive e periments to de ris and
s ale t e plat orm and develop asso iated
t erape ti s it t e in reasin n m er
o ompanies ein ormed and de reasin
a ility to a ess p li e ity apital e
e pe t t is to res lt in an opport nity set o
i
ality private ompanies t at re ire
private apital to s ale
A New Era Ahead
As ma ro trends drive demand or etter
ealt are e elieve t at innovations
in tools te nolo ies and pro esses
or treatin disease om ined it a
s pportive re latory environment as
reated a olden a e or
t at ill ena le
aster etter innovation lo ally
ile
si ni ant advan ements ave een made
in re ent years e elieve e are still in
48 | Goldman Sachs Asset Management
t e early sta es o a m lti de ade era o
npre edented ro t As ndin or
resear a ro in
or or e and etter
lo al dr development in rastr t re
ontin es to ena le reater s pply o
novel ideas ne
nan in models ill e
needed to s pport ompany ormation
and development
is is presentin an
opport nity or private mar et investors
it t e re isite e pertise and net or
to apitali e on a timely opport nity to
advan e t e t re o ealt are innovation
t ro
investment in
n
o r es
2.
3.
e op
lo
ster atent pirations
omin
is De ade i ins D nn Noa
ier e
arma ly
Resear and Development in t e
arma e ti al nd stry on ressional d et
ffi e April
alla ay t ill an e everyt in A ma es
i anti leap in solvin protein str t res
Nat re
De em er
nderstandin t e istory and se o t e
A elerated Approval at ay Avalere an ary
ood and Dr
Administration
it
oo As o
oldman a s
it
oo
ar
GROWING CYBER THREATS
TO SUPPLY CHAINS AND THE
POTENTIAL SOLUTIONS
Fortress Information Security is a supply chain cybersecurity provider that helps
secure 40% of the U.S. power grid and critical assets, as well as enterprises in other
sectors such as aerospace and defense, manufacturing, telecoms, pharmaceuticals,
transportation and insurance. We spoke with Betsy Soehren-Jones, Fortress COO,
to discuss the growing cyber threats to supply chains and the potential solutions
required in order to protect key industries.
Betsy Soehren-Jones
COO of Fortress Information Security
As ie peratin
ffi er oe ren ones is responsi le or ortress
ales and trate y or ani ations servin t e riti al n rastr t re
De ense siness lines
R ar etin
an a t rin
li oli y
and Department o
Perspectives | 49
SUMMER 2022 | ISSUE 3
Essential industries are facing more cybersecurity threats
emanating from the supply chains that underlie them. As a
result, companies on the frontline of critical infrastructure need
better data and analytics to understand threats and tools to
defend themselves. Why are supply chain cyberattacks a growing
trend within cybersecurity?
Betsy Soehren-Jones: odern effi ient s pply ains an reate
vast e onomi and so ial ene ts
t t ey also rin ris s
r ani ations an sometimes lose ontrol o t e so t are and
p ysi al omponents or t e prod ts t ey provide
is res lts
in in reased v lnera ility to net or intr sions a s and more
sop isti ated y eratta s
i p ts in ormation riti al
in rastr t re and lo al s pply ains at ris nd stries t at ma e
p t e riti al in rastr t re se tor ele tri oil and as aste
and ater are more desira le tar ets Alt o
many ompanies
in t ose se tors ave ro st se rity and an eep o t potential
enemies doin so e omes more diffi lt
en yo r enemies loo
li e riends
at s
y t ird parties s ally vendors are so at ris
Where are the biggest vulnerabilities in critical infrastructure?
Soehren-Jones: e private se tor o ns or r ns a o t
o
riti al in rastr t re any lar e orporations and overnment
entities ave done an e ellent o o prote tin t emselves rom
dire t y eratta s o ever t ere are t o sands o small and
medi m si ed enterprises t at s pport t e lar e or ani ations t at
mana e riti al in rastr t re
ese smaller ompanies s pply
prod ts or omponents as omple as n lear po er enerators or
m ndane as air onditionin systems et t ey ave a ess to lar e
riti al in rastr t re entities even i it is st via t e a o ntin
system to s mit ills and re eive invoi e payments n many ases
t ese s pply ain partners ave limited y er de enses and o er
a doors or a ers riminals and even nation states to la n
atta s a ainst o r nation s riti al assets
ese partners are t e
rst pla e t at t reat a tors loo
en tryin to nd a a door
ey s ally don t ave se rity li e a ort ne
ompany e a se
t ey an t a ord it
y rea in t ro
t e ront door
ere all
t e se rity is
en yo an nd an n arded door in t e a
How can these smaller businesses make strategic investments
for their future operations?
Soehren-Jones: t starts it visi ility mall sinesses need to
nderstand
ere all t e ildin lo s or t eir prod ts ot
rom a ard are and a so t are perspe tive ome rom n e t ey
ave a ll l eprint o t e o ndational omponents t at omprise
t eir sol tions ompanies an determine ris s e ond it re ires
ind stry olla oration ar e sinesses s are many o t e same
s ppliers or e ample in t e ener y se tor tilities all or it
many o t e same several ndred vendors
ese or ani ations
m st s are in ormation data and analysis a o t potential t reats
and ris s t ey ave identi ed to ena le proa tive y erse rity
pro rams ortress as a entral repository o in ormation t e
Asset to endor A
ar etpla e t at ena les asset o ners and
s ppliers to minimi e t e time and ost to pro ess and assess t e
impa t o y er t reats
rA
i rary is a ni e omm nity or
50 | Goldman Sachs Asset Management
in ormation s arin and olla oration providin lients it a ess
to more t an
vendors and millions o assets oin or ard
e plan to develop t is o erin or all riti al in rastr t re se tors
providin a ompre ensive set o tools to over ome s pply ain
se rity and omplian e allen es asso iated it t ird party ris
mana ement all
ile red in osts
Effective compliance can be timeconsuming and costly for companies
without a partner that understands both
the threat and regulatory environment.
How are public and private sector stakeholders addressing
national security issues stemming from supply chain
vulnerabilities?
Soehren-Jones: As riti al ind stries in reasin ly a e y erse rity
t reats dire ted to ard t e s pply ains t at nderlie t em all
orners o t e ederal overnment and private se tor ave i ly
re o ni ed t at se rin riti al s pply ains is a national se rity
iss e n t e past e years a t orities s
as t e y erse rity
and n rastr t re e rity A en y
A and t e Nort Ameri an
le tri Relia ility orporation N R
ave released s pply ain
y erse rity idelines o ever ompanies are dealin
it
enormo s re latory rdens
la ma ers and re lators ave
implemented and are ontin in to on eive ne s pply ain
ris mana ement r les t at ave and ill impose very omple
re irements or all overnment s ppliers ontra tors rantees
e tive omplian e an e time ons min and ostly or
ompanies it o t a partner t at nderstands ot t e t reat and
re latory environment
ta li
rtr
cti
l
c
r a i ati
fi t ac a
tr l a
r i t t ir
fi
a
l c ai
t
Soehren-Jones: ortress ena les ompanies to assess miti ate
and remediate ris s asso iated it vendors assets and so t are
in t eir s pply ains
e ompany s sol tion as o developed
it leadin ele tri tilities and as sin e ro n into a onsorti m
tool or t e
ele tri tility ind stry led y leadin an or
stomers omprisin ve o Nort Ameri a s ten lar est investor
o ned tilities e elieve t e siness is positioned to repli ate its
s ess in t e tility se tor a ross all riti al ind stries in l din oil
and as transportation aste and aste ater nan ial servi es
and ealt are
r plat orm is a so t are sol tion t at a tomates
s pply ain mana ement n tions in l din ris assessments
or lo s data pro essin and analyti s ontin o s monitorin
and re latory reportin
y doin so e ena le overnment and
siness leaders to ta le t e si ni ant allen e o se rin
prod ts and sol tions ilt it t o sands o omponents
man a t red y ompanies a ross do ens o o ntries
As critical industries increasingly face
cybersecurity threats directed toward
the supply chains that underlie them, all
corners of the federal government and
private sector have quickly recognized
that securing critical supply chains is a
national security issue.
How do you see the cybersecurity industry evolving from here?
What risks are on the horizon and how can organizations best
prepare for, respond to, and recover from the next line of attacks?
Soehren-Jones: e most re ent
A d et ited t e need to
prote t riti al so t are t ro
en an ed se rity meas res as
one o t e o r ore reasons or an
d et in rease o
more t an
mm
e spendin pa a e represents t e ro in
e orts to address t e spate o y eratta s on ey or ani ations
and ind stries oo in a ead e elieve riti al in rastr t re
providers and poli yma ers m st o tline spe i standards t at
ena le developin and revie in a o t are ill o aterials
a ormal ma ine reada le inventory o so t are
omponents and dependen ies to minimi e y er ris amon
omple s pply ains
ile many standards and idelines re ire
varyin levels o so t are se rity e elieve ortress is ni ely
positioned to or it ind stry and overnment to implement
a pra ti al standard or preparin and analy in
s to meet
today s riti al in rastr t re y erse rity t reats n
Perspectives | 51
SUMMER 2022 | ISSUE 3
STAYING AHEAD OF THE
DIGITAL CURVE
Investing in technology can provide a first-mover advantage in private markets
and has the potential to transform the investment life cycle.
Darren Cohen is lo al
o ead o ro t
ity
at oldman a s Asset
ana ement
52 | Goldman Sachs Asset Management
Luke Flemmer is ead o
Di ital trate y or
Alternatives at oldman
a s Asset ana ement
How have you seen the use of technology change in private
equity in recent years?
Darren Cohen: very p li asset lass e ities redit rates
as one t ro
a similar trans ormation rom man al i lateral
or lo s to data intensive i ly a tomated di ital mar ets
it n an ed mi rostr t res As t ose mar ets di iti ed early
investments in te nolo y plat orms and data analyti s ena led
rst movers to et a ead o t e rve and apt re disproportionate
e onomi s and mar et s are
ose
o ere late to evolve and
adapt s ered as ompetitive dynami s an ed and t e mar et
str t re s i ted
Luke Flemmer: e are startin to see a real i r ation in t e
mar et ome private mar et rms ere a ead o t e rve
investin in ndamental data re irements and systemati in
pro esses No t ese rms an operate at s ale and ave s rpl s
apa ity to invest in more advan ed te nolo ies t at are leadin to
e ponential ains
ose t at aven t made investments are no playin at
p
spendin most o t eir d ets to et asi data y iene in pla e
as t e amo nt o availa le in ormation proli erates t is very
similar to t e dynami e sa over t e last ten years in t e p li
mar ets
ere some an s ad made o ndational investments
t at allo ed t em to really s ale di ital and analyti s apa ilities
ile ot ers ere st eedin t e maintenan e o le a y systems
and operations
Where in the investment lifecycle are you seeing technology be
most impactful?
Cohen: e ave seen some o t e i est an es in deal so r in
and nder ritin initially in ro t and vent re
t in reasin ly in
t e ot er asset lasses too
r teams no
ave a ess to val a le
datasets t at provide insi ts into private ompany ndin ro nds
re r itin trends mar et s ares and lient revie s
e are also a le to a ment t ese insi ts it o r proprietary
resear data and net or s to rt er optimi e o r so r in
strate y as ell as en an e o r nder ritin dili en e y applyin
t is ottoms p approa
e an ild an in redi le mosai o data
t at elps o r investin teams identi y emer in ate ory leaders
early and inte rate data driven insi ts into o r investment pro ess
Flemmer: As e en a e it ompanies e are apt rin more
data t an ever e ore a ross t e ll li e y le o t e investment
pro ess And t at is not st t e deals e ave ompleted
t also
t e ones e ave passed on e ave proven t e ommer ial impa t
o applyin t ese te nolo ies and or lo s a ross o r teams
and are no really s alin t eir appli ation Ri er ompany and
se tor models not only s pport reater effi ien y in o r traditional
investin pro esses
t also reate opport nities or ne met ods
o so r in
nder ritin and val e reation
T
Technology
is allowing investors to
source and underwrite pools of risk that
historically could not scale.
How is technology being used to open new markets?
Flemmer: e nolo y is allo in investors to so r e and nder rite
pools o ris t at istori ally o ld not s ale y ein a le to
dynami ally mat
sinesses and ons mers it di erent so r es
o nan in yo an enerate a more attra tive ris ad sted
ret rn or investors
ile also o erin a lo er ost o apital e
are seein t is appen in strai t or ard standardi ed prod ts
li e mort a es and a to loans
t a tivity is e pandin into more
opa e areas o t e mar et
Cohen: ons mer lendin plat orms are a prime e ample
nder ritin nse red individ al orro ers sed to e nearly
impossi le at s ale
t it ri datasets availa le today and
sop isti ated redit mat in plat orms massive mar ets are ein
reated imilar innovations are ta in pla e a ross vario s aspe ts
o orporate and asset a ed lendin too
is is parti larly
po er l as t e mar et str t re o private asset lasses an es
ese emer in and s aled lendin mar etpla es are in reasin ly
e e tive at mat in
ndin
it ris ena lin apital to lo
seamlessly et een orro ers and lenders
is as reated
an opport nity to nder rite and a ess a diverse array o ris
e pos re t at istori ally o ld ave een allen in to a ess
effi iently and at s ale
How is technology being used to assess and manage risk?
Cohen: Ris mana ement is predi ated on data and it is lear to
me t at e an reap
e ene ts as e start to apt re more
data a ross o r port olio ompanies
en t at is done at s ale
a ross a lar e port olio it leads to a deeper nderstandin o road
e onomi developments as ell as val ation and operational
en mar s a ross se tors and eo rap ies No
en a ma or
event n olds e an i ly assess t e potential impa ts a ross
t e port olio sin data t at is pdated in real time rat er t an
parsin stale reports and memos
is also ma es s etter in all
types o s enario modelin in l din ore astin
ndin and
li idity needs
Flemmer: or apital allo ators it is no easier to nderstand
e pos res a ross di erent private mar et asset lasses and strate ies
nly a e years a o many investors ere still t in in a o t asset
allo ation in road
ets it o t ne essarily onsiderin t e
vario s layers o e pos res it in spe i strate ies y apt rin
detailed onstit ent level data e are a le to ond t a tor
analyses t at ere previo sly only possi le or li id p li positions
Perspectives | 53
SUMMER 2022 | ISSUE 3
How are better analytics changing the investment process?
Cohen: As analyti s improve it allo s investors to assess ris s alon
ne dimensions Rat er t an ta in t e typi al top do n approa
to asset allo ation investors ill e a le to onstr t a port olio
at an atomi level t at provides more ran larity and le i ility to
tailor t eir spe i ris e pos res And all o t is an e delivered
di itally sin advan ed analyti s e an pinpoint
ere a
port olio is la in
et er it s a diversi ation ris li idity need
or
re irement e nolo y and data an t en e levera ed
to deliver dynami prod ts t at address t e investor s ni e
o e tives
Flemmer: ne o t e i est allen es lies it o less li id
prod ts are sold traded and e e ted
i remains a very
man al pro ess
is is an area
ere lo
ain te nolo ies ave
attra ted interest as t ey potentially o er a di erent model or
syndi ation s s ription and se ondary li idity
Do you think blockchain is being actively adopted and integrated
i t t tra iti al fi a cial c
t
Flemmer: t in t ere are t o t in s appenin
i are
some at symmetri al
ere is a mi ration o traditional nan ial
e osystem assets and tradin in rastr t re into t e rypto orld
li e ne
rren ies and asset types and t e re implementation
o traditional tradin plat orms derivatives et into an at least
nominally de entrali ed ar ite t re onversely t ere is t e
importin o rypto paradi ms and te nolo y into traditional
nan ial arenas primarily t ro
t e se o lo
ains as
t e anoni al s ared re ord and to ens representin traditional
nan ial laims
As analytics improve, investors will be
able to construct a portfolio at an atomic
level that provides more granularity
and flexibility to tailor their specific risk
exposures.
ere as de nitely een some esitation to adopt lo
ain
te nolo y roadly partially e a se t e te nolo y is still so
ne
t per aps more ndamentally e a se o t e allen es it
reates it t e entrali ed a t ority model
i is still very m
t e one t at o r ind stry nderstands and tr sts or ood reason
ere an see it ein disr ptive in t e s orter term is
e a se a rypto asset s
as a non n i le to en is not only
a representation o val e or o ners ip
t it is also a omp ter
pro ram meanin t at it an impose additional eat res and
54 | Goldman Sachs Asset Management
e aviors on o it an e sed and trans erred or e ample r les
aro nd se ondary tradin an e pro rammed to restri t
en t e
asset an e sold or to provide a royalty to t e initial iss er ese
eat res provide at least in t eory more prote tion and onsisten y
ile also allo in or ne
or lo s t at o ld ndamentally
an e ertain siness pro esses s
as distri tion and
se ondary tradin
There is no doubt that blockchain is
where significant talent is concentrating,
so it seems almost inevitable that
interesting solutions will be built—but it
will take time.
Cohen: t in lo
ain and di ital assets ave tremendo s
potential lon term t ill not dire tly res ape nan ial mar et
in rastr t re in t e s ort term iven t e re latory n ertainty
and t e omple ity o inte ratin t ese te nolo ies
arly in my areer e invested in several ind stry leadin tradin
plat orms t at ltimately s pported t e ele troni ation o e ities
and ed in ome t o ld typi ally ta e t e leaders ip teams t ree
to ve years to rea a minimal level o riti al mass and ve to
years to a ieve real s ale or di ital assets e o ld e pe t t e
innovation y le to a elerate iven t e massive levels o
ndin
and o s as ell as t e pa e o te nolo y adoption
o ever in many areas o o r siness
elieve e ill nd more
strai t or ard appli ations o te nolo y t at ena le s to solve
spe i pro lems and address t e ineffi ien y in t e ind stry
Areas it t e most promise s
as a tomatin
nd distri tions
o ld e in redi ly po er l t annot e solved easily d e
to lin erin iss es aro nd data standardi ation and reportin
re irements e t in lo
ain te nolo y as promise and e
ollo it losely
t e ave not seen a material impa t in private
mar ets so ar
Flemmer: t is diffi lt to predi t t e timeline or development and
adoption o lo
ain te nolo y
t t e s ale o investment and
on entration o p enomenally talented en ineers is note ort y
D e to t e intrinsi omple ity o t e spa e t e arriers to
entry are i
and deep e pertise is needed to ild anyt in
meanin l
ere is no do t t at t is is
ere si ni ant talent
is on entratin so it seems almost inevita le t at interestin
sol tions ill e ilt
t it ill ta e time n
This interview was originally published April 1, 2022 in PEI.
Insights On:
ROBOTICS IN ECOMMERCE
Yu Itoki is on t e est treet lo al ro t team at oldman a s Asset ana ement
i r
tic a t ati a i r tiat
the growing demand for ecommerce?
a t ca itali
ere are m ltiple ays to apitali e on t e ro in demand
are o ses and
or e ommer e real estate investors ildin
lo isti s enters is one ommon pat Ro oti s a esses it rom a
di erent an le addressin s pply ain ottlene s in l llment
enters
ere individ al orders et assem led and s ipped to
t e ons mer e pi in pro ess is time ons min and la or
intensive re irin a reat deal o movement et een di erent
parts o t e are o se Ro ots an introd e reater effi ien y to
t e pro ess as t ey travel et een pi in ones to olle t vario s
items
ile are o se or ers stay at t eir desi nated pi in
ones and mana e t e ro ots
is also an onvert are o se o s
into i er s illed roles ma e t em sa er and a ordin to or er
a o nts more en a in and less repetitive
ildin a ne ro oti s ena led l llment enter is a
t t ere s limited land or ne
ilds
strai t or ard tas
espe ially in a o ntry li e apan e a se o t is retro ttin
e istin properties is o ten more pra ti al
tm
more
allen in
a
enter is desi ned di erently and re ires a
stom sol tion
ese sol tions are availa le
t most o t em
re ire stoppin t e assem ly line to install t e te nolo y is
reates a dra on prod tivity as enters are o ten r nnin
to eep p it t e i demand e nolo y t at an retro t t e
assem ly line it o t dist r in t e operation is t ere ore a very
attra tive proposition oday t ere are e sol tions t at o er t is
apa ility and t e s ope o opport nity or t em is vast in o r vie
Japan has historically been a leader in electronics and robotics.
What factors have contributed to this?
any people in apan train as en ineers
i is an important
t t e apanese overnment s poli ies s pportin di ital
a tor
trans ormation and a tomation ave een riti al as ell n lar e
part t ese poli ies stem rom demo rap i realities a de linin
and a in pop lation portend a str t ral la or s orta e o
address it t e overnment as introd ed poli ies to a ilitate
prod tivity ro t and improve or in onditions espe ially
or p ysi al la or ar e s sidies ave one to ards s pportin
Hikari Hasegawa is on t e est treet lo al ro t team
at oldman a s Asset ana ement
start ps t at reate e e tive i
te sol tions Ro oti s
and a tomation ave ertainly ene tted
t t ere are ot er
interestin areas o o s as ell or e ample e re startin to see
sol tions t at se arti ial intelli en e to s pplement no led e
ased or
Long-term trends portend resilient
demand for warehouse automation and
logistics, in our view.
How do recent stock market dynamics, which have pressured
t c
l
c
t c
a ct
ra
t t
opportunity set?
e nolo y o sed sto s ave ertainly traded do n sin e t eir
i s
t in private mar ets e o s on t e lon
Novem er
term on term trends in reasin demand or ot e ommer e
sol tions and prod tivity sol tions as n mero s o ntries a e
similar demo rap i
allen es as apan portend resilient
demand or are o se a tomation and lo isti s in o r opinion
e nd o rselves in a more allen in
n ertain ma roe onomi
environment
t elieve t at prod ts aterin to asi
man
needs are more resilient in a do nt rn n a re ession people ill
t t eir dis retionary spendin
t lar ely maintain spendin
on non dis retionary items e elieve te nolo y t at elps
are o ses e pedite delivery o asi items li e ood and toiletries
s o ld prove more resilient
is may e
y e aven t seen t e
same val ation ompression in t is spa e as e ve seen in some
ot er te nolo y se tors n
Perspectives | 55
SUMMER 2022
22 | ISSUE 3
BEYOND THE
HEADLINE:
EXAMINING
RECENT
DISPERSION
IN GROWTH
EQUITY
Darren Cohen is lo al o ead
o ro t
ity at oldman
a s Asset ana ement
Juliana Hadas o ses
on port olio sol tions or
Alternatives apital ar ets
trate y at oldman a s
Asset ana ement
56 | Goldman Sachs Asset Management
SETTING THE STAGE
KEY TAKEAWAYS
•
e elieve mar et volatility
s o ld reate si ni ant nd
per orman e dispersion
•
e re ali ration o p li mar et
m ltiples s o ld event ally reset
private mar et val ations
•
e elieve t at ompanies it
stron
ndamentals so nd
val ations and resilient end
mar ets s o ld o tper orm
e
D
pandemi p lled or ard
demand or te nolo y a eleratin ot
t e tra e tories o and investor interest in
te nolo y ena led ro t ompanies
is led to a massive val ation re ratin
espe ially amon t e astest ro in
ompanies rom a nadir in
to
Novem er
p li ly listed yper
ro t so t are ompanies or instan e
sa m ltiple e pansion o over times
rom
to
t in Novem er
investor sentiment
t rned dramati ally a lmination o
on erns over ma roe onomi ead inds
and t e prospe t o risin interest rates
li ro t e ities ave sin e iven
a
ains o t e prior
mont s t e
NA DA omposite is do n
sin e its
Novem er i s and t e R ssell
ro t nde is do n
as o t e end o
ne 2 o ever eadline
res dis ise
si ni ant dispersion a ross individ al
names and se tors st li e in t e prior
re ime an in investor sentiment
as ad its most pro o nd impa t on
t e astest ro in ompanies yper
ro t so t are ompanies ave seen
t eir val ations de line y t ree
arters
rom t eir Novem er i s to t e end o
ne
to an avera e val ation o
ne t t elve mont reven es
is is elo
t e ran e seen in
ompanies
it more moderate ro t on t e ot er
and e perien ed val ation re ratin s on
a si ni antly smaller s ale ot p ards
and s se ently do n ards
Valuation Re-Ratings in Public Markets Have Varied Widely Across Companies
40x
Hyper Growth Software (>40%)
High Growth Software (20% – 40%)
Moderate Growth Software (10% – 20%)
Mature Software (<10%)
Next-12-Month Multiples of Revenues
35x
30x
25x
20x
15x
10x
8.0x
5.7x
5.2x
3.9x
5x
0x
Jun-19
Dec-19
Jun-20
Dec-20
o r e
en eim e rities ompany lin s and a t et as o
ne
Note ro t
ets de ned ased on
reven e ro t rate yper ro t o t are
in l des A
N R
N
A
D
ND N
A A
R
AR N
are
in l des AD
A A R A N AN A A N A R
R
DA N
R
N N
N
A
R
N RN ND N N N
AN
A
R
D N
A
N
RN
R
N oderate ro t o t are
in l des AD
A
AN
N A
AN
DN
NA
N R N
N N
at re ro t o t are
in l des A A A
A
A
N
N A N
R
N
R
A
D
D
RN
R N
Jun-21
AN
R
R D DAR
D
R
AN R
R AN
A
Jul-22
Dec-21
R
D
A
R D
D
D
i
D
DD
D
ro t o tR
N D
D
RN R D A
A
A N A
DN D
D
RD R N
R
DA
R
N A
R N
Perspectives | 57
SUMMER 2022 | ISSUE 3
n t e meantime a n m er o metri s
o er l es to evolvin investor sentiment
in private mar ets n late sta e vent re
apital t e median deal si e de lined in
Deal o nts and median val ations
ontin ed to trend p
t t ese
res
in l de deals a reed to in
and
anno n ed in
n ro t e ity
ot t e deal o nt and t e avera e
deal si e de lined in
and
respe tively alt o
t ese
res still
represent some o t e i est on re ord
A ter pea in in
private mar et
ndin avera e deal si es and val ations
are set to de line
The average late-stage
venture deal size was in
line with the top-quartile
deal, while the average
valuation has exceeded
the top-quartile figure.
$20
Median Deal Size By Stage ($mm)
ome o t e p li mar et dynami s
ave e n to impa t private mar et
strate ies as ell
per orman e
as lat or t e median vent re and
ro t e ity mana er 3 o ever t e
ll impa t o
an in sentiment on
ro t e ity and vent re apital a ed
ompanies ill li ely ta e several arters
to e determined d e to t e la in and
smoot in in erent in private mar et
val ations and reportin
Late-Stage Deal Sizes Have Fallen from Record Levels
Late VC
58 | Goldman Sachs Asset Management
Seed
Angel
$15.5
$15
$14.0
$11.0
$10.0
$10
$2.6
$0.7
$5
$2.7
$0.5
2012
2014
2016
2018
2020
2022
Late-Stage Valuations Have Continued to Climb
$140
Late VC
Early VC
Seed
Angel
$120.0
$120
$105.0
$100
$67.0
$80
$60
$45.0 $12.5
$12.0
$40
$9.0
$7.1
$20
$0
As is t e ase in p li mar ets o ever
eadline
res dis ise dispersion
nderneat nd stry ide statisti s ave
een driven y t e lar est deals so m
so
t at t e avera e reported late sta e vent re
deal si e as in line it t e top artile
deal
ile t e avera e reported val ation
as e eeded t e top artile
re And
it s t e lar est deals t at ave seen t e
lar est impa t in
ile t e median
late sta e val ation in reased in
t e
lar est deals sa lo er val ations
Early VC
$0
Median Valuation By Stage ($mm)
PRIVATE MARKET
DYNAMICS
o r e
it
2012
oo N
2014
A ent re
onitor As o
2016
ar
2018
2020
2022
ome o t is deviation re le ted p li
mar et val ation dynami s Anot er
important a tor as t e in l en e o non
traditional investors orporate vent re
arms rossover investors
yo t investors
e pandin into t e vent re and ro t
e ity spa e and ot ers Non traditional
investors parti ipated in
o total
vent re apital deal val e in
and ere
espe ially a tive in t e late sta e mar et
No some o t em espe ially rossover
rms are startin to retreat parti larly
rom t e late sta e se ment o t e mar et
roni ally t e lar e amo nt o apital raised
may ave near term miti atin
in
impli ations or private e ity mar s
s
are typi ally less li ely to an e mar s on
deals less t an a year old so to t e e tent
t at a meanin l proportion o mar s is
ased on transa tions ompleted it in t e
past year mar do ns may e s allo er t an
o ld ave een t e ase ad port olios
een older on avera e Ro st ndraisin
may also mean t at do n val ation ro nds
remain limited in t e near term any
ompanies are no
ell apitali ed some
Average Late-Stage VC Deal Size Has Been in Line with the Top Quartile Deal
Range of Late-stage VC Deal Sizes ($mm)
Also in line it p li mar et dynami s
serves as a parti larly allen in
omparison avin ro
t si ni ant
deviation rom lon term trends in vent re
apital and ro t e ity mar ets Deal
a tivity deal si es val ations val ation
step ps and t e n m er o me a deals all
re s arply last year
$60
Top Quartile
Average
Median
$30
$20
$16.0
$10
$4.9
$0
2011
o r e
it
oo
2013
eo rap y
$500
$400.0
$400
$300
$200
$120.0
$100
3.0x
A ent re
employee morale retention and re r itin
n t e attle or talent t ose ompanies t at
did not optimi e or ma imi in val ation at
t e top o t e y le s o ld ene t as t ey
ontin e to nd in line it or at a premi m
to t eir last ro nd
o ever a prolon ed period o
ma roe onomi
allen es and n ertainty
o ld mean t at an ad stment is merely
postponed rat er t an avoided As s
investors s o ld loo eyond t e p omin
arters and eval ate at t ese dynami s
mean or t eir port olios in t e lon r n
Median
Average
2.6x
2.4x
2.2x
2.0x
1.8x
1.6x
1.4x
1.2x
1.0x
oo N
2021
Late-Stage Valuation Step-Ups Increased Sharply in 2021
$38.5
2014
2019
2.8x
$572.0
2012
2017
As o De em er
Bottom Quartile
$600
it
2015
ave s ffi ient r n ay to nd operations
or as lon as several years it o t needin
to ret rn to apital mar ets espe ially i
t at means a eptin a do n ro nd t er
ompanies may avoid t e appearan e o
do n ro nds y str t rin terms it
reater prote tions or ne investors e
reater li idation pre eren es rat et
provisions onverti le str t res
ile
nominally maintainin a lat val ation
tr t red e ity transa tions are li ely to
in rease si ni antly in vol me and apital
ommitted as mana ement teams try to
avoid t e ne ative opti s o a do n ro nd
and t e related ne ative impli ations or
$700
$0
$56.4
$54.9
$40
Median and Average
Late-Stage VC Step-Ups
Quartile Distribution of U.S. Late-Stage
VC Pre-Money Valuations ($mm)
o r e
Top Quartile
Average
Bottom Quartile
$50
Average Late-Stage VC Pre-Money Valuation Has Been Above
That of the Top Quartile Deal
$800
Median
2016
onitor As o
2018
ar
2020
2022
11 012 013 014 015 016 017 018 019 020 021
2
2
2
2
2
2
2
2
2
2
20
o r e
it
oo
eo rap y
As o De em er
Perspectives | 59
SUMMER 2022 | ISSUE 3
INVESTMENT
IMPLICATIONS
it t e e tremes o
in t e rearvie
mirror today s investments are ein
made at val ations t at appear more
reasona le relative to ot istori al levels
and ompanies nderlyin
ndamentals
any ro t e ity sta e ompanies ave
so nd siness models it ompellin
nit e onomi s in o r vie and are
s alin
i ly and effi iently e roader
t eme o di ital trans ormation o t e
e onomy and so iety s o ld ave m ltiple
more years to play o t o ever iven
t e m ltiple ma roe onomi ead inds
and reat n ertainty in t e near to
medi m term e e pe t dispersion to
in rease a ross ompany se tor and nd
per orman e oin or ard
n ertain se tors demand may prove
more resilient t an in ot ers or instan e
so t are as e ome so deeply em edded
in ons mers lives and ompanies
operations t at stomer retention s o ld
old p etter t an in past re essions
Demand rom ne lients is enerally
more elasti
it an attendant impa t on
reven e ro t
t ertain areas s
as y erse rity s pply ain sol tions
and or lo a tomation are seein
str t rally driven demand t at may ave
less y li al sensitivity e end stomer
matters too ompanies aterin to
lar e esta lis ed ompanies are etter
positioned to retain t eir stomers and
reven es t ro
a prolon ed do nt rn
t an are ompanies aterin primarily to
smaller emer in ompanies t at may
t emselves e less resilient
perational and nan ial dis ipline
in l din as mana ement s o ld
also e ome an in reasin ly important
di erentiator
e ndin mar et ill
li ely e more allen in oin or ard
espe ially as some o t e players t at
drove t e i velo ity o
e
rossover nds ave p lled a As
a res lt ompanies it o t s ala le
s staina le siness models and s ffi ient
as to nan e operations t ro
a
do nt rn may ail more o ten tron er
ompanies on t e ot er and s o ld do
60 | Goldman Sachs Asset Management
ell and ro into t eir
val ations
over time or instan e a ompany nded
at
reven es e perien in
ann al
reven e ro t
o ld ave an implied
val ation o
reven es one year
en e
yper ro t ompanies remain
a tively p rs ed and may ontin e to raise
apital at ealt y premi ms
nd per orman e dispersion ill
e a n tion o ot di eren es in
t e o t omes o nderlyin port olio
ompanies and o t e timin and dis ipline
o apital deployment n a re ate nds
deployin t e ma ority o t eir apital in
more dis iplined environments may are
etter t an t ose t at deploy si ni ant
apital in more e
erant mar ets
nds t at maintain val ation dis ipline
t ro
e
erant mar ets s o ld e ell
positioned to o tper orm t eir peers
aminin t e ealt o nderlyin port olio
ompanies t e onsisten y o o s and
dis ipline o investment strate y o
s
and t e pa e o apital deployment are all
important as asset o ners assess t e state
o t eir vent re and ro t e ity port olios
and plan or t e t re n
o r es
2.
3.
De ned as ompanies it ann al reven e
ro t
ar ee as o t e lose o
ne
2022.
am rid e Asso iates as o ay
it
oo as o ar
Deal o nts
in late sta e vent re in l de ot re orded
deals and estimated deals ased on istori al
patterns o deals reported it a la eyond t e
data release period
it
oo as o ar
it
oo as o ar
FUNDRAISING FRENZY:
NAVIGATING PRIVATE MARKET
MANAGER SELECTION
Amy Jupe is lo al o ead
o rivate
ity ana er
ele tion at oldman a s
Asset ana ement
Perspectives | 61
SUMMER 2022 | ISSUE 3
KEY TAKEAWAYS
•
sta lis ed s are raisin ne
nds at an a elerated pa e it
t e avera e time et een nds
allin elo t ree years or t e
rst time in a de ade
•
it a re ord n m er o
nds in
mar et and an n ertain ma ro
a drop
s ave a m ltit de o
a tors to onsider as t ey mana e
t eir private mar et port olio
•
oday s mar et presents n mero s
allen es to navi ate
t it
also reates opport nities or
s t at ave in o se e pertise
operational apa ity and apital
le i ility
I
t is diffi lt to overstate t e ro t o
private mar ets in re ent years Ann al
ndraisin as e eeded tn every
year sin e
p s in dry po der
to an all time i
As
ame to a
lose sentiment aro nd private mar ets
as over elmin ly positive n addition
to stron paper ains amidst risin
val ations nds distri ted as a
to investors at re ord levels t an s to
avora le apital mar et onditions
Appetite or ne strate ies remained i
as a prolon ed s i t in asset allo ation
a ay rom traditional strate ies and
to ards private mar ets driven y stron
istori al ret rns
as rt er s pported
y re ord lo interest rates
ile distri tions rea ed re ord levels in
so did t e pa e o apital deployment
it pent p demand ollo in t e
pandemi ind ed slo do n eneral
partners
s ave een ta in advanta e
o avora le onditions to deploy more
rapidly leadin t em to ret rn to mar et
more i ly to raise t eir ne t la s ip
nd rt ermore many are e pandin into
ne strate ies and or la n in spe iali ed
nds o sed on spe i se tors and
se ments o t e mar et oday esta lis ed
s are raisin ne
nds at an a elerated
pa e it t e avera e time et een nds
allin elo t ree years or t e rst time in
a de ade
ese ompressed ndraisin timelines
ave p t press re on limited partners
s n
a re ord n m er o ne
private mar et nds are see in apital 2
ome s are ndin t emselves at t e
pper end o t eir allo ation limits or
t e rst time in years or in t e position o
avin e a sted t eir ann al ommitment
d ets in only t e rst arter Re ent
dra do ns in p li mar ets are also
raisin on erns a o t t e denominator
e e t
ere a de line in t e total si e o
a port olio i e t e denominator a ses
t e private mar et allo ation to ro as a
per enta e o t e port olio At t e same
time many s are a in s stantial
mar ps in t eir private mar et port olio
res ltin in a n merator e e t t at as
p s ed some s to t e top o or in some
ases over t eir allo ation tar ets
As private mar et allo ations s ell
some s are t rnin to t e se ondary
mar et to trim t eir oldin s and ens re
t ey an allo ate to ne
nds any
s a e reso r e allen es and time
onstraints as t ey attempt to assess all
o t eir re p ommitments let alone
ne opport nities
ile many s nd
t emselves at or near allo ation limits
ot ers are still in t e pro ess o rampin
p t eir private mar et pro rams and
strivin to it allo ation tar ets t at ave
een in reased in re ent years n today s
A Record Number of Private Equity Funds Are Seeking Commitments
Capital Targeted
Funds in Market
2,500
$1,000
2,000
$8,00
1,500
$600
1,000
$400
500
$200
0
$0
Jan-19
o r e re in As o April
62 | Goldman Sachs Asset Management
$1,200
Jan-20
Jan-21
Jan-22
Apr-22
Aggregate Capital Targeted ($bn)
Number of Funds Raising
3,000
Proportion of Respondents
Investors Continue to Increase Private Market Allocations
70%
Private Equity
Venture Capital
Private Debt
Real Estate
Infrastructure
Natural Resources
60%
50%
40%
30%
20%
10%
0%
Decrease Allocation Maintain Allocation
Increase Allocation
Decrease Allocation Maintain Allocation Increase Allocation
Nov-20
ted in Novem er
nds too lon er to rea a nal lose
in
d e to t e allen es o t e
pandemi
it t e avera e time to lose
a private apital nd risin to
mont s
a ter ein
mont s or less ea year
sin e
at trend as ontin ed
early in
n addition to t e pandemi
impedin d e dili en e pro esses a
prolon ed s i t to ards lar er nd si es
is also playin a role Not only are nd
si es trendin lar er
t t e avera e nd
t at losed in
rea ed
o its
tar et
at moment m as also ontin ed
in
it t e avera e nd losin at
o tar et 3
ven as nds ro lar er t e time
et een ndraises as allen to less t an
t ree years or t e rst time in a de ade As
some s raise lar er nds and in i er
s ession t e pa e o apital deployment
is top o mind apital all rates or post
vinta es are aster t an or nds
raised earlier in t e de ade
i is
$700
$600
$500
$400
$300
$200
$100
$0
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
NEW DYNAMICS IN THE
FUNDRAISING MARKET
The Average Fund Size Has Hit an All-Time High
Funds Are Eclipsing Fund Targets but Taking Longer to Close
25
Average Months to Final Close
% of Target at Final Close
120%
100%
20
80%
15
60%
10
40%
5
20%
0%
0
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
ro ded mar et apital availa ility an
e an advanta e or s as an internal
reso r es to effi iently ond t d e
dili en e Re ardless o t eir rrent
positionin
s need to e o ni ant o
mar et dynami s as t ey develop t eir
ommitment plannin and onsider t e
terms presented y ot esta lis ed and
emer in
s
ere is never a sin le
play oo in private mar ets
t t at is
parti larly t e ase today
and Novem er
Average Fund Size ($mm)
re in investor s rveys ond
Fundraising Duration (Months)
o r e
Nov-21
o r e re in As o
ay
Perspectives | 63
SUMMER 2022 | ISSUE 3
Private Market Funds Have Been Resilient in Market Downturns
a Dra do ns D rin
ar et Do nt rns
Venture Growth Buyout Senior Debt Subordinated Credit Opps
Distressed Real Estate Infrastructure
Dot om
N
D
o r e
nd strate ies are de ned and lassi ed y am rid e Asso iates As o De em er
or t e respe tive strate y d rin t e desi nated period Dot om era is
is
perpet atin a y le o
i
ndraises
om ined t ese trends nders ore t e
i r ation t at as een in reasin in t e
mar et or some time top tier s ave
een a le to raise apital seemin ly at ill
o ten in s ort order
ile s
par and
avera e s are spendin lon er in mar et
ost investors ontin e to ave i
e pe tations or t e private mar ets
it a s rvey in ar
s o in t at
instit tional investors e pe t private e ity
and real assets to deliver t e est ris
ad sted ret rns over t e ne t
mont s
a ross all asset lasses
t investors need
to e espe ially dili ent in t e rrent
environment as si ni ant mar ps ave
een made to private mar et port olios
in tandem it t e post pandemi r n
p in private mar ets iven t e s orter
time in et een ndraises
s ave less
pro ress to eval ate
en a
ret rns to
mar et ne essitatin reater relian e on
nreali ed ret rns
Re ardless o t e mar et a drop
resear
as o nd t at a
rrent nd s
per orman e ran is at its pea
en t e
is ndraisin or a ollo on nd
or t o reasons t at are pertinent in
today s mar et irst is t at
s appear
to ndraise on t e eels o ood e its
and private mar et s ave set re ords
in re ent years
e se ond is t at lo
rep tation s appear to p ardly mana e
val ations at t e time o
ndraisin
NAVIGATING THE MARKET
it a re ord n m er o
nds in mar et
s i tin val ations in p li and private
64 | Goldman Sachs Asset Management
a dra do n represents t e pea to tro
D
is
mar ets and an n ertain ma ro a drop
s ave a m ltit de o a tors to onsider
as t ey mana e t eir private mar et
port olio
e rrent environment and
mar et dynami s ertainly need to e
onsidered
t private mar et investin
is in erently a lon term endeavor t at
re ires a mindset t at loo s eyond
today s allen es and onsiders
at
de isions an e made today to set a etter
pat or t e t re
Top tier GPs are able to
raise capital seemingly
at will, often in short
order, while sub-par and
average GPs are spending
longer in market.
Make a Roadmap
ommitment pa in and as lo
modelin is t e o ndation o private
mar et investin and needs to e revisited
at a re lar aden e to ens re investments
ein made today mat t e intended
tra e tory o t e allo ation or years into
t e t re ome s today are ndin t at
t e prior ommitment s ed le may e too
a ressive and t at less apital is availa le
t an previo sly t o
t or ne and re p
ommitments n t ese sit ations rat er
t an red in
relations ips some s
ave een optin to rite smaller e s
to maintain e pos re to top tier nds and
a
re ate per orman e
not ris losin a ess to t e ne t vinta e
As t ese ad stments are made
s need
to assess vinta e year diversi ation to
ens re t e port olio is not overe posed to a
parti lar part o t e y le
it
s lar ely di tatin
en ne
nds
ome to mar et and o m
apa ity is
availa le
s an o ten eel po erless in
ontrollin t e ndraisin alendar
ile
ertain aspe ts ill al ays e o t o t eir
ontrol
s an e proa tive it t eir
e istin
s y dis ssin e pe tations
or
en ne
nds ill ome to mar et
n t e rrent environment
s in some
sit ations ave een en o ra in
s
to delay ndraises iven t e s r eit
o ve i les in mar et and t e desire to
maintain vinta e year diversi ation
Go Line by Line
s need to ta e a ndamental approa
to nder ritin ot ne and e istin
s
Re ppin
it e istin
s tends to e
ere s start and t at is parti larly
tr e today more t an al o investors
are prioriti in e istin relations ips
in
p rom only
a year a o
o ever a ottoms p analysis is
needed to nderstand t e per orman e
o ea
nd in t e port olio it ne
nder ritin or ea
nd re ardless o
o
ell t e mana er is no n viden e
or per orman e persisten e is la in in
yo ts it a re ent st dy s o in t at
or post
yo ts t e onventional
isdom to invest in previo sly top artile
ile t ere is
nds does not old
eviden e o persisten e in
t e people
it in t e or ani ation are t e r ial
omponent it resear ers ndin t at
t e partner s man apital is t o to
ve times more important t an t e
rm s or ani ational apital in e plainin
per orman e
o t at end eval atin
t e spe i people responsi le or
so r in leadin and mana in individ al
investments is essential to nderstandin
o to attri te per orman e it in a rm
Not only does t e
need to e i
ality t so does t e spe i investment
strate y oday t e mar et as lar ely
i r ated et een lar e m lti strate y
s it si ni ant s ale and smaller
o ti es t at o s on narro er ran es
or even a sin le area in reasin ly de ned
y ot a eo rap i and se tor ind stry
spe iali ation or esta lis ed s investors
s o ld eval ate o ret rns ere enerated
in t e past levera e m ltiple e pansion
operational improvements or inor ani
ro t and et er t e same play oo
is via le oin or ard arti larly or ne
s or t ose la n in
nds in ne ni es
t e mana er s o ld e a le to demonstrate
y t ey are parti larly ali ed to
so r e deals and enerate di erentiated
per orman e aro nd a tar eted ell
arti lated strate y
or esta lis ed s re ent a tivity s o ld
e ompared to ot prior nds and t e
p rported strate y or t e ne
nd to
identi y style dri t
et er in terms o
deal si e ind stry re ion or str t re
rivate e ity a tivity is in reasin ly
movin into te nolo y or e ample
i
o ld leave investors it more e pos re
to t e spa e t an t ey e pe t any nds
t at p rport to e lo al are eavily
tilted to ards developed mar ets or even
a sin le lar e o ntry li e t e
ile
re ional nds are o ten tilted to ards
spe i
o ntries
LPs should be cognizant
of their competitive
advantages as they
vie with other capital
allocators.
nvestors s o ld also e a are o
an es
in apital deployment as a i er
investment pa e an lead to more e pos re
to ertain mar et environments and lessen
t e ene ts o vinta e year diversi ation
any s are also levera ed at t e
nd level
i represents an added
e pense and an an e t e pro le o
t e nd Additionally s ess l s
o ten a ressively in rease t e tar et
si e or s se ent nds
i
an not
only a se a s i t in strate y and position
on entration t also alter in entives
Understand the Fine Print
n today s mar et as many s are ta in
lon er to lose nds and dealin it
ei tened ompetition s may e in a
relatively etter position to ne otiate t an in
re ent years
t even i
s are n illin to
d e on eadline terms s need to read
t e ne print and ens re t ere is ali nment
in t e me ani s o t e nd operations
Additionally s may e a le to ne otiate
additional ene ts s
as o investment
opport nities t at may not e odi ed in
le al do ments t old material val e
ven en reso r es are stret ed t in
revie
and deadlines loom a t oro
o t e le al do mentation is re ired
eadline ees and terms remain little
an ed rom istori levels
t s need
to loo eyond t e mana ement ee and
rdle to nderstand o ees are ein
al lated and e penses are a o nted or
ome s may ar e administrative ees
o tside o t e mana ement ee reatin
additional osts t at are diffi lt or s to
dete t ome nds implement ontra t ally
modi ed or red ed d iary d ties into
nd do mentation
i
an lead to
impli it osts
pro lemati d rin o investments
ere
detailed dili en e is re ired nder an
e pedited time rame
s s o ld o s
t eir e orts
ere t ey ave di erentiated
s ill
ile or in strate i partners ips
or o tso r in ertain elements o t e
port olio to ma imi e impa t and s ale
oday s mar et presents n mero s
allen es to navi ate t it also reates
opport nities or s t at ave t e in o se
e pertise operational apa ity and apital
le i ility to e e te s a ed it allo ation
limitations need to nd reative ays to
allo or le i ility in t eir private mar et
pro ram to ens re de isions made today set
t e orre t pat or t e t re or s t at
are nder allo ated and a le to ma e ne
ommitments no may e an opport nity to
a ess s t at ot er ise may e apa ity
onstrained and or e ne relations it t e
leadin mana ers o tomorro n
o r es
2.
3.
it
oo
nd trate ies Report As o
De em er
re in As o April
re in As o April
ommon nd ommon nd rvey inds
nstit tional nvestors n reasin ly a tio s
Amid ei tened onomi Ris s As o ar
ar er rad
and as da Aya o nterim nd
er orman e and ndraisin in rivate
ity
ly
o rnal o inan ial onomi s
ol
No
Ro ert
arris im en inson teven N aplan
and R edi er t e as ersisten e ersisted
in rivate
ity viden e rom yo t and
ent re apital nds Novem er
ens i ael and R odes rop
att e
sa
artners ip reater t an t e m o ts
artners As o
ly
Know Thyself
o t e dis ssion in private mar ets
enters on t e aptit de and reso r es o
t e
t s s o ld also e o ni ant
o t eir apa ilities as t ey vie it
ot er apital allo ators ne t in t at
many s ave in ommon is a relative
la o internal reso r es to e e te on
t e am itions o t eir private mar ets
pro ram
is an e parti larly
Perspectives | 65
SUMMER 2022 | ISSUE 3
THE
ENERGY
TRANSITION TRINITY
Vikrum Vora is a ort olio
ana er and enior Resear
Analyst or t e i id Real Assets
team at oldman a s
Asset ana ement
66 | Goldman Sachs Asset Management
ENERGY SECTOR TRENDS
•
Ne
eopoliti al and ener y
mar et realities ave a elerated
t e est or lon term a orda le
lean and se re ener y t e
ener y transition trinity
•
rom a p li mar ets investment
perspe tive e e pe t ot
traditional and alternative ener y
providers to ene t in a s stained
environment o i
ossil el
pri es rapid deployment o lean
te nolo y and t e res orin o
ener y s pply
•
o ma e t e ener y transition
possi le e elieve t e orld
needs to see ontin ed a tion
rom poli yma ers alon
it
si ni ant apital investment
in nderinvested areas o
de ar oni ation
T
ere s little do t t at o r
t a ainst
limate an e as driven remar a le
s i ts in te nolo i al development
re lations ons mer pre eren es and
investor sentiment as e transition to a lo
ar on e onomy ore re ently o ever
ne eopoliti al and ener y mar et realities
ave emer ed e R ssia raine on li t
ile deeply psettin on a man level
as sent ossil el pri es even i er led to
t e temporary emer en y re introd tion
o dormant ossil el in rastr t re in parts
o
rope and i li ted t e dan ers
o over relian e on any sin le o ntry as
an ener y s pplier ese a tors ave
only intensi ed t e est or lon term
a orda le lean and se re ener y
at
e t in o as t e ener y transition trinity
A ievin t is trinity is a er lean tas and
it on t appen overni t o et t ere e
elieve ontin ed poli y a tion is needed
to miti ate and adapt to limate an e
ild s pport or
at ill e a diffi lt and
ostly transition and in entivi e si ni ant
apital in nderinvested areas o lean
ener y val e ains
e ore e onsider
at mi t e re ired
to ma e t e trinity possi le e need to p t
t e rrent ener y mar et environment
into onte t and e amine t e ma or
trends in motion i
ossil el pri es
t e a elerated rollo t o
eap lean
te nolo y and t e res orin o ener y
a trend as an impa t on t e orld s
o rney to ards a orda le lean and
se re ener y and as investors in p li
mar ets e elieve t ey o ld prove to
e lon lastin t emes ene tin ot
traditional and alternative ener y providers
Trend 1:
tai
i
il
l ric
a or ener y en mar s are p et een
and
sin e
. Nat ral as
pri es are i er d e to aster demand
re overy omin o t o
D
as ell
as ti t as ndamentals driven y s pply
o ta es in t e lo al as val e ain and
years o nderinvestment rope is relatively
orse o t an t e
d e to t e re ion s
dependen e on R ssian as and avin less
stora e o as needed or inter mont s
Oil & Gas and Power Prices Have Seen a Dramatic Increase Since The End of 2020
600%
500%
Change YoY
KEY TAKEAWAYS
n dere lated or li erali ed po er
mar ets li e t e
and rope nat ral
as sets po er pri es
i is
y e see
i pri es or ele tri ity rent r de t e
lo al oil en mar
as in reased or
similar reasons o stron demand re overy
and ti t s pply ri es o minerals li e
opper ni el o alt and al min m ey
inp ts or rene a les po er rids and
ele tri ve i les are also p e a se o
pandemi related apa ity o ta es s pply
ain ottlene s and i er transport
osts or pri es to ease mar ets o ld
need to see eit er demand destr tion or
ne s pply And
ile e do see some ne
s pply omin on or ener y transition
minerals e elieve it s li ely t at ossil
el pri es ill remain elevated as most
prod ers ave investors loo in or
ret rn o apital and or ave lo isti al
onstraints arrin more strin ent
overnment poli ies t e more li ely ase
or ossil el demand destr tion o ld e
d e to ontin ed i pri es as opposed to
a s it to reener alternatives
400%
300%
200%
100%
0%
European
Natural
Gas Prices
European
Power Prices
U.S.
Power Prices
Brent
Oil Prices
Key Energy
Transition Mineral
Prices
o r e oldman a s Asset ana ement and loom er Data as o ne
ropean nat ral as pri es
eneri st
Nat ral as ase oad ont ly t res ropean o er ri es ermany o er aseload or ard
ear
o er ri es
estern
Day A ead
R Avera e ey ner y ransition inerals re le t
an avera e pri e ret rn o Ni el o alt opper and Al min m e l des lit i m d e to data availa ility All pri es
denominated in
dollar
Perspectives | 67
SUMMER 2022 | ISSUE 3
Trend 2:
Rapid Deployment of Cheap, Clean Tech
e transition o ever isn t st a o t
solar and ind t re ires a step an e
in investment and deployment o lean
te nolo ies raditional ener y ompanies
ill li ely play a ma or role sin e t ey
ave de ades o e perien e in resear
and development and mana in apital
intensive pro e ts and also ene t rom
improvin alan e s eets it risin levels
i er ossil el pri es serve as a si nal
t at an speed p t e transition to reen
ener y
ile e elieve it s ell nderstood
t at t e ost o ne
ild rene a les is
eaper t an ne
ild ener y so r es
see art on pper ri t
at e t in is
less appre iated is t at even it t e ost
in lation e ve seen in
t e spread
et een ne
ild rene a les and e istin
ele tri ity pri es is ide or e ample
en e loo at t e lended solar and
ind pri in in rope it s
eaper
t an rrent ele tri ity pri es see art
on ottom le t
is demonstrates t at in
spite o in lation onvertin to rene a le
ele tri ity is still in t e money espe ially
iven t e rally in as and po er pri es n
a t many lean ener y ompanies are no
sayin t at lo al rene a les development
is a seller s mar et a trend e t in ill
ontin e iven t e massive rene a le
ildo t needed over t e ne t e de ades
o ree as lo availa le to invest ver
t e last t ree years a o t tn per year as
een spent on t e transition a ross p li
and private mar ets
t to et to net ero
y
e o ld need to see a si ni ant
in rease in investment to a o t tn per
year on po er eneration ener y effi ien y
rene a le el s it in and ar on
apt re see art on ne t pa e
Renewables Are Now Cheaper Than Traditional Energy Sources
USD Per Megawatt Hour
$500
2021
$400
$300
-87%
$200
-66%
$100
$0
The transition, however, isn’t
just about solar and wind. It
requires a step change in
investment and deployment
of clean technologies.
2009
Solar PV
Wind
Coal
Renewable Energy Sources
Includes $12/Mwh of
intermittency costs*
Nuclear
Gas - Combined
Cycle
Traditional Energy Sources
o r es oldman a s Asset ana ement loom er and a ard atest ll year data as o
ne
erman aseload year or ard pri es as o
Past performance does not guarantee future results,
which may vary.
Pricing Power Driven By Security, Costs, and Clean Mandates
1600
150
100
Blended wind & solar
PPA price is 65% lower
50
0
Average German
Baseload Price
Average European
Blended PPA Price
Capacity Additions (GW/Year)
Average Q2 2022 European
PPA Prices (EUR/MWH)1
200
Utility Batteries
Wind
1200
800
400
0
2012-2020
o r es oldman a s Asset ana ement loom er N and evel en ner y atest data availa le as o ne
a reement or ele tri ity po er a reement is a ontra t et een t o parties one i
enerates ele tri ity and one
year or ard pri es as o
Past performance does not guarantee future results, which may vary.
68 | Goldman Sachs Asset Management
Solar
i
2021-2030
2031-2040
2041-2050
A po er p r ase a reements A po er p r ase
is loo in to p r ase ele tri ity
erman aseload
Around $4tn of Clean Energy Investment Is Needed Globally Per Year to Reach Net Zero
Annual Clean Energy
Investment ($tn)
$5
Current Planned
Investment
$4
Net Zero Investment
Scenario
$3
$2
4X
$1
$0
2X
Average Investment
(2017-2019)
Average Investment
(2021-2050E)
Average Investment
(2021-2050E)
o r e oldman a s Asset ana ement and R NA Data as o De em er
e e onomi and mar et oreasts presented erein are or in ormational p rposes as o t e date o t is presentation ere an e no ass ran e
t at t e ore asts ill e a ieved lease see additional dis los res at t e end o t is presentation
Trend 3:
ri
r
ner y is no a se rity iss e or many
nations and some o t e orld s lar est
e onomies ave a s ort to medi m term
o s on res orin ener y s pply i e
a ay rom R ssian as and oal s pplies
n rope or e ample t e R o er
plan o tlines steps to red e rope s
dependen y on R ssian ossil els i
in t e near term is a o t diversi ation
o ossil el s pply alon it a o s on
deployin lean te nolo ies and red in
ons mption lon er term ore roadly
most ma or e onomies are aimin to
a elerate t eir transition not st it more
solar and ind
t also ar on apt re or
ard to a ate emissions as ell as a p
po er te nolo ies li e n lear rene a le
nat ral as atteries and ydro en ne
allen e in s i tin to rene a les o ever
is t e on entration o riti ally needed
minerals in sele t o ntries a pro lem
t at o ld mean t e orld is e an in
t e relian e on petro states or ele tro
states
i is li ely to o r nless e
ave s ala le te nolo ies t at rely on more
a ndant elements n t e attery spa e t is
o ld mean minerals li e iron or man anese
displa in lit i m ni el and o alt
MAKING THE ENERGY
TRINITY POSSIBLE
ile e are seein some pro ress to ards
ievin t e limate oals and tar ets set
y vario s o ntries e t in t e transition
is still in t e early sta es o m lti de ade
an e iven t e s eer s ope o entirely
re ildin t e orld s ener y systems and
reatin t e in rastr t re to s pport it As
t e ener y transition pro resses e elieve
ot additional poli y a tion and apital
is needed a ross t e traditional and lean
ener y val e ains
a
li at
a
r
i
t
r
r
e est or lon term a orda le se re
and lean ener y starts it a tion rom
poli yma ers e re seein steps in t e
ri t dire tion it ro in lo al politi al
onsens s on t e importan e o rea in
net ero t o
it s ort i li tin t at
ina and ndia
o olle tively a o nt
or a o t one t ird o lo al emissions
ave net ero tar ets t at e tend eyond
ar ets need to e ollo ed p
it implementation plans or le islative
mandates at t e o ntry or orporate level
and s o ld si nal t at i eavy ind stries
don t transition to a lo
ar on e onomy
t ey ll e le t o t o t e mar etpla e
oreover rom a s ienti perspe tive t e
latest assessment report rom t e nited
Nations nter overnmental anel on
limate an e
states t at it s no
or never to a t in order to limit t e orld s
armin to
and it pea emissions y
ile t is may e nli ely espe ially
iven t at ina is tar etin pea emissions
in
it s an alarm ell
e ore asts imply t at orld leaders and
poli yma ers need to ramp p redi le step
y step plans to rea t eir net ero oals to
ild on den e amon investors ind stry
iti ens and ot er o ntries e tas ill
e diffi lt and ostly t ne essary n o r
vie it o ld e desira le or poli yma ers
to ave a lear o s on lo erin reen
premi ms t e additional ost o
oosin
a lean te nolo y over one t at emits a
reater amo nt o reen o se ases so
de ar oni ation te nolo ies an ain
s ale e ve already seen t is play o t it
mat re rene a le te nolo ies li e ind
and solar t e elieve more overnment
in entives and mandates are needed to
mpstart moment m in ne er sol tions
and te nolo ies
e elieve reen ydro en and ar on
apt re are t o areas in most need o
ontin ed a tion rom poli yma ers n
t e
or e ample t e
ta redit
is t e main poli y drivin t e adoption
o ar on apt re it plans to in rease
t e ta redit rom t e rrent
per
ton o ar on dio ide apt red to
per
ton
ere are also plans or a separate
reen ydro en ta redit Alt o
overnments ill ave to e mind l o
reen lation t e s arp rise in t e pri e
o materials and minerals sed in t e
reation o rene a le te nolo ies
e
elieve poli y a tion and nan in rom
ot overnments and apital mar et
parti ipants is essential e also e pe t
re latory e orts t at see to in orporate
s staina ility metri s in nan ial
mar ets s
as t ose made y t e
staina le inan e Dis los re Re lation
DR and t e
a onomy as ell as
e rities and
an e ommission
proposals to in reasin ly ave an
impa t on apital allo ation
Perspectives | 69
SUMMER 2022 | ISSUE 3
Energy Policy Responses in Light of Russia-Ukraine Conflict
European Union
United States
China
•
•
•
aradi m s i t to ener y a tonomy
o sed on endin ossil el imports
and in reasin solar
ind and eat
p mp deployment
ort term all o t e a ove strate y
to r ener y risis it oal n lear
rd
and non R ssian as tar etin
red tion y
i
rrently
a o nts or
o
as s pply
on term o s on a eleratin
rene a les ydro en and po er
mar et re orm
•
•
•
•
Alt o
t e
is not a ma or R ssian
ener y importer o s is s pplyin
t e
it
as and res orin
rene a le man a t rin
e rin a ade in Ameri a pply
ain or riti al inerals t at are an
essential part o t e ener y transition
Alt o
time is r nnin o t a ead o
a eptem er
re on iliation
deadline o s remains on t e potential
passa e o limate related provisions in
t e ild a
etter A t
•
•
iven oal and nat ral as s orta es
in
ina is oostin domesti
nat ral as and oal prod tion
Ne oal mines and plants ave een
approved y t e state planner it
a oal to oost domesti prod tion
apa ity y
mm tons ann ally and
ild a
mm ton sto pile
till remains ommitted to
net
ero tar et
o rene a les
pea emissions y
and
rene a le man a t rin leaders ip
o r e oldman a s Asset ana ement loom er
ner y n ormation Administration A Data as o
ne
nevita le oli y Response
arterly ore ast ra er
pdate o lo al ener y land poli y and te nolo y developments
e e onomi and mar et ore asts
presented erein are or in ormational p rposes as o t e date o t is presentation
ere an e no ass ran e t at t e ore asts ill e a ieved Past performance does
not guarantee future results, which may vary.
r
a ital
i
itt
A ross p li mar ets e see nota le
ener y transition investments ein made
in l din e ity nan in o limate te
i e reen innovation ro in s staina le
ed in ome iss an e and e orts y
traditional ener y providers to diversi y t eir
siness models and de ar oni e
n
t o t irds
n o all limate
te investment ame rom p li e ity
mar ets driven y a stron pipeline o
initial p li o erin s
s a ordin to
loom er N . ind and solar onstr tion
and ener y e ipment ere t e most
pop lar ompanies or p li e ity
investors parti larly
s and se ondary
o erin s A ross private mar ets limate
te start ps raised
n irms
ildin ele tri ve i les ele tri airplanes
e s ooters and atteries ave een pop lar
it ot p li and private investors lately
as ompanies loo to raise lar e amo nts to
ild man a t rin
s oo in
rt er
a ead e elieve lean ener y ompanies
a p po er te nolo ies nat ral as
n lear atteries ydro en et and non
R ssian ommodity s ppliers o ld emer e
as t e lon term ener y transition inners
a ross p li e ity mar ets
70 | Goldman Sachs Asset Management
t s also ort i li tin t en t at t e
orld s
lar est oil and as prod ers
and re ners spent
n on lean ener y
in
a re ord year and a mp o
rom
ind and solar ma e p
t e ma ority o spendin or oil and as
ompanies
t investment as diversi ed
a ross ne te nolo ies s
as ener y
stora e and ydro en in re ent years
any traditional ener y providers are also
strivin to t t eir o n emissions in more
innovative ays y sin te nolo y to
red e met ane emissions or e ample
ltimately nless t ere are si ni ant
s i ts in rrent overnment poli ies and
rea t ro
s in lean ener y te nolo ies
rom a p li mar ets perspe tive e
elieve ot traditional and lean ener y
se tors ill need to oe ist or m ltiple
de ades e ore t e orld an rely lly on
alternative so r es o ener y and as s
t e traditional ossil el val e ain s o ld
e de ar oni ed as m
as possi le
n t e ed in ome orld a deepenin
pool o s staina le ond iss an e ot
orporate and soverei n is allo in
investors to dire t apital to ards ener y
transition and e e pe t t is pattern to
persist reen onds ave e ome t e
most pop lar variety o s staina le de t
and iss an e o reen onds do led in
to land at
n
rope is still
t e most proli mar et o all or reen
ond iss an e
t Asia re t e astest as
entities t ere ent rom iss in
st
o t e reen ond mar et in
to
in
As t e move to ards a orda le
lean and se re ener y pro resses
e elieve ell alan ed ed in ome
port olios need to ta e into onsideration
le t tail do nside ris s related to t e
ener y transition and limate events or
e ample a o ntry s emissions ap at t e
soverei n level
ile also identi yin
ri t tail investment opport nities in
ompanies and o ntries t at are ell
positioned or t e transition
Where Is Capital Needed?
ost p li and private apital as ed
into rene a les and transport over t e last
de ade res ltin in nderinvestment in
ey areas in l din ener y se rity ar on
removal te nolo y and end o li e aste
mana ement mportantly e elieve ea
ind stry o ld still ene t rom ape
spend on de ar oni ation res orin and
s pply ain simpli ation
or o ntries to ens re ener y se rity
and s ess lly res ore ener y s pply
providin an ninterr pted availa ility o
ener y so r es at an a orda le pri e and
de ar oni e po er mar ets e elieve
t o ey te nolo ies ill li ely ontri te
to solvin t e ener y stora e allen e
tility s ale atteries and ydro en a
an ave a omplementary role it
atteries addressin intermitten y and
ydro en addressin seasonality
ile
atteries s per apa itors and ompressed
air an also s pport alan in t ey la
t e po er apa ity or t e stora e timespan
needed to address seasonal im alan es
ydro en o ld t ere ore event ally
emer e as t e pre erred sol tion or
lon term ener y stora e re ired to
alan e t e seasonal variation o po er
eneration demand
t ntil t e relevant
ener y stora e in rastr t re net or s
and smart rids and te nolo ies tility
s ale atteries and ydro en are ready to
s pport an in reasin ly ele tri ed ener y
e onomy ot nat ral as and n lear
po er ave a si ni ant role to play to
ena le a smoot ener y transition
e also see nderinvestment in
te nolo ies desi ned to red e
emissions in ard to a ate se tors s
as ement and steel prod tion Despite
t e moment m e sa in
as more
ar on apt re and stora e pro e ts ere
anno n ed t an ever e ore last year
did not see a rise in investment otal
ar on apt re and stora e ndin is
sensitive to lar e pro e ts ein nan ed
and loom er N didn t re ord any
investments lar er t an
n o ever
e see sele t e amples o ar on apt re
te nolo y providers or in
it a tories
to develop ll s ale ar on apt re
onditionin ompression eat inte ration
and stora e a ilities dramati ally red in
emissions rom ind strial plants aro nd
t e orld ome are sin t ermo atalyti
pro esses rea tin t e
it ydro en
to ma e synt eti li id els ot ers are
o erin ar on apt re as a servi e sin
ater and solvent as a ents
t ltimately
e need to see more o t is vent ally
e e pe t ar on apt re osts to de line
and elieve t at t e se tor ill ro into a
ma or lo al ind stry playin an important
role to rea net ero y
Anot er area in need o apital is re y lin
aste rom end o li e solar panels and
atteries olar panels typi ally last no
lon er t an
years e ore eadin to
land ll
t ne e orts to re y le panels
o ld red e ot t e amo nt o aste
prod ed and ne material mined is
also applies to atteries as attery ener y
stora e systems re ire a t oro
disassem ly o t e attery pa s to e tra t
t e val a le materials e
o alt ni el
lit i m and man anese rom t e at ode
ese materials are not as easy to e tra t as
t e lar e metal plate in a lead a id attery
and tility si ed attery stora e nits are
lar e ind ener y is also diffi lt t r ines
are enormo s and re ire lo isti al eats
st to transport t em to and rom t e
installation site and llin rene a les
removes val a le materials rom t e
e osystem so e e pe t ompanies t at an
solve t is allen e ill ene t
inally e elieve t e ma nit de
o demand or ra materials is
nderappre iated and t e s pply ain
s ale p re ired to meet ener y
transition oals is reater t an many
people ompre end or e ample demand
or lit i m ni el man anese o alt
and rap ite in redients in lit i m
ion atteries may ro
y as m
as
in t e ne t de ade An added layer
o omple ity is t e lo ation o t e ra
materials and t e roader s pply ain
oday many o t ese ra materials are
mined in pla es t at may not e relia le
so r es or Nort Ameri an and ropean
man a t rers in t e lon term e t in
man a t rers on t ese t o ontinents
ill p s to lo ali e in rease ontrol o
t eir s pply ains and ma e atteries
rom alternative more a ndant minerals
ere possi le
We regard energy
security, carbon removal
technology and end-oflife waste management as
underinvested areas of
the value chain.
LOOKING AHEAD
Deliverin ener y t at s not only eaper
and leaner t also more se re is a
mon mental allen e
t a ievin
t is ener y trinity is at t e eart o t e
sol tion to limate an e o et t ere
e elieve e need to see ontin ed
a tion rom poli yma ers and in entives
rom overnments t at elp s ale p
investments and innovation in areas
ran in rom ener y se rity and ar on
removal te nolo y to end o li e aste
mana ement e e pe t t e omin
de ades to e a period o in en ity in
t e ener y se tor
i
ill o er a ide
spe tr m o potential opport nities to
investors
ile n mero s ideas ill
inevita ly ail ot er ro nd rea in
te nolo ies may o er si ni ant investor
pside
e e onomi s ave to or and
poli yma ers ill ave to a ree on a pat
to e e tion ltimately t e o rney
to ards a ievin t e ener y trinity ill
re ire dis ipline patien e and oresi t
all allmar s o ast te investin n
o r es
2.
3.
oldman a s lo al nvestment Resear
A N reen ape
a in in rastr t re
appen
to er
lo al ar et ntelli en e As o e r ary
loom er N
ner y ransition nvestment
rends
an ary
oldman a s lo al nvestment Resear
e lean ydro en revol tion e r ary
oldman a s Asset ana ement levera es t e
reso r es o oldman a s
o
s e t
to le al internal and re latory restri tions
viden e rom yo t and ent re apital nds
Novem er
Perspectives | 71
SUMMER 2022 | ISSUE 3
EUROPE: RECOVERING
INTO A NEW REGIME
Samuel Finkelstein is t e
o i ed n ome and i idity
ol tions at oldman a s
Asset ana ement
72 | Goldman Sachs Asset Management
Gurpreet Gill is a a ro trate ist
on t e i ed n ome and i idity
ol tions team at oldman a s
Asset ana ement
A TURN OF EVENTS
KEY TAKEAWAYS
•
•
•
it in lation r nnin at a
year
i
monetary poli y in rope
as entered a ne era o positive
rates
i may attra t lo s into
e ro area ed in ome
ore astin
ere e ro area
ro t in lation and rates ill
settle t o
remains diffi lt
in t e a e o s i tin poli y
priorities and interrelated
str t ral or es in l din a in
demo rap i s an in mi ration
patterns di iti ation and i er
ener y pri es
e e pe t rad al normali ation
o e ro area monetary poli y and
a reorientin o s al poli y aimed
at artin a reener and more
e ita le pat to ro t
As re ently as a year e ore t e pandemi
t ere as a ro in on ern amon
poli yma ers and investors aro nd t e
apani ation o
rope a ne version
o apan s lost de ade o lo rates lo
in lation and lo
ro t Despite years o
ltra a ommodative monetary poli y e ro
area ann al eadline and ore in lation
avera ed st
and
et een
and
ore in lation missed t e
oalpost or t e entire period
e
s ort all as attri ted to lo al a tors as
ell as ropean spe i ones s
as ree
movement o la or and s al onservatism
ree years later eadline in lation is
r nnin at t e i est level in
years and
ore in lation as rea ed its i est point
A similarly s arp s i t in t e monetary poli y
o tloo as ollo ed n late
t e
ropean entral an
ad dropped its
poli y rate deeper into ne ative territory it
no end to antitative easin
in si t
and it e tended t e pro ram s time ori on
as re ently as
oday t e
as
ended
and e ited t e ne ative interest
2
rate poli y t at as adopted in
i tin interest rates o t o ne ative
territory is a momento s event or
ropean ed in ome mar ets it
impli ations or lo al and lo al investors
o et er it str t ral re orm positive
rates may reverse t e o t lo s t at
ropean ed in ome as e perien ed
over t e last ei t years
t to val e lon
term onds and determine strate i asset
allo ations investors need an idea o
ere
ropean ro t in lation and rates ill
settle in t e years to ome And t at s not
easily ans ered iven t e n ertainties
reated y ma or eopoliti al events li e
re it t e pandemi and ar in raine
as ell as a ross rrent o ve ey
interrelated str t ral or es
Force 1: Aging Demographics and
Migration Flows
tr t ral nemployment as een a
lon standin eat re o t e e ro area
la or mar et it an a ndant s pply
o mi rant la or rom astern ropean
o ntries a e ro t as een tepid
D rin t e pandemi s ort term or
s emes limited t e rise in nemployment
No a dynami re overy as p s ed
t e e ro area nemployment rate to
an all time lo and li ted la or or e
parti ipation to a re ord i
ile
ey meas res o a e ro t s
as
ompensation per employee and t e la o r
ost inde a elerated to de ade i s in
t e rst arter o t is year
o ey str t ral a tors may limit t e
e tent to
i t e la or mar et deviates
rom t e rrent y li al ti tness irst
rope s a e pyramid is invertin d e to
onsistently lo
irt rates and i er li e
e pe tan y As t e a y oom eneration
retires in t e omin de ades t e pool o
availa le or ers ill s rin potentially
reatin an p ard impet s or a es a
ey determinant o medi m term in lation
o t omes
Cumulative Net Portfolio Flows
Into Euro Area Bonds (€tn)
Higher Rates and Structural Reform May Reverse the Trend of Net Fixed Income Outflows
€1.5
The introduction of negative
rates in June 2014 led to an
r
r
a fi
income. rom
t ro
m lative net in lo s
into ro area ed in ome
assets totaled
tn sin e t at
time m lative net o t lo s
ave totaled
tn or
o
ro area D
€1.0
€0.5
€0.0
€-0.5
€-1.0
€-1.5
€-2.0
€-2.5
2000
o r e
aver Analyti s
2002
2004
2006
2008
oldman a s lo al nvestment Resear
2010
As o
2012
ay
2014
2016
2018
ross domesti prod t
2020
2022
D
Perspectives | 73
SUMMER 2022 | ISSUE 3
e ond rmer a e ro t in astern
ropean e onomies may moderate
mi ration lo s into t e e ro area in t e
omin years en years a o a Romanian
or er loo in or employment in t e
man a t rin se tor o ld in rease
earnin s ten old y mi ratin to ermany 3
At t e end o
t at a e advanta e
ad more t an alved iven ermany s
e onomi prominen e in t e e ro area
i er erman a es d e to e er
mi rant or ers o ld propel t e roader
re ion into a i er a e environment
at said e elieve t ere are several
o settin onsiderations A in
demo rap i s an also promote
disin lation t ro
i er savin s and
t e do ntrend in la or nion mem ers ip
t at as ontri ted to m ted a e
ro t is nli ely to reverse o rse n
addition le i le or arran ements
adopted d rin t e pandemi may e
disin lationary inso ar as t ey e pand la or
or e parti ipation and oost prod tivity
t ro
red ed time and osts on
omm tin
inally over t e lon er term
le al mi ration pat ays or re
ees
rom raine and ot er o ntries into
t e or or e o ld elp to o nter t e
e onomi impa ts o a in pop lations
Force 2: Accounting for Housing
e ropean in lation inde s o sin
is amon t e lo est a ross
ei t
advan ed e onomies and o r times lo er
t an t at in t e
o etter re le t
t e livin ost o e ro area o se olds
t e
said last year t at t e in lation
meas rement ill e pdated to in l de
o ner o pied o sin osts stimates
s
est t is ill li t ann al ore in lation
y
to
ea year D e to t e
y li al nat re o o sin osts o sin s
entry into in lation statisti s may speed
p t e responsiveness o in lation to t e
o tp t ap parti larly ore in lation
o ever it may ta e a de ade e ore t e
an e is made
ere is also onsidera le
n ertainty aro nd medi m term o sin
demand and s pply dynami s n o r vie
o sin s in l sion into in lation statisti s
is li ely to e a se ondary onsideration or
t e lon term in lation o tloo relative to
ot er ey str t ral a tors
74 | Goldman Sachs Asset Management
Force 3: A New Era of Energy Inflation
Developed mar et entral an s typi ally
loo t ro
s pply s o s s
as i er
ener y pri es as t eir dire t e e t on
in lation is ass med to e temporary
en t e
departed rom t is play oo
in
and
its rate i es proved
ine e tive
t today t e risin presen e
o p ysi al and transition limate ris s and
a s r e in reen investment s
ests t e
onventional vie may need pdatin
overnin oard mem er sa el
na el
as i li ted t ree elements o ener y
related in lation ntil rope a ieves
a orda le lean and se re ener y
1. Fossilflation: or i er ossil el
pri es is a n tion o i demand and
nders pply in ossil els d e to years
o nderinvestment and ar related
s pply disr ptions
e de ar oni ation
a enda ill preserve ti t nan in
onditions or ydro ar ons red in
s pply and li tin pri es
2. Climateflation: t e osts in rred rom
limate events in l din ood in lation
i are e pe ted to e ome more
re ent and severe
3. Greenflation: as ot a mi ro and
ma ro element At a mi ro level
reenin t e e onomy may p s p
pri es or ertain metals and minerals
At a ma ro level t e ropean reen
N
Deal t e Ne t eneration
pandemi re overy pa a e and t e
R o er plan see to oost ener y
se rity and advan e t e ener y
transition
e s r e in limate related
investment may add p to a si a le
o e ro area D avera in almost
o D per year d rin
is
reen investment as potential to li t
a re ate demand and in t rn in lation
e in lation impa t o reen investment
spendin is omple and n ertain t o ld
e lessened i prod ers and ons mers
s i tly s it to reen alternatives in
response to poli y in entives or i er
pri es A oost to potential ro t o ld
also temper t e in lationary impa t
verall e see s ope or i er ener y
related in lation ntil ar onomi s
prevails it te nolo i al innovation
and t e ene ts o s ale elpin to latten
t e de ar oni ation ost rve or lean
te nolo ies a ross almost all se tors
A Green Investment Surge Could Lift the Level of Real GDP in Europe by About 2%
In the Mid-2020s
CCS 3%
le troly ers 5%
Heating 5%
ses r
Renewables 24%
s 5%
Charging Stations 3%
Passenger EV 12%
The E.U. Green Deal
€10tn
Transmission grids 5%
Distribution grids 3%
Batteries 11%
ner y ffi ien y 22%
o r e oldman a s lo al nvestment Resear
ropean
limate an e As o ay
ar on apt re tora e
H2T, H2 Infra 4%
onomi s Analyst
e osts and pport nities o
Force 4: A Digital Tipping Point
o
rope as istori ally la ed
Nort Ameri a and Asia in t e di iti ation
o its e onomy di ital transition no
appears to e a ey ropean poli y priority
t at ill omplement its ener y transition
oli yma ers are also o sed on t e
on ept o di ital soverei nty t e a ility
to ontrol t e ne di ital te nolo ies and
t eir so ietal e e ts
At least
o t eN
re overy nd
ill e spent on t e di ital transition
in l din e pansion o road and servi es
alon side res illin and ps illin o
t e or or e Di ital priorities o pled
it reen investments may improve
e onomi o t omes in rope alon
t ree dimensions apital a m lation
employment e pansion and prod tivity
ro t
e t in t e di ital tippin point
as potential to elp rope avoid limate
tippin points
ile potentially improvin
ro t and tamin in lation
Force 5: Shifting Policy Priorities
e pandemi and t e ar in raine
ave rt er entren ed reen and di ital
am itions in rope on li t in t e re ion
as also led to a reset in orei n and
se rity poli y ot s o s ave already
p s ed poli y o ndaries into ne realms
tensive
ond yin as enlar ed
t e entral an s ootprint in taly s ond
mar et rom
pre pandemi to more
t an
today leadin to on erns a o t
and s al dominan e
oo in a ead e t in in lation
on erns d e to poli y a tions may e
almed y a ret rn to s al dis ipline
and a is
poli y it t e entral
an adoptin a
atever it ta es tone
on rin in in lation a to tar et at its
ly
meetin mportantly t o
ra mentation o t e rren y nion
remains a roni iss e t at as een
on ealed y years o monetary stim l s A
rise in de t servi in osts o ld inter ere
it t e
s rate i in pat and p t
on erns a o t de t s staina ility a
into o s parti larly or i
de t
mem er states s
as ree e taly
ort al and pain
t it is in times o risis t at t e
e pands its tool o and overnments
a ieve s al oordination
eN
Re overy nd provides a pre edent or a
rope ide s al response t at an e
sed a ain d rin a t re risis and t e
ne ransmission rote tion nstr ment
o ld e a po er l tool in an orin
soverei n ond yields in rope
at
said limited larity on t e onditions
nder
i t e
o ld e a tivated
ill li ely preserve t e ris o volatility
in ropean ond mar ets parti larly
d rin times o i politi al n ertainty
All told e e pe t a rad al normali ation
o monetary poli y in t e e ro area
i s o ld elp sa e ard a ainst
ra mentation ris
e are also en o ra ed
t at t e oal o
s al poli y rat er
t an simply see in a y li al oost to
demand as t rned more str t ral in
nat re to art a reener more e ita le
and di iti ed pat to ro t
RECOVERING INTO A NEW
REGIME
A ey
estion or investors is
et er
ill mar a pivot point or ropean
in lation monetary poli y and ed in ome
assets e see t ree pla si le s enarios
1. Reflation reset. rolon ed loose s al
poli ies may dampen t e impa t on t e
e onomy rom risin rates allo in
t e la or mar et to ti ten rt er and
a e ro t to pi
p om ined it
a s rin in
or or e e o ld e pe t
t is to lead to i er in lation and rates
2. New normal. rope may ret rn to s al
dis ipline as t e impa t o pandemi
and ar related s pply s o s s side
le i le or and res illin o ld
improve in la or or e parti ipation
eepin a e ro t in e
t
elements o ener y in lation may persist
it ot rates and in lation settlin
a ove pre pandemi levels
n o r vie t e pat li ely r ns et een t e
re lation reset and lo lation reprise
s enarios it
rope enterin a ne
normal o moderately i er in lation
and interest rates relative to t e last y le
e move into a positive rate environment
may attra t more ed in ome apital
lo s s pportin t e e ro over time and
sponsorin a steeper ropean yield rve
t at o ld e s pportive or t e an in
se tor e end o
o ld also lead to
reater di erentiation in orporate ond
per orman e reatin se rity sele tion
opport nities or a tive mana ers
ere
is also potential or i er rates to attra t
interest rom in ome oriented investors
ile str t ral re orm o sed on ener y
transition and di iti ation may o er
attra tive ottom p orporate ond
opport nities verall e elieve t e
re overy o
rope into a ne re ime as
potential to stem or even reverse t e
trend o net ed in ome o t lo s o served
sin e
t e ll ontin e to o serve i
e are ra ed or a i er nominal ro t
and real rate environment n
o r es
a ro ond oldman a s Asset ana ement
2. Alt o
a tive
as ended t e
ill still e
yin onds as part o its reinvestment s ed le
i
ill e le i le in nat re t as also nveiled
a ne ransmission rote tion nstr ment
to
address soverei n ond mar et stress
3.
rostat ased on o rly la or osts in e ros
oldman a s lo al nvestment Resear
ropean Daily
A
trate y Revie and
ner
pied o sin As o
ly
e ropean reen Deal is a set o poli y
initiatives y t e ropean ommission it
t e aim o red in reen o se as emissions
y at least
vers s
levels y
and
rea in net ero emissions y
As de ned y t e ropean o n il on orei n
Relations
a ro ond oldman a s Asset ana ement
ased on
oldin s as a proportion o
o tstandin talian overnment de t in e r ary
and ar
is is e a se t e Re overy nd as set a le al
pre edent or sin Arti le
o t e reaty on
t e n tionin o t e ropean nion to iss e
de t or redistri tive rant p rposes
e e ro also ene ts rom a ealt y e ro area
rrent a o nt position
3. Lowflation reprise.
essive
monetary ti tenin may a se ro t
and in lation to pl n e leadin t e
to em ra e a lo rate poli y
t a sent
material do nside in lation ris s e
don t e pe t ne ative rates to ret rn
Perspectives | 75
SUMMER 2022 | ISSUE 3
THE MARCH OF THE WOMEN:
INCREASING DIVERSITY
IN ASSET MANAGEMENT
Candice Tse is t e lo al
ead o t e trate i Advisory
ol tions in t e lo al lient
siness at oldman a s
Asset ana ement
76 | Goldman Sachs Asset Management
Wendy Lin is a enior ar et
trate ist trate i Advisory
ol tions in t e lo al lient
siness at oldman a s
Asset ana ement
•
omen are nderrepresented in t e
asset mana ement ind stry despite
ma in p
o t e orld s
pop lation and ontrollin more
t an one t ird o o se old ealt
•
st
o p li
nd mana ers
in t e
ere omen in
a
per enta e t at as eld onstant
or t e last de ade
ere is
si ni ant room or improvement
else ere in t e ind stry as
ell in l din at alternatives
mana ers p li pension plans
and ons ltants
•
Addin diversity to mana ement
teams rin s ne perspe tives and
an res lt in etter de ision ma in
improved deal so r in more a ility
to attra t and retain talent and
etter investment per orman e
W
Diversi ation doesn t st apply to
allo atin a ross di erent asset lasses
and mana ers to red e volatility and
improve ris ad sted ret rns t also
applies to t e teams mana in money
and allo atin assets and diverse teams
an lead to etter o t omes ore
perspe tives and a
ro nds an drive
i er
ality de ision ma in improved
deal so r in and etter a ility to attra t
and retain talent elpin to drive siness
lon evity and investment per orman e
iven t e potential ene ts t ere are
ommon approa es and deli erate e orts
t at investors and asset allo ators an
ma e to improve representation o omen
in investin
Public Markets
p li mar ets ot e ity and ed
in ome are amon t e lar est in t e orld
at
tn and
tn respe tively
li
mar et investors ave t e potential to
in l en e a si ni ant amo nt o apital
n ort nately in
st
o p li
nd mana ers in t e
ere omen a
per enta e t at as remained ro
ly
onstant over t e last de ade a ordin
e a sol te n m er o
to ornin star
mana ers as in reased t as not ept
pa e it t e ro in ind stry
Despite in reased o s in re ent years
even mi ed ender teams are still t e
minority today Diverse investment teams
represented
o
nds and nearly
o assets nder mana ement in
y
omparison all men teams a o nted or
o
nds and nearly
o assets
ile all omen teams represented
less t an
o teams and
o assets
e stat s o s
ests t at it o t
intentional pra ti es to address str t ral
arriers or impli it iases t e ind stry ill
ontin e to s e to ard men
emale nd mana ers ave appeared to
t rive in more nas ent mar ets over t e
past
years
ere ni e opport nities
meant smaller presen e rom mainstream
investment mana ement players and
more opport nities or ne diverse
ideas n
at t e onset o inde and
e
an e traded nd
investin
omen a o nted or nearly
o
passive nd mana ers As t e mar et
as mat red omen no represent
appro imately
o passive nd
mana ers oday emale nd mana ers
Women Are Underrepresented in Fund Management
80%
Proportion of Fund Manager Teams
KEY TAKEAWAYS
omen ma e p
o t e
orld s pop lation earn more
t an
tn every year 2 and
ontrol over one t ird o total o se old
ealt
et a ender ap ontin es to
e ist espe ially it respe t to nan es
omen s representation in t e asset
mana ement ind stry in parti lar la s
e ind t e rest o nan ial servi es
By Number
By Assets
70%
60%
50%
40%
30%
20%
10%
0%
All Male
o r e
Mixed Gender
ornin star n and oldman a s Asset ana ement As o De em er
All Female
or ill strative p rposes only
Perspectives | 77
SUMMER 2022 | ISSUE 3
are still etter represented in emer ent
nd mar ets s
as ina
ere omen
a o nted or more t an
o mana ers
in
t i e t e lo al avera e
e ave seen a similar pattern a ross
ind stries etter representation in smaller
ne er mar ets and at smaller ne er rms
eein
omen ontri te in t ese spa es is
en o ra in
t e elieve eepin t em
as ind stries ro to s ale is riti al
and translatin diversity mandates into
lt ral in l sivity may elp
Alternatives Investors
A ordin to re in data omen
represented st over
o employees
or in in alternative assets in
A ross individ al eo rap ies asset
lasses o
n tions and seniority levels
t e ender ap e omes even reater
Diverse teams may have
access to differentiated
deal pipelines, recognize
new business initiatives,
or create relationships
with a broader group of
founders.
And omen s parti ipation de lines
si ni antly as t eir areers pro ress it
omen a o ntin or
o senior roles
ompared to
at t e mid level and
in nior positions Resear
y
insey
s
ests t at attrition itsel is not to lame
omen leave roles at ro
ly t e same rates
as men o ever omen are promoted at
lo er rates t an men o ile e elieve
re r itin
nior omen into alternatives is
important reatin an intentional str t re
aro nd trainin promotion and retention is
t e ey to improvin senior representation in
t e t re
n an ind stry t at is so amiliar it
en mar s e t in t at a en mar
approa to diversity an elp ettin
lear oals and meas rin and reportin
a ainst t em may improve a o nta ility
or e ample ens rin t at appli ant pools
are diverse a ross all roles diversi yin
leaders ip positions a ross e perien es
e sol tion or ea
rm may di er ased
on ir mstan es
t in s rveyin many o
o r ind stry peers in alternatives e o nd
a e ommon pra ti es
e oldman
a s Asset ana ement Alternatives
nvestment ana er and ele tion A
team olle ted responses rom
lon
Female Representation in Alternatives Asset Management is Particularly Weak in
Senior Roles
Female Employees in Alternatives as
a Proportion of Total Employees
40%
Mid-Level
Senior
Overall
35%
30%
25%
20%
15%
10%
5%
0%
o r e
Junior
Private
Equity
Venture
Capital
re in ro and oldman a
s Asset
Private
Debt
Hedge
Funds
Real Infrastructure Natural
Estate
Resources
ana ement As o De em er
78 | Goldman Sachs Asset Management
or ill strative p rposes only
only ed e nd private e ity and real
estate investment mana ement rms in
i o r lients are invested ost ave
a ritten poli y on e al employment
opport nity
or diversity e ity and
in l sion D and ond t periodi revie s
Diversity and in l sion is not st
an iss e o e ity it s an alp a
iss e as ell or s and or o r
lients n investin espe ially
man driven ndamental
investin
i is
at e do
every day yo see to reate
an ed e y avin a ni e
perspe tive relative to t e mar et
ne o t e ays to ltivate t at
variant perspe tive is to rin in
people it di erent perspe tives
and a
ro nds so t at o r
olle tive nderstandin is
etter in ormed and less iased
Re o ni in t is ompetitive
advanta e e ave ilt a team
ere over
o o r
n
in Assets nder pervision is
led or o led y omen port olio
mana ers m
i er t an t e
ind stry avera e
Katie Koch
ie nvestment ffi er o
li
ity at oldman a s Asset
ana ement
Many Firms are Embracing Diversity, Equity, and Inclusion
Have a Written EEO/DEI Policy
Conduct Periodic Reviews of
Compensation Compliance with
the EEO Policy
Have DEI Focused Recruitment
Initiatives
ave mployee Affinity Net or s
ave en mar s in Diverse
Hiring/Retention/ Promotion
ave a
ie Diversity ffi er
0%
20%
40%
60%
80%
100%
Manager DEI Policies and Actions
o r e oldman a
p rposes only
s Asset
ana ement
A
o
omplian e it t at poli y any also
o sed re r itment initiatives
ave D
t e er ave spe i
en mar s or
diverse irin retention or promotion
Alon side t e s rvey many mana ers
emp asi ed t e importan e o diversity
and in l sion to t eir rm lt re and
re o ni e o it an elp t em drive
ommer ial s ess or e ample diverse
teams may ave a ess to di erentiated
deal pipelines re o ni e ne
siness
initiatives or reate relations ips it a
roader ro p o o nders Additionally e
t in t at proa tive D pra ti es an elp
asset mana ers re r it promote and retain
more omen ma in pro ress on emale
representation in t e investment orld
DIVERSITY THROUGH
ASSET ALLOCATORS
Diversity as also e ome top o mind
or asset allo ators t o
pro ress as
een more lo ali ed at t e plan sponsor
or instit tional level ovin t e needle
on diversity typi ally omes t ro
t o approa es mana er diversity and
allo ation diversity or asset allo ators
t e ormer addresses diversity it in t e
or pla e
ile t e latter o ses on
promotin diversity t ro
investments
e elieve in l sive representation starts
Diversity
rvey As o De em er
or ill strative
it avin ood data
t so ar data
orts to
remains s ar e on ot ends
normali e diversity reportin similar to
nan ial reportin may drive transparen y
and reate opport nities or omen
diverse and emer in mana ers
Public Plans
nly
listed p li de ned
o t e
ene t plans ave de lared an e pli it
poli y en o ra in t e irin o omen
minority disa led or veteran investment
pro essionals n allo ation diversity only
plan sponsors p li ly reported t e
amo nt o assets invested it diverse
mana ers as o e r ary
Reportin
also varied a ross p li plans it some
plans prod in re lar diversity report
ards to eval ate or monitor ommitment
to in l sion
ile ot ers remained opa e
o e air p li plans an e s e t to
state stat tory re irements t at spe i y
t at d iaries m st a t pr dently and
or t e e l sive p rpose o providin
ene ts
i
an limit t e se o non
nan ial a tors in de ision ma in
As a res lt many plans ave so
t
di erent ays to in orporate diversity
into investments ome may lean on
emer in and diverse mana er pro rams
as a sol tion or pair t em it dedi ated
asset allo ation arve o t mandates and
n private mar ets t ere ave
een lar e rivers o apital
asin t e same opport nities
or many years Diversity to s
is a o t ndin di erentiated
opport nities or ontrarian
ideas and e elieve t ose ome
rom all sorts o individ als and
a
ro nds e elieve t ere
needs to e more apital on ot
sides o t e ta le to move t e
needle so e started a n
it
ere e see to or it
ot nderrepresented investors
and o nders e are e ited
e a se e ave never seen more
investment opport nities t an
e do no in
n
en
e rst started a n
it
e o ten ot t e estion rom
sta e olders s t ere eno
opport nity to deploy apital in
t is area No
e elieve e an
de nitively say yes it t e data
to s pport
Suzanne Gauron
lo al ead o rivate
ity
trate ies and a n
it
at oldman a s Asset
ana ement
Perspectives | 79
SUMMER 2022 | ISSUE 3
Considerations for Asset Management
e ender ap in asset mana ement is a res lt o de ades o str t ral and lt ral iss es
n l ential sta e olders in l din asset mana ers and allo ators as ell as senior leaders ip
and man reso r e departments s o ld e at t e ore ront o improvin diversity y
adoptin an ACT NOW rame or
Adopt a written DEI policy in
seeking to build accountability.
A ormal D poli y is essential in
providin a ommitment and rame or
to oster a lt re o diversity e ity
and in l sion it in or ani ations
ompre ensive D poli ies and
pra ti es s o ld in l de diverse and
e ita le talent a
isition retention
and promotion pro ed res servin as
t e edro to ild a o nta ility and
reate an in l sive lt re
Cultivate a supportive culture
with strong apprenticeship,
allyship, and sponsorship.
n e a ritten D poli y is in pla e
a tions s o ld rin t e poli ies into t e
or pla e and port olios in ays t at an
e revie ed improved and repli ated in
t e t re ere at oldman a s e
ave set aspirational oals or omen
to represent
o analysts
o
asso iates and
o vi e presidents y
At a senior level e are meas rin
and reportin on omen s representation
in mana in dire tor and partner lasses
ile t ere is still more to e done e
ave o nd t ese oals elp to eep s
a o nta le e also ave a omen s
net or or omen in asset mana ement
and men are el ome to e sponsors and
allies in t e net or
Normalize diversity reporting
standards and commit to regular
reporting in industry databases.
Outline diversity criteria in
investing, and set medium- and
long-term target goals.
n an ind stry t at revolves aro nd
en mar s e t in t at normali in
p li diversity reportin is imperative
y reatin a standardi ed data ase o
meas res sta e olders an eep tra o
pro ress and mana ers an learn rom
ea ot er s est pra ti es irms an also
ontin e to raise a areness y p lis in
reports e aminin t e state o diversity
a ross t e ind stry
till ea
rm ill li ely ave its o n
diversity riteria in its o n investment
pro ess or e ample a money mar et
mana er may transa t it diverse
o ned ro ers
ile a ro t e ity rm
may invest in omen led ompanies and
an endo ment
may see o t diverse
o ned or diverse led rms
pport
n tions s
as mar etin investor
relations and te nolo y s o ld also
eat re diversity
80 | Goldman Sachs Asset Management
Tap i t i r tiat
recruiting pools, then train,
retain, and promote diverse
talent.
A o s on attra tin
omen at t e
nior level and eyond ill ens re
ompanies maintain a more diverse
or or e and leaders ip pipeline
t it ill li ely re ire an es to
man reso r e strate ies irms
s o ld onsider ne re r itin pools
in l din st dents it non
siness
ma ors pro essionals it tan ential
yet pra ti al e perien e and omen
ret rnin to t e or or e d atin
omen on t e ind stry t e vario s
roles and o to ild a meanin l
areer in asset mana ement is
important irms an also or to
eliminate ias in revie s promotions
and ompensation y sin lear
metri s and transparent pro esses
Work with external
organizations to help
eliminate familiarity barriers
and review progress toward
diversity goals.
inally t is is not a solo endeavor
Asset mana ers an or to et er
en a e it t eir net or o
ons ltants and partners and levera e
lessons learned rom ot er ind stries
losin t e ender ap ill ltimately
e a ro p e ort ort nately e
elieve t e o t omes s o ld ro t e
pie to ene t everyone
dili en e pro esses onsiderin diversity
as a riterion or eval atin investment
partners e o nd t at some p li plans
ave also s pported diversity e orts
t ro
dedi ated partners ips it
diverse o ned and led ro era es
till relative to t eir peers p li plans
are a ead o t e rve on omen s
representation as ill strated in t e e i it
elo
is may e d e to a di erent set
o motivations or p li plans li e a
ommitment to advan in minority and
omen o ned sinesses t at re le ts
e istin affirmative a tion poli ies or
a ardin overnment ontra ts Also t e
re ent spotli t on ender e ality may
ave rei nited a p li o s on
improvin diversity
ven so t ere is still or to e done
ile omen s representation at p li
plans is a ove avera e it is still ar rom
parity pandin t e pipeline or diverse
mana ers is important in o r vie
li
plans typi ally se ons ltants and m lti
mana er nds to a ess diverse mana ers
t y o tso r in allo ators are relieved
o avin to ond t d e dili en e o
individ al mana ers
ons ltants ave deep net or s a ross
investment mana ers t t eir readt
o overa e may ave t e nintended
onse en e o eepin lesser no n
players o t o t e i lea e oreover
onsolidation in t e ons ltant niverse
alon side t e ro t o asset mana ers
means e er ons ltants are responsi le or
eval atin a ro in pool o ompetitive
in ormation ons ltants may a ard
mandates to in m ent asset mana ement
rms d e to t eir amiliarity it t ese
rms and a ess to per orman e re ords
t t ese lar e rms o ten la diversity
e t in asset allo ators s o ld onsider
opport nities o tside t ese net or s
Investment Consultants
A ordin to a
Ann al nvestment
ons ltant rvey o
rms on
t eir diversity e orts in o se and on
e al o lients
o rm o ners
are omen
ile
o omen old
senior mana ement positions
ile rm
o ners ip remained dominated y
ite
men t e st dy o nd t at diversity it in
senior mana ement as started to improve
e t in t is is an important metri to
at as a more ender alan ed resear
sta
ieldin de ision ma in po er may
roaden emale in l sion t ro
mana er
sele tion till t e or ard pipeline to
in l sivity an e improved A ross t e
rms
o t em ave esta lis ed
idelines on diversity irin pra ti es
et only ve rms ave a ritten poli y to
intervie one or more oman andidate or
every availa le position
e see areas o improvement or t e
investment mana er revie pro ess
too
ile t e ma ority o s rveyed
investment ons ltants ave diverse
mana er pro rams in pla e less t an a
t ird o t em ave e pli it r les re irin
a ali ed diverse o ned rm to e
intervie ed or asset mana er openin s
oreover only t ree ons ltants a tively
Women Are Underrepresented Across Institutional Investors
lients are etter served y more
diverse mana ers n a t analysis
as s o n t at omen istori ally
o tper ormed men on a ris
ad sted ret rn asis
till t e
ind stry doesn t al ays ollo
t ro
on pled es to invest in
diversity y irin more omen
am pro d to e part o a rm t at
lives y its ord and demonstrates
in pra ti e its ommitment to i
per ormin
omen mana ers and
a diverse or or e in eneral
Maria Vassalou
o
lti Asset ol tions at
oldman a s Asset ana ement
Corporate Investor
Insurance Company
amily ffi e
an nvestment an
Investment Company
Wealth Manager
Asset Manager
Superannuation Scheme
Private Sector Pension Fund
Sovereign Wealth Fund
Public Pension Fund
Government Agency
Endowment Plan
Foundation
0%
10%
20%
30%
40%
50%
Female Employees at Institutional Investors as a
Proportion of Total Employees
o r e
re in ro and oldman a
s Asset
ana ement As o De em er
or ill strative p rposes only
Perspectives | 81
SUMMER 2022 | ISSUE 3
Endowments and Foundations Have Room for Improvement
Number of U.S. Institutions
100%
FY 2017
FY 2020
Imbalances in Gender Diversity Are Acute in
Wealth Management
Men
Women
Meno
op lation are
Women
80%
60%
40%
omen
51%
49%
51%
49%
20%
0%
Have a Formal Diversity and
Inclusion Manager Selection Policy
Did Not Respond Affirmatively to
the Existence of Formal Policy
o r e NA
AA t dy o ndo ments
and
e n m er o instit tions t at did not respond
affirmatively to t e e isten e o a ormal poli y is ased on instit tions it endo ments
n or reater in si e
as o t e respe tive s al year
end or ill strative p rposes only
tra in omin in iries rom investment
rms diverse or ot er ise
Endowments & Foundations
e endo ment niverse also as
si ni ant potential to ma e a positive
impa t on e ality meas res
e mar et
val e o t e endo ment nds o olle es
and niversities in t e
totals more t an
n and t e si e and t e perpet al
investment ori on o t e assets may
ampli y t e lon r n impa t t at apital
an ave n ort nately t ere is si ni ant
room to improve investments in diversity
A ordin to t e
National Asso iation
o olle e and niversity siness ffi ers
NA
AA ann al s rvey only
or
appro imately
o t e
instit tions
in t e st dy a no led ed a ormal poli y
addressin diversity and none o t e
instit tions it endo ments reater t an
n a no led ed s
a poli y
t ose
it a ormal poli y lar er endo ments
ere si ni antly more li ely to ave
diverse mana ers in t eir port olios relative
to smaller o nterparts potentially d e to
di eren es in reso r es needed to ond t
d e dili en e and so r e investments
o ndations are anot er potentially
po er l asset allo ator t at ave o ten led
t e ar e in investin
it diverse o ned
rms to se re stron ret rns identi y ne
82 | Goldman Sachs Asset Management
opport nities and en a e it diverse
and inter onne ted omm nities oo in
at some o t e lar est
o ndations in
t e
o assets or
in every
are invested in diverse o ned nds in
p
per enta e point rom
en onsiderin t e amo nt o analy ed
A
e reatest ro t
as o served
in investments dire ted to ards minority
o ned rms
ile t e per enta e o
investments pla ed it emale o ned
rms remained onstant at
nly
o
Men
inan ial Advisors are
omen
Women
18%
Financial Advisors
ealt mana ement as lon een a
male dominated ind stry ver t e years
vario s asset mana ers and pro essional
or ani ations ave re o ni ed t is iss e
and la n ed initiatives to improve t e
alan e and yet in
only
o
nan ial advisors ere omen a mere
per enta e point in rease rom
emale representation rt er de reases
at t e top nly
o t e arron s top
nan ial advisors ere omen and only
o top
re istered investment
advisors R A rms e e tives ere
omen in
ome o t e o sta les t at emale nan ial
advisors a e in l de pipeline allen es
ins ffi ient mentorin opport nities
or li e alan e and impli it ias n
82%
o r e er lli Asso iates and oldman a s Asset
ana ement As o De em er
or ill strative
p rposes only
addition to t e re r itment pro ess
ead inds many rms still str
le it
retention and areer pro ression n a t
en analy in t e avera e
advisor
y ender t e a es
to
represented
t e o ort it t e lar est di eren e in
male and emale advisor pop lation n
t eir prime areer years many omen also
ave to alan e are ivin and o se old
a tivities it o t str t ral s pport and
Women Are Underrepresented During Peak Earning Years
U.S. Advisor Age by Gender (2020)
30%
Whitney Watson
lo al ead o i ed n ome
ort olio ana ement onstr tion
Ris at oldman a s Asset
ana ement
o r es
orld an as o e r ary
data orld an or indi ator
2.
3.
ttps
rost and llivan as o ar
ttps
rost om ne s press releases lo al
emale in ome to rea
trillion in
says rost s llivan
oston ons ltin ro p as o April
ttps
om p li ations
mana in ne t de ade omen ealt
rea o a or tatisti s as o De em er
A as o e r ary
ornin star as o ar
ttps
mornin star om arti les
t e
per enta e o s emale nd mana ers is
e a tly
ere it as in
Assets nder pervision A
in l des assets
nder mana ement and ot er lient assets
or
i
oldman a s does not ave ll
dis retion
e
o assets mana ed a ross
Women
25%
20%
15%
10%
5%
0%
r lients are e omin more
diverse and t ey ant t ose
o mana e t eir investments
to ave diverse a ro nds
and perspe tives too n asset
mana ement t in meetin
diversity oals re ires s to t in
di erently a o t irin
e don t
al ays need someone it a spe i
a ro nd ive me te ni ally
pro ient ood omm ni ators and
an train t em
Men
<35
35 to 44
45 to 54
55 to 64
o r e er lli Asso iates and oldman a s Asset ana ement As o De em er
lear opport nities in t e or pla e emale
advisors may opt to an e tra s
tartin it re r itment ealt
mana ement rms an attra t st dents and
yo n pro essionals to t e ind stry ile
ma in omen leaders more visi le to road
a dien es irms an adopt ne de nitions o
o des riptions ased on s ills and interests
rat er t an la els or e ample relations ip
mana er as opposed to nan ial advisor
or employees e elieve rms s o ld
re o ni e t at or li e alan e is not st
ndamental
ity prod ts are led or o led
y emale port olio mana ers
is n m er ill
an e as mar ets move and lient asset lo s
a se assets in di erent strate ies to in rease
and de rease
re in as o ar
ttps
pre in
om insi ts resear reports pre in impa t
report omen in alternative assets
insey as o eptem er
ttps
m insey om ind stries nan ial servi es
o r insi ts losin t e ap leaders ip
perspe tives on promotin
omen in nan ial
servi es
ensions nvestments as o e r ary
ttps
pionline om pi
lar est
retirement plans diversity pro rams an e
times
Drin er iddle Reat
nvestment Diversity
in
li e tor Retirement lans as o A
st
or orporate pension plans ederal
Re ister inan ial a tors in ele tin lan
nvestments as o Novem er
Diverse Asset ana ers nitiative as o
De em er
ttps d n a pro v m
≥64
or ill strative p rposes only
a omen s iss e and t at o erin le i ility
and parental ene ts an e elp l or
all employees inally sponsorin affinity
net or s t at promote in l sivity en an e
leaders ip s ills and ild pro essional
on den e may elevate retention
e
ender ap in asset mana ement is t e
res lt o de ades o str t ral and lt ral
iss es n l ential sta e olders in l din
asset mana ers and allo ators as ell
as senior leaders ip and man reso r e
departments s o ld e at t e ore ront o
improvin diversity startin today n
lo d ront net intentionalendo ments
pa es
atta ments ori inal
DA
Report inal pd
Department o d ation National enter
or d ation tatisti s
e si e o t e
endo ment is as o t e end o
s al year
latest availa le
NA
AA t dy o ndo ments
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Perspectives | 83
SUMMER 2022 | ISSUE 3
PUBLIC DEFINED
BENEFIT PLANS —
INVESTING IN
A NEW ERA
U.S. public defined benefit plans had
benefited from the strong performance
of risk assets, such as public and private
equity and real estate, over the past
several years. In 2021, many of them
reached their highest funded status
since before the global financial crisis in
2008. The market drawdowns in 2022
have erased much of that improvement,
potentially leading some to question
whether they may have been able to take
steps within their portfolios to protect
some of those gains. We spoke to
Michael Moran to get some observations
and approaches for sponsors navigating
this environment.
Michael Moran, CFA
Pension Strategist, Goldman Sachs Asset Management
i ael is a pension strate ist in t e lient ol
t leaders ip on iss
e prod es ori inal t o
plans n t is role e ons lts it lients on a
mana ement and t e impa t o re latory and
84 | Goldman Sachs Asset Management
tions ro p o oldman a s Asset ana ement
ere
es pertainin to de ned ene t and de ned ontri tion
ide ran e o topi s related to asset allo ation pension ris
nan ial reportin
an es
at i t
tat
lic
fi
fit la
rt li
t
a
Michael Moran:
li de ned ene t D pension plans li e all
instit tional investors ene ted rom an environment o risin
val es or ro t assets s
as p li e ities private e ity
and real estate in re ent years
is ad elped to olster t e total
assets or t ese plans and led to a nota le step p in nded levels
t e ratio o plan assets to lia ilities A ter lan is in elo
or m
o t e past de ade t e a re ate nded stat s o t e
p li pension system rea ed
as o t e end o
its
i est level sin e e ore t e lo al nan ial risis An
nded
stat s is a ey level o ten re eren ed or ein
ell nded so
movin a ove t at mar as a si ni ant a omplis ment or t e
ind stry as ell as or many individ al plans o ever iven t e
re ent e ity mar et p ll a t e a re ate nded stat s y o r
estimate as allen a do n to aro nd
as o t e end o t e
se ond arter o
l
lic
i
la c
i r i r t trat i
they experience a rise in funded ratios, such as when they move
above that critical 80% threshold?
Moran:
li de ned ene t pension plans are lon term
investors espe ially sin e many are open and t eir parti ipants are
a r in ne
ene ts ea year Nonet eless
en t ey e perien e
a rise in nded stat s t ey may ant to onsider employin some
di erent strate ies in order to prote t some o t ose ains i e
many de ned ene t systems aro nd t e orld t e
p li
pension system as seen its air s are o
nded stat s volatility
over t e past several de ades At t e lose o t e last ent ry
p li D plans ere olle tively over nded d e in no small part
to t e e ity ll mar et o t e
s et een t e te
le
Public Pension Funded Ratios Given Back Their Gains from 2021
100%
90%
Funded Percentage
80%
70%
60%
50%
40%
30%
20%
10%
20
0
20 1
02
20
0
20 3
04
20
0
20 5
06
20
0
20 7
08
20
0
20 9
10
20
1
20 1
1
20 2
1
20 3
1
20 4
1
20 5
1
20 6
1
20 7
18
20
1
20 9
20
20
2
20 1
22
0%
o r e oldman a s Asset ana ement enter or Retirement Resear at
oston olle e
li lan Data ase All nded per enta es as o
ne t o
indi ated years
e
re is a oldman a s Asset ana ement estimate
rst o t e early
s and t e lo al nan ial risis in
t e a re ate nded level ell to t e lo
s t dipped rt er
into t e mid
s d rin t e ei t o t e
D
risis in early
Dra do ns li e t ose ma e it ard to re over to previo s
nded levels as t e smaller asset ase m st or arder to erase
t e lar er de its Avoidin lar e dra do ns is a ay to ens re t e
s staina ility o any plan
o rse a ievin t is as e ome more allen in not only
e a se o t e re ent e ity mar et p ll a
t also e a se o
roader str t ral mar et a tors t at ave le t many port olios
more on entrated and it t e alan e o ris e pos re to t e
do nside orrelations a ross ma or asset lasses ave pi ed p
e a er ated y reater speed and ma nit de o e ity mar et
dra do ns in re ent years
e lon relied pon ne ative sto
ond orrelation t rned positive in
li e ity indi es
ave e ome more on entrated in t e lar est names
e top ve
oldin s in t e R ssell
ro t nde represented nearly
o t e inde at t e end o
o r o t em te nolo y ompanies
in essen e i not in se tor lassi ation or onte t t e top ve
oldin s represented less t an
o t e inde or m
o t e
last t o de ades and never rossed t e
level d rin t e pea o
t e dot om
le i ed in ome mar ets are v lnera le to risin
rates and ave t eir o n on entration iss e it t e top t ree
se tors an in ons mer non y li al and te nolo y it in t e
loom er orporate nde representin
o t e total inde
mar et val e as o ar
l a lia ilit i
i ati
ia fi
de-risking strategy for public plans?
i c
a
cti
Moran: n t e orporate de ned ene t pension orld many plans
ave implemented s
strate ies
t t at o ld not seem to e an
option or p li D plans or t o ey reasons e rst is t at nli e
orporate plans p li plans do not val e t eir lia ilities ased on
ed in ome yields Rat er t ey enerally se t e plan s lon term
e pe ted ret rn on plan assets R A ass mption as t e dis o ntin
me anism at means t eir lia ilities do not rise and all it yields
so in reasin t e ed in ome allo ation does not ne essarily red e
nded stat s volatility st t e opposite in a t in reasin t e ed
in ome allo ation at t e e pense o e ities o ld li ely res lt in a
lo er R A ass mption
i
o ld in rease t e val e o lia ilities
and lo er t e plan s nded stat s
e se ond di eren e et een orporate and p li plans is
in t eir ro t rates any orporate plans ave p rs ed ed
in ome imm ni ation strate ies sin e in some ases t ey no
lon er provide a D ene t to rrent or t re employees
li
plans on t e ot er and are still open and a r in ne
ene ts
or parti ipants it o li ations typi ally lin ed to ann al ost o
livin ad stments et een t e a retion o t e lia ility ea year
ased on t e dis o ntin a tor and ne
ene ts earned y rrent
employees ann al lia ility ro t or some plans an approa
n today s environment lo yieldin
ed in ome may not
provide eno
ret rn to t e overall port olio in order to rea its
desired ret rn e pe tation
Perspectives | 85
SUMMER 2022 | ISSUE 3
Asset Allocation Has Shifted for Public DB Plans in Recent Years
Equity
Fixed Income
Private Equity
Real Assets
Hedge Funds
Other
Allocation Percentage
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
o r e
oldman a
s Asset
ana ement enter or Retirement Resear
at oston olle e
t is not s rprisin t ere ore t at t ese sponsors a re ate
allo ation to ed in ome as steadily de reased over t e past
t o de ades
ile i er yields seen in
may in rease t e
attra tiveness o
ed in ome to some p li D plans e o ld
not anti ipate t em nota ly in reasin t e allo ation to t is asset
lass as a ay to red e ris rom an asset lia ility mat in
perspe tive as t eir orporate D ret ren ave een doin
In today’s environment, low-yielding fixed
income may not provide enough return
to the overall portfolio in order to reach
its desired return expectation.
li
lan Data ase
Anot er so r e o diversi yin ret rns is mana er alp a
r mar et
strate ists anti ipate t at t e omin investment y le ill see
less overall mar et dire tion and more idiosyn rati ret rn a ross
individ al ni es and opport nities at and lat
is portends
a more avora le environment or alp a eneration amon s illed
mana ers in ot p li and private mar ets ne ay to apitali e
on a tive mana er s ill is to em ra e more le i le mandates n
traditional asset lasses t at may mean investin in mana ers
o ave t e le i ility to deviate more rom t eir en mar s
n alternative asset lasses t at may mean investin in strate ies
t at allo t e mana ers to p rs e opport nities a ross a ran e
o mar ets and tradin strate ies or ones t at o s e pli itly on
alp a eneration s
as mar et ne tral ed e nd strate ies
or opport nisti private mar ets strate ies
is approa ma es
mana er sele tion all t e more riti al in o r vie n
o r e
loom er
What approaches should public plan sponsors consider in
navigating the next investment cycle?
Moran: e s
est plans esta lis or a ment positions in
diversi yin strate ies t at may e nderrepresented in t eir
port olios rivate e ity and redit strate ies an o er str t ral
so r es o ret rn n orrelated to road e ity and redit mar ets
Real assets s
as real estate and in rastr t re an o er
ot di erentiated so r es o ret rn and sensitivity to in lation
A essin t ese investments in private mar ets may rin reater
diversi ation ene ts t an doin so in p li mar ets sin e
R s and in rastr t re sto s ave i
orrelations to road
e ity mar ets ommodities o er less orrelated ret rns and
in lation sensitivity as ell any ed e nd strate ies an provide
diversi ation too parti larly ones t at o s on ris premia
o tside traditional e ity and redit e pos res s
as trend
ollo in and ma ro
86 | Goldman Sachs Asset Management
a t et R ssell as o
ar
GLOSSARY
Alpha re ers to ret rns in e ess o t e en mar ret rn
Asset allocator re ers to an investment pro essional responsi le or
mana in assets a ross a port olio
Beta re ers to t e tenden y o a se rity s ret rns to respond to
s in s in t e mar ets
Beta Agnostic des ri es
eta level
nds t at are not mana ed to a parti lar
Bps re ers to asis points or
t o
Buyout is an investment transa tion y
a ompany or a ma ority s are o t e sto
i t e o ners ip e
o t e ompany is a
Correlation is a statisti t at meas res t e de ree to
se rities move in relation to ea ot er
i
ity o
ired
t o
Co-investment portfolio omprise dire t investment positions made
alon side a eneral artners
Default ratio means an amo nt e pressed as a per enta e e
i t e s m o A t e a re ate tstandin alan e
Dislocation trading des ri es mar et a tivity in se rities
pri e is dis onne ted rom t e ndamentals
al to
ere t e
Distressed ratio is t e proportion o spe lative rade iss es it
ps relative to
option ad sted omposite spreads o more t an
reas ries
Distressed securities are nan ial instr ments iss ed y a ompany
t at is near or rrently oin t ro
an r pt y
i r ificati re ers to allo atin apital in a ay t at see s to
red e e pos re to any one asset or ris
Dovish re ers to more a ommodative monetary poli y t e opposite
o a is
Drawdown is an investment s pea to tro
de line
Opportunistic Financings typi ally in l de espo e terms to meet
spe i needs o r d rin times o orporate or e onomi stress
PCE re ers to ersonal ons mption
pendit res
Private asset re ers to an e ity or de t investment t at is not
a essi le via p li mar ets in l din private e ity private redit
and real estate
Private credit re ers to non an lendin t at is not iss ed or traded
in p li mar ets
Private equity (PE) re ers to investments in t e e ity or de t o
ompanies t at are eit er not listed on p li e an es or are ta en
private s ortly a ter t ey are a
ired
Private real estate en a es in dire t or indire t involvement
a
irin and nan in real estate properties or rrent in ome or
lon term apital appre iation
Public real estate or real estate investment trust (REIT) re ers to
a p li ly traded ompany t at o ns operates or nan es in ome
prod in properties
Real assets des ri es investments into p ysi al str t res and
ommodities in l din in rastr t re and ener y
Relative value managers see to e ploit temporary di eren es in t e
pri es o related se rities
Right side of disruption re ers to ompanies t at in o r vie are
ali ned it ey se lar ro t trends and or are reatin ne
innovative sol tions
Risk-adjusted returns a al lation o t e potential pro t rom an
investment t at ta es into a o nt t e de ree o ris a epted in
order to a ieve it
Risk assets are t ose it a i de ree o ris and volatility s
s
as e ities i yield redit ommodities and rren ies
as
EBITDA re ers to arnin s e ore nterest a es Depre iation and
Amorti ation
Risk premia re ers to t e amo nt y i t e ret rn o a ris y asset
is e pe ted to o tper orm t e no n ret rn on a ris ree asset
Event driven manager trade aro nd ma or orporate events
in l din mer ers re lations and earnin s anno n ements
Russell 2000 Growth Index is an nmana ed inde o ommon
sto pri es t at meas res t e per orman e o t ose R ssell
ompanies it i er pri e to oo ratios and i er ore asted
ro t val es
GDP re ers to ross Domesti
rod t
Growth (growth equity) investin is a style o investment strate y
t at is o sed on apital appre iation
S&P 500 Index is t e tandard
oor s
nde o
sto s an nmana ed inde o
Infrastructure assets re er to lon lived str t res t at s pport
essential servi es s
as tilities tele omm ni ations or rid es
Secondary vehicles a
IRR is t e dis o nt rate t at ma es t e net present val e o all
as lo s ero
LTM re ers to ast
elve
t re
ont s
Market-neutral strategies maintain ero net e pos re to t e mar et
see in to a ieve ains re ardless o mar et onditions
Mark to Market is an a o ntin pra ti e t at involves ad stin t e
val e o an asset to re le t its val e as determined y rrent mar et
onditions
Max drawdown is t e pea to tro
d rin a spe i period
de line o an investment
NASDAQ Composite is a mar et apitali ation ei ted inde o
more t an
sto s listed on t e Nasda sto e an e
omposite to
ri es
ommon sto pri es
ire sta es in e istin private e
ity
nds
Senior debt is de t and o li ations i are prioriti ed or
repayment in t e ase o an r pt y typi ally ollaterali ed y assets
Strategy agnostic des ri es mana ers or
spe i strate y
nds t at to not p rs e a
Subordinated debt is nse red de t t at ran s elo ot er more
senior loans or se rities it respe t to laims on assets or earnin s
typi ally ris ier or t e ond older
Tactical trading involves s ort term investment de isions ased on
anti ipated near term pri e movements in a se rity or mar et se tor
Tracking error is t e standard deviation o t e e ess ret rns o an
investment relative to a en mar
Venture capital is apital invested in a pro e t in i t ere is a
s stantial element o ris typi ally e a se t e pro e t is ne or
e pandin
Perspectives | 87
SUMMER 2022 | ISSUE 3
RISK CONSIDERATIONS
All investin is s
yo invest
e t to ris in l din t e possi le loss o t e money
ity se rities are more volatile t an onds and s
ris s Dividends are not aranteed and a ompany s
pay dividends may e limited
e t to reater
t re a ility to
nvestments in ed in ome se rities are s e t to t e ris s
asso iated it de t se rities in l din redit and interest rate ris
nvestments in orei n se rities entail spe ial ris s s
as rren y
politi al e onomi and mar et ris s ese ris s are ei tened in
emer in mar ets
nvestments in ommodities may e a e ted y an es in overall
mar et movements ommodity inde volatility an es in interest
rates or a tors a e tin a parti lar ind stry or ommodity
i yield lo er rated se rities involve reater pri e volatility and
present reater redit ris s t an i er rated ed in ome se rities
e rren y mar et a ords investors a s stantial de ree o
levera e is levera e presents t e potential or s stantial pro ts
t also entails a i de ree o ris in l din t e ris t at losses may
e similarly s stantial
transa tions are onsidered s ita le
only or investors o are e perien ed in transa tions o t at ind
rren y l t ations ill also a e t t e val e o an investment
rivate e ity investments are spe lative i ly illi id involve
a i de ree o ris ave i
ees and e penses t at o ld
red e ret rns and s e t to t e possi ility o partial or total loss
o nd apital t ey are t ere ore intended or e perien ed and
sop isti ated lon term investors o an a ept s
ris s
Alternative investments are s ita le only or sop isti ated investors
or om s
investments do not onstit te a omplete investment
pro ram and o lly nderstand and are illin to ass me t e ris s
involved in Alternative nvestments Alternative nvestments y t eir
nat re involve a s stantial de ree o ris in l din t e ris o total
loss o an investor s apital
e val e o se rities iss ed y te nolo y and te nolo y related
ompanies may e adversely a e ted y intense mar et volatility
a ressive ompetition and pri in ons mer pre eren es s ort
prod t y les la o ommer ial s ess or ne prod ts prod t
o soles en e or in ompati ility overnment re lation and e essive
investor optimism or pessimism amon ot er a tors
Real estate investments are spe lative and illi id involve a i
de ree o ris and ave i
ees and e penses t at o ld red e
ret rns ese ris s in l de
t are not limited to l t ations in
t e real estate mar ets t e nan ial onditions o tenants an es
in ildin environmental onin and ot er la s an es in real
property ta rates or t e assessed val es o artners ip nvestments
an es in interest rates and t e availa ility or terms o de t
nan in
an es in operatin osts ris s d e to dependen e
on as lo environmental lia ilities nins red as alties
navaila ility o or in reased ost o ertain types o ins ran e
overa e l t ations in ener y pri es and ot er a tors s
as an o t rea or es alation o ma or ostilities de larations o
ar terrorist a tions or ot er s stantial national or international
alamities or emer en ies e possi ility o partial or total loss o an
investment ve i le s apital e ists and prospe tive investors s o ld
not invest nless t ey an readily ear t e onse en es o s
loss
rt er some real estate investments may re ire development
or redevelopment
i
arries additional ris s relatin to t e
availa ility and timely re eipt o onin and ot er re latory
approvals t e ost and timely ompletion o onstr tion and
t e availa ility o permanent nan in on avora le terms Real
estate investments ill e i ly illi id and ill not ave mar et
88 | Goldman Sachs Asset Management
otations As a res lt t e val ation o real estate investments
involves n ertainty and may e ased on ass mptions A ordin ly
t ere an e no ass ran e t at t e appraised val e o a real estate
investment ill e a rate or rt er t at t e appraised val e o ld
in a t e reali ed on t e event al disposition o s
investment n
addition real estate assets may e i ly levera ed
i levera e
o ld ave si ni ant adverse onse en es to t e assets and
t ere ore an investment ve i le n parti lar an investment ve i le
ill lose its investment in a levera ed asset more i ly t an a non
levera ed asset i t e asset de lines in val e o s o ld nderstand
lly t e ris s asso iated it t e se o levera e e ore ma in an
investment in a real estate investment ve i le
nvestments in real estate ompanies in l din R s or similar
str t res are s e t to volatility and additional ris in l din loss in
val e d e to poor mana ement lo ered redit ratin s and ot er a tors
ed e nds and ot er private investment nds olle tively
Alternative nvestments are s e t to less re lation t an ot er
types o pooled investment ve i les s
as m t al nds Alternative
nvestments may impose si ni ant ees in l din in entive ees t at
are ased pon a per enta e o t e reali ed and nreali ed ains and
an individ al s net ret rns may di er si ni antly rom a t al ret rns
ees may o set all or a si ni ant portion o s
Alternative
nvestment s tradin pro ts Alternative nvestments are not re ired
to provide periodi pri in or val ation in ormation nvestors may
ave limited ri ts it respe t to t eir investments in l din
limited votin ri ts and parti ipation in t e mana ement o s
Alternative nvestments
Alternative nvestments o ten en a e in levera e and ot er
investment pra ti es t at are e tremely spe lative and involve
a i de ree o ris
pra ti es may in rease t e volatility o
per orman e and t e ris o investment loss including the loss
of the entire amount that is invested ere may e on li ts
o interest relatin to t e Alternative nvestment and its servi e
providers in l din oldman a s and its affiliates imilarly
interests in an Alternative nvestment are i ly illi id and enerally
are not trans era le it o t t e onsent o t e sponsor and
appli a le se rities and ta la s ill limit trans ers
Alternative nvestments s
as private e ity nds are s e t
to less re lation t an ot er types o pooled investment ve i les
s
as m t al nds may ma e spe lative investments may e
illi id and an involve a si ni ant se o levera e ma in t em
s stantially ris ier t an t e ot er investments An Alternative
nvestment nd may in r i
ees and e penses i
o ld
o set tradin pro ts Alternative nvestment nds are not re ired
to provide periodi pri in or val ation in ormation to investors e
ana er o an Alternative nvestment nd as total investment
dis retion over t e investments o t e nd and t e se o a sin le
advisor applyin enerally similar tradin pro rams o ld mean a la
o diversi ation and onse entially i er ris nvestors may ave
limited ri ts it respe t to t eir investments in l din limited
votin ri ts and parti ipation in t e mana ement o t e nd
Alternative nvestments y t eir nat re involve a s stantial de ree
o ris in l din t e ris o total loss o an investor s apital nd
per orman e an e volatile ere may e on li ts o interest
et een t e Alternative nvestment nd and ot er servi e providers
in l din t e investment mana er and sponsor o t e Alternative
nvestment imilarly interests in an Alternative nvestment are i ly
illi id and enerally are not trans era le it o t t e onsent o t e
sponsor and appli a le se rities and ta la s ill limit trans ers
rivate
ity investments are spe lative involve a i de ree o
ris and ave i
ees and e penses t at o ld red e ret rns t ey
are t ere ore intended or lon term investors o an a ept s
ris s e a ility o t e nderlyin
nd to a ieve its tar ets depends
pon a variety o a tors not t e least o
mar et and e onomi onditions
i
are politi al p
li
AN
Alternative nvestments are o ered in relian e pon an e emption
rom re istration nder t e e rities A t o
as amended or
o ers and sales o se rities t at do not involve a p li o erin No
p li or ot er mar et is availa le or ill develop imilarly interests
in an Alternative nvestment are i ly illi id and enerally are
not trans era le it o t t e onsent o t e sponsor and appli a le
se rities and ta la s ill limit trans ers
Alternative nvestments may involve omple ta and le al str t res
and a ordin ly are only s ita le or sop isti ated investors o are
r ed to ons lt it yo r o n ta a o ntin and le al advisers
re ardin any investment in any Alternative nvestment
Conflicts of Interest
ere may e on li ts o interest relatin to t e Alternative
nvestment and its servi e providers in l din oldman a s
and its affiliates ese a tivities and interests in l de potential
m ltiple advisory transa tional and ot er interests in se rities
and instr ments t at may e p r ased or sold y t e Alternative
nvestment ese are onsiderations o
i investors s o ld e
a are and additional in ormation relatin to t ese on li ts is set
ort in t e o erin materials or t e Alternative nvestment
nvironmental o ial and overnan e
strate ies may ta e
ris s or eliminate e pos res o nd in ot er strate ies or road
mar et en mar s t at may a se per orman e to diver e rom t e
per orman e o t ese ot er strate ies or mar et en mar s
strate ies ill e s e t to t e ris s asso iated it t eir nderlyin
investments asset lasses rt er t e demand it in ertain
mar ets or se tors t at an
strate y tar ets may not develop as
ore asted or may develop more slo ly t an anti ipated
e a ove are not an e a stive list o potential ris s ere may e
additional ris s t at s o ld e onsidered e ore any investment de ision
lease note t at t is material may in l de ertain in ormation
on oldman a s Asset ana ement Alternatives s staina ility
pra ti es and tra re ord at an or ani ational and investment team
level
i may not ne essarily e re le ted in t e port olio o any
nd s or related investment ve i le s yo invest in lease re er to
t e o erin do ments o any nd s prior to investment or details
on o and t e e tent to i t e nd s ta es
onsiderations
into a o nt on a indin or non indin asis
GENERAL DISCLOSURES
ie s and opinions e pressed are or in ormational p rposes only
and do not onstit te a re ommendation y oldman a s Asset
ana ement to y sell or old any se rity ie s and opinions
are rrent as o t e date o t is p li ation and may e s e t to
an e t ey s o ld not e onstr ed as investment advi e ndivid al
port olio mana ement teams or oldman a s Asset ana ement
may ave vie s and opinions and or ma e investment de isions t at
in ertain instan es may not al ays e onsistent it t e vie s and
opinions e pressed erein
e vie s and opinions e pressed are t ose o t e spea er as o
A
st
or in ormational p rposes only and do not onstit te
any investment advi e or re ommendation y oldman a s Asset
ana ement and may e s e t to an e e ave relied pon
and ass med it o t independent veri ation t e a ra y and
ompleteness o s
in ormation and neit er a ree nor disa ree
it t e ontent erein
A
RA D
N
N
AN
R R
A
N N
R D
NA
R
N
R R
D R N A
AN
D
R
N
D
is material is provided or in ormational p rposes only and s o ld
not e onstr ed as investment advi e or an o er or soli itation
to y or sell se rities is material is not intended to e sed
as a eneral ide to investin or as a so r e o any spe i
investment re ommendations and ma es no implied or e press
re ommendations on ernin t e manner in i any lient s
a o nt s o ld or o ld e andled as appropriate investment
strate ies depend pon t e lient s investment o e tives
rospe tive investors s o ld in orm t emselves as to any appli a le
le al re irements and ta ation and e an e ontrol re lations in
t e o ntries o t eir iti ens ip residen e or domi ile i mi t
e relevant
is in ormation dis sses eneral mar et a tivity ind stry or
se tor trends or ot er road ased e onomi mar et or politi al
onditions and s o ld not e onstr ed as resear or investment
advi e is material as een prepared y oldman a s Asset
ana ement and is not nan ial resear nor a prod t o oldman
a s lo al nvestment Resear
R t as not prepared in
omplian e it appli a le provisions o la desi ned to promote t e
independen e o nan ial analysis and is not s e t to a pro i ition
on tradin ollo in t e distri tion o nan ial resear
e vie s
and opinions e pressed may di er rom t ose o oldman a s
lo al nvestment Resear or ot er departments or divisions o
oldman a s and its affiliates nvestors are r ed to ons lt
it t eir nan ial advisors e ore yin or sellin any se rities
is in ormation may not e rrent and oldman a s Asset
ana ement as no o li ation to provide any pdates or an es
Alt o
ertain in ormation as een o tained rom so r es
elieved to e relia le e do not arantee its a ra y
ompleteness or airness e ave relied pon and ass med it o t
independent veri ation t e a ra y and ompleteness o all
in ormation availa le rom p li so r es
Any re eren e to a spe i
ompany or se rity does not onstit te a
re ommendation to y sell old or dire tly invest in t e ompany
or its se rities t s o ld not e ass med t at investment de isions
made in t e t re ill e pro ta le or ill e al t e per orman e o
t e se rities dis ssed in t is do ment
Diversi ation does not prote t an investor rom mar et ris and does
not ens re a pro t
onomi and mar et ore asts presented erein re le t a series
o ass mptions and d ments as o t e date o t is presentation
and are s e t to an e it o t noti e ese ore asts do not
ta e into a o nt t e spe i investment o e tives restri tions
ta and nan ial sit ation or ot er needs o any spe i
lient
A t al data ill vary and may not e re le ted ere ese ore asts
are s e t to i levels o n ertainty t at may a e t a t al
per orman e A ordin ly t ese ore asts s o ld e vie ed as merely
representative o a road ran e o possi le o t omes ese ore asts
are estimated ased on ass mptions and are s e t to si ni ant
revision and may an e materially as e onomi and mar et
onditions an e oldman a s as no o li ation to provide
pdates or an es to t ese ore asts ase st dies and e amples are
or ill strative p rposes only
Past performance does not guarantee future results, which may
vary. The value of investments and the income derived from
investments will fluctuate and can go down as well as up. A loss of
principal may occur.
Re eren es to indi es en mar s or ot er meas res o relative
mar et per orman e over a spe i ed period o time are provided or
Perspectives | 89
SUMMER 2022 | ISSUE 3
yo r in ormation only and do not imply t at t e port olio ill a ieve
similar res lts e inde omposition may not re le t t e manner in
i a port olio is onstr ted
ile an adviser see s to desi n a
port olio i re le ts appropriate ris and ret rn eat res port olio
ara teristi s may deviate rom t ose o t e en mar
Index Benchmarks
ndi es are nmana ed e
res or t e inde re le t t e
t do not
reinvestment o all in ome or dividends as appli a le
re le t t e ded tion o any ees or e penses i
o ld red e
ret rns nvestors annot invest dire tly in indi es
e indi es re eren ed erein ave een sele ted e a se t ey are
ell no n easily re o ni ed y investors and re le t t ose indi es
t at t e nvestment ana er elieves in part ased on ind stry
pra ti e provide a s ita le en mar a ainst i to eval ate
t e investment or roader mar et des ri ed erein e e l sion o
ailed or losed ed e nds may mean t at ea inde overstates
t e per orman e o ed e nds enerally
e lo al nd stry lassi ation tandard
as developed y
n
and is t e e l sive property and a servi e mar o
and
lo al ar et ntelli en e
and is li ensed or se
y oldman a s Neit er
nor any ot er party involved in
ma in or ompilin t e
or any
lassi ations ma es any
e press or implied arranties or representations it respe t to s
standard or lassi ation or t e res lts to e o tained y t e se
t ereo and all s
parties ere y e pressly dis laim all arranties
o ori inality a ra y ompleteness mer anta ility and tness
or a parti lar p rpose it respe t to any o s
standard or
lassi ation it o t limitin any o t e ore oin in no event s all
any o t eir affiliates or any t ird party involved in ma in
or ompilin t e
or any
lassi ations ave any lia ility
or any dire t indire t spe ial p nitive onse ential or any ot er
dama es in l din lost pro ts even i noti ed o t e possi ility o
s
dama es
ornin star n All Ri ts Reserved e in ormation
ontained erein
is proprietary to ornin star and or its ontent
providers
may not e opied or distri ted and
is not
arranted to e a rate omplete or timely Neit er ornin star
nor its ontent providers are responsi le or any dama es or losses
arisin rom any se o t is in ormation Past performance is not
guarantee of future results.
nited in dom n t e nited in dom t is material is a nan ial
promotion and as een approved y oldman a s Asset
ana ement nternational
i is a t ori ed and re lated in t e
nited in dom y t e inan ial ond t A t ority
ropean onomi Area
is nan ial promotion is
A
rope
is material is a
provided y oldman a s an
nan ial promotion disseminated y oldman a s an
rope
in l din t ro
its a t orised ran es
is a
redit instit tion in orporated in ermany and it in t e in le
pervisory e anism esta lis ed et een t ose em er tates
o t e ropean nion ose offi ial rren y is t e ro s e t to
dire t pr dential s pervision y t e ropean entral an and in
ot er respe ts s pervised y erman ederal inan ial pervisory
A t ority
ndesanstalt r inan dienstleist n sa s t a in
and De ts e ndes an
it erland or ali ed nvestor se only Not or distri tion to
is is mar etin material is do ment is provided
eneral p li
to yo y oldman a s an A
ri Any t re ontra t al
relations ips ill e entered into it affiliates o oldman a s
an A
i are domi iled o tside o
it erland e o ld li e
to remind yo t at orei n Non
iss le al and re latory systems
may not provide t e same level o prote tion in relation to lient
on dentiality and data prote tion as o ered to yo y iss la
90 | Goldman Sachs Asset Management
Asia e l din apan lease note t at neit er oldman a s
Asset ana ement on on
imited
A
or oldman
a s Asset ana ement in apore te td ompany N m er
A
nor any ot er entities involved in t e
oldman a s Asset ana ement siness t at provide t is
material and in ormation maintain any li enses a t ori ations or
re istrations in Asia ot er t an apan e ept t at it ond ts
sinesses s e t to appli a le lo al re lations in and rom t e
ollo in
risdi tions on on
in apore alaysia ndia and
ina is material as een iss ed or se in or rom on on y
oldman a s Asset ana ement on on
imited in or rom
in apore y oldman a s Asset ana ement in apore te
td ompany N m er
and in or rom alaysia y
oldman a s alaysia dn er ad
A stralia is material is distri ted y oldman a s Asset
ana ement A stralia ty td A N
A
A A and is intended or vie in only y olesale lients or
t e p rposes o se tion
o t e orporations A t
t
is
do ment may not e distri ted to retail lients in A stralia as t at
term is de ned in t e orporations A t
t or to t e eneral
p li
is do ment may not e reprod ed or distri ted to any
person it o t t e prior onsent o
A A o t e e tent t at t is
do ment ontains any statement i may e onsidered to e
nan ial prod t advi e in A stralia nder t e orporations A t
t t at advi e is intended to e iven to t e intended re ipient o
t is do ment only ein a olesale lient or t e p rposes o t e
orporations A t
t Any advi e provided in t is do ment is
provided y eit er oldman a s Asset ana ement nternational
A
oldman a s nternational
oldman a s Asset
ana ement
A
or oldman a s
o
o ot
o and A
are re lated y t e
e rities and
an e
ommission nder
la s
i di er rom A stralian la s ot
and A are re lated y t e inan ial ond t A t ority and
is a t ori ed y t e r dential Re lation A t ority nder
la s
i di er rom A stralian la s
A
o and A
are all
e empt rom t e re irement to old an A stralian nan ial servi es
li en e nder t e orporations A t o A stralia and t ere ore do not
old any A stralian inan ial ervi es i en es Any nan ial servi es
iven to any person y
A
o or A
y distri tin t is
do ment in A stralia are provided to s
persons p rs ant to A
lass rders
and
No o er to a
ire any interest in a
nd or a nan ial prod t is ein made to yo in t is do ment t e
interests or nan ial prod ts do e ome availa le in t e t re t e
o er may e arran ed y A A in a ordan e it se tion
A
o t e orporations A t
A A olds A stralian inan ial ervi es
i en e No
Any o er ill only e made in ir mstan es ere
dis los re is not re ired nder art D o t e orporations A t or a
prod t dis los re statement is not re ired to e iven nder art
o t e orporations A t as relevant
anada is presentation as een omm ni ated in anada y
A
i is re istered as a port olio mana er nder se rities
le islation in all provin es o anada and as a ommodity tradin
mana er nder t e ommodity t res le islation o ntario and
as a derivatives adviser nder t e derivatives le islation o
e e
A
is not re istered to provide investment advisory or port olio
mana ement servi es in respe t o e an e traded t res or
options ontra ts in anito a and is not o erin to provide s
investment advisory or port olio mana ement servi es in anito a y
delivery o t is material
apan is material as een iss ed or approved in apan or t e se
o pro essional investors de ned in Arti le para rap
o t e
inan ial nstr ments and
an e a y oldman a s Asset
ana ement o td
alaysia
is material is iss ed in or rom
alaysia y oldman
a s
on
on
alaysia
on
on
dn
d
is material as een iss ed or approved or se in or rom
y oldman a s Asset ana ement on on
imited
in apore is material as een iss ed or approved or se in or
rom in apore y oldman a s Asset ana ement in apore
te td ompany N m er
o t A ri a oldman a s Asset ana ement nternational
is a t orised y t e inan ial ervi es oard o o t A ri a as a
nan ial servi es provider
ast imor e atta ed in ormation as een provided at yo r
re est or in ormational p rposes only and is not intended as a
soli itation in respe t o t e p r ase or sale o instr ments or
se rities in l din
nds or t e provision o servi es Neit er
oldman a s Asset ana ement in apore te td nor any o its
affiliates is li ensed nder any la s or re lations o imor este e
in ormation as een provided to yo solely or yo r o n p rposes
and m st not e opied or redistri ted to any person or instit tion
it o t t e prior onsent o oldman a s Asset ana ement
ietnam e atta ed in ormation as een provided at yo r re est
or in ormational p rposes only e atta ed materials are not and
any a t ors o ontri te to t ese materials are not providin
advi e to any person e atta ed materials are not and s o ld not
e onstr ed as an o erin o any se rities or any servi es to any
person Neit er oldman a s Asset ana ement in apore te
td nor any o its affiliates is li ensed as a dealer nder t e la s o
ietnam e in ormation as een provided to yo solely or yo r
o n p rposes and m st not e opied or redistri ted to any person
it o t t e prior onsent o oldman a s Asset ana ement
am odia e atta ed in ormation as een provided at yo r
re est or in ormational p rposes only and is not intended as a
soli itation in respe t o t e p r ase or sale o instr ments or
se rities in l din
nds or t e provision o servi es Neit er
oldman a s Asset ana ement in apore te td nor any o
its affiliates is li ensed as a dealer or investment advisor nder e
e rities and
an e ommission o am odia e in ormation
as een provided to yo solely or yo r o n p rposes and m st not
e opied or redistri ted to any person it o t t e prior onsent o
oldman a s Asset ana ement
olom ia sta presenta i n no tiene el prop sito o el e e to de
ini iar dire ta o indire tamente la ad isi i n de n prod to
a presta i n de n servi io por parte de oldman a s Asset
ana ement a residentes olom ianos os prod tos y o servi ios
de oldman a s Asset ana ement no podr n ser o re idos ni
promo ionados en olom ia o a residentes olom ianos a menos e
di a o erta y promo i n se lleve a a o en mplimiento del De reto
de
y las otras re las y re la iones apli a les en materia
de promo i n de prod tos y o servi ios nan ieros y o del mer ado
de valores en olom ia o a residentes olom ianos
Al re i ir esta presenta i n y en aso e se de ida onta tar a
oldman a s Asset ana ement ada destinatario residente en
olom ia re ono e y a epta e a onta tado a oldman a s
Asset ana ement por s propia ini iativa y no omo res ltado
de al ier promo i n o p li idad por parte de oldman a s
Asset ana ement o al iera de s s a entes o representantes
os residentes olom ianos re ono en e
la re ep i n de esta
presenta i n no onstit ye na soli it d de los prod tos y o servi ios
de oldman a s Asset ana ement y
e no est n re i iendo
nin na o erta o promo i n dire ta o indire ta de prod tos y o
servi ios nan ieros y o del mer ado de valores por parte de oldman
a s Asset ana ement
sta presenta i n es estri tamente privada y on den ial y no podr
ser reprod ida o tili ada para al ier prop sito di erente a la
eval a i n de na inversi n poten ial en los prod tos de oldman
a s Asset ana ement o la ontrata i n de s s servi ios por parte
del destinatario de esta presenta i n no podr ser propor ionada a
na persona di erente del destinatario de esta presenta i n
a rain is material as not een revie ed y t e entral an o
a rain
and t e
ta es no responsi ility or t e a ra y o t e
statements or t e in ormation ontained erein or or t e per orman e
o t e se rities or related investment nor s all t e
ave any
lia ility to any person or dama e or loss res ltin rom relian e on any
statement or in ormation ontained erein is material ill not e
iss ed passed to or made availa le to t e p li enerally
ait is material as not een approved or distri tion in t e
tate o
ait y t e inistry o ommer e and nd stry or t e
entral an o
ait or any ot er relevant
aiti overnment
a en y e distri tion o t is material is t ere ore restri ted
in a ordan e it la no
o
and la no o
as
amended No private or p li o erin o se rities is ein made
in t e tate o
ait and no a reement relatin to t e sale o any
se rities ill e on l ded in t e tate o
ait No mar etin
soli itation or ind ement a tivities are ein sed to o er or mar et
se rities in t e tate o
ait
man e apital ar et A t ority o t e ltanate o man t e
A is not lia le or t e orre tness or ade a y o in ormation
provided in t is do ment or or identi yin
et er or not t e
servi es ontemplated it in t is do ment are appropriate
investment or a potential investor e
A s all also not e lia le or
any dama e or loss res ltin rom relian e pla ed on t e do ment
atar is do ment as not een and ill not e re istered it or
revie ed or approved y t e atar inan ial ar ets A t ority t e
atar inan ial entre Re latory A t ority or atar entral an and
may not e p li ly distri ted t is not or eneral ir lation in t e
tate o atar and may not e reprod ed or sed or any ot er p rpose
a di Ara ia e apital ar et A t ority does not ma e any
representation as to t e a ra y or ompleteness o t is do ment
and e pressly dis laims any lia ility atsoever or any loss arisin
rom or in rred in relian e pon any part o t is do ment yo do
not nderstand t e ontents o t is do ment yo s o ld ons lt an
a t orised nan ial adviser
e
A does not ma e any representation as to t e a ra y or
ompleteness o t ese materials and e pressly dis laims any lia ility
atsoever or any loss arisin rom or in rred in relian e pon any
part o t ese materials yo do not nderstand t e ontents o t ese
materials yo s o ld ons lt an a t orised nan ial adviser
nited Ara mirates is do ment as not een approved y
or led it t e entral an o t e nited Ara mirates or t e
e rities and ommodities A t ority yo do not nderstand t e
ontents o t is do ment yo s o ld ons lt it a nan ial advisor
srael is do ment as not een and ill not e re istered it or
revie ed or approved y t e srael e rities A t ority A t is not or
eneral ir lation in srael and may not e reprod ed or sed or any
ot er p rpose oldman a s Asset ana ement nternational is not
li ensed to provide investment advisory or mana ement servi es in srael
ordan e do ment as not een presented to or approved y
t e ordanian e rities ommission or t e oard or Re latin
ransa tions in orei n
an es
fi
tialit
No part o t is material may it o t oldman a s Asset
ana ement s prior ritten onsent e i opied p oto opied or
d pli ated in any orm y any means or ii distri ted to any person
t at is not an employee offi er dire tor or a t ori ed a ent o t e
re ipient
oldman a s All ri
ts reserved Date o
rst se A
st
Perspectives | 91
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