George H. Walker joined Goldman Sachs & Co. in 1992, after earning his BA, BS and MBA from the University of Pennsylvania. He was named managing director and partner in 1998 at the age of 29, one of the venerated Wall Street institution's youngest-ever partners. But Mr. Walker's interest in investments started even earlier, in fifth grade, when he began to buy stocks. Mr. Walker has held 13 positions at Goldman, ranging from investment banking to institutional marketing to his current position as head of Goldman Sachs' alternative asset management unit. He got there via a three-year stint as co-head of the firm's hedge fund of funds unit, which was developed through the 1997 acquisition of Commodities Corp. Mr. Walker has also been supporting the re-election of his second cousin — President George W. Bush — as a fund-raiser for the Republican Party. Mr. Walker describes himself as "politically engaged," but when asked about his childhood ambitions, he said, "I always wanted to do two things: build businesses and pursue a career in public service." Mr. Walker recently added oversight of private equity and global manager of managers strategies to his hedge fund of funds duties and talked to senior reporter Christine Williamson about his plans for conquering alternative investment niches.
Q Do you offer commingled hedge funds or more customized fund-of-funds strategies?
A Our approach is somewhat unique. We have divided our research effort along key hedge fund sectors, just as an equity manager might have a series of industry teams. We then blend those sector portfolios differently for different clients, depending upon what objectives they are trying to achieve. Furthermore, this so-called modular approach enables us to work together with large funds that might be doing some portion of the investing themselves and some portion with funds of funds. It also enables us to complement many of our competitors' portfolios that happen to be very focused on one space or another, whereas we cover the universe and assemble various building blocks.
QHow important is the alternative investment business to your parent company?
A With over $30 billion in the space (in the Alternative Investment Strategies unit), we are pleased with our market share. Obviously, it's an important part of our asset management franchise. Additionally, the hedge fund and private equity universes are extremely important to Goldman Sachs. Much of the reason we have made the type of investments we have in building world-class teams over the past few years is because we, as an institution, have wanted to differentiate ourselves in the space. These are large and profitable businesses for the firm, however, their importance goes far beyond that. They are even more visible than they are profitable. Everything we do is focused on building the best possible products for the largest and most sophisticated clients. Those clients are very focused on new and innovative areas. For us not to have a world-class hedge fund operation is simply not an option.
Q Do you agree with the cycle of the typical institutional investor moving from exclusive use of hedge funds of funds to all direct hedge fund investments?
A Yes and no. I believe that we are in the first or second inning of a long game.
I do believe the largest and most sophisticated investors will not ask the question "Fund of funds or direct?" in five years' time. In fact, they're not asking that question today. Instead, they first ask the question(s), "How much relative value exposure do I want? How much event-driven exposure do I want? How much equity long-short exposure do I want? How much macro and managed futures exposure do I want?" And then ask themselves "How much am I prepared to do in-house today? How can I find the best partner to manage that money that I am not yet prepared to manage in-house today?"
I think with time, there will be a far more nuances to the available approaches with some (companies issuing) broad, core, diversified mandates, just as there are huge balanced mandates in the world. Others at the opposite end will be doing it completely in-house. But most (will be) somewhere in between.
Q How much money can your unit manage in hedge funds of funds?
A There is no doubt that we built our effort to manage more assets than we had a few years ago. We invested in the business. Today, we have well over $2 billion in additional portfolio capacity.
Q Do you find capacity constraints to be a serious issue?
AThere is no doubt that capacity is a real industry challenge. Full stop. There is no doubt that the size of our team makes it easier for us to find capacity than it is for materially smaller organizations. There is no doubt that we are investing aggressively in being perceived as attractive capital by hedge fund managers, which we think will enable us to not only find the best, but hopefully to get more than our fair share (of capacity) over time.
Having a really talented team of portfolio managers that is deeply knowledgeable enables us to provide managers with comfort that we will be a knowledgeable investor and a patient investor. We are also particularly focused on attracting knowledgeable, patient, stable and sticky capital and have been able to convince managers who may be reticent to accept capital from certain other folks that our capital is attractive. We are encouraging our (hedge fund) managers to do due diligence on us just as we do due diligence on them. And finally, I would like to think that our 34 years of experience and our reputation in the industry enable us to be helpful to managers in ways that (fund of funds) newcomers can't be.
Q How much transparency do you require of your hedge fund managers?
A We are unique in that we have separate accounts with a significant percentage of our managers. In which case, we have total transparency daily at the position level. With the vast majority of the remaining managers, we also receive what some may call full transparency, but which, for example, does not include daily positions.
We are fundamentally willing to share with our clients all of the data regarding their portfolio other than a specific manager's positions. Besides, most of our clients find that what we have is 1,000 times more than they need. The one thing we can never show to any client would be anything that an individual manager might be uncomfortable with, or they will not take our capital.
As fiduciaries — and we recognize that our clients are fiduciaries as well — we have a strong bias not only for getting data, but also for sharing with clients as much of the factor and risk exposures that will help them do their jobs.
Q If you could not work at your present job, what would you do?
A I would love to race NASCAR and sing country music in honky-tonk bars throughout the southeastern United States. I'd be a disaster at both, but I would love it!
I spend a lot of my time right now working on education and am particularly involved with New School University and Parson School of Design in New York. It's important to me. I'm also somewhat active in Republican politics.