Goldman Sachs reported an increase in both earnings and assets under management during its fiscal third quarter despite a challenging market environment, while Bear Stearns revealed a significant decrease in its asset management revenues from losses and expenses related to the collapse of two high-grade hedge fund strategies during the quarter.
Overall, Goldman’s net income for the quarter was $2.85 billion, up 22% from the previous quarter and 79% from a year ago. The increases were buoyed by $12.3 billion in total net revenue during the quarter, with the asset management business specifically contributing close to $1.2 billion, a 14% increase for the business from the second quarter and a 31% increase for the year. Goldman’s total assets under management at the end of the quarter were $796 billion, up 5% from the second quarter and 27% from last year, fueled by $50 billion in net inflows.
During the quarter, Goldman’s money market assets saw the largest increases, spiking 23% to $164 billion. Fixed-income assets also gained, growing 4% to $230 billion, while alternative assets under management remained flat at $151 billion. Equity assets under management declined 1% during the quarter to $251 billion. The company also reported roughly $12 billion in market depreciation during the quarter, occurring mostly in equity and alternative investments. Goldman CFO David Viniar confirmed on the conference call that two of the company’s quantitative equity funds, the Global Equities Opportunities hedge fund and its Global Alpha fund, declined more than 20% and 30%, respectively, during the quarter. However, he added the Global Equities Opportunities fund was up 16% for the quarter since Goldman and other investors injected roughly $3 billion into the fund on Aug. 13.
Separately, Bear Stearns’ asset management business had negative revenues of $186 million in the third quarter ended Aug. 31, compared with $184 million in the previous quarter and $105 million in the third quarter of 2006. Roughly $200 million in losses were directly related to the high-grade hedge funds.
Overall, Bear Stearns reported $57.8 billion in assets under management, down roughly 4% from the previous quarter but up 15% from one year ago. On an earnings call earlier today, Bear Stearns CFO Sam Molinaro said the issues surrounding these two funds have been a “major distraction” for Bear Stearns Asset Management and that they have “inflicted some damage" on reputation of that business. Mr. Molinaro also said that the hiring of Jeff Lane as chairman and CEO of BSAM in June should stabilize the business. Mr. Molinaro added that BSAM, while it is still committed to alternative investment and hedge fund strategies, is likely to begin placing a more emphasis on offering traditional long-only strategies as well.
As a whole, Bear Stearns reported net income of $171.3 million during the quarter, down 53% from the previous quarter and 61% from one year ago. The decline was due in part to a drop in fixed-income trading revenues to $118 million, an 88% decline from revenue produced in the previous quarter as well as the third quarter last year. Executives cited the challenging market conditions in both the mortgage and credit businesses, adding that a general repricing of risk led to reductions in revenues for both businesses.
