Goldman Sachs Asset Management, long a major name in defined benefit plan investing, is in the midst of a massive expansion of its defined contribution team in hopes of grabbing a bigger share of the highly competitive DC market.
The New York firm hopes to get more of its mutual funds into 401(k) plans and onto the platforms of record-keeping firms, said Scott E. Kilgallen, managing director and head of platform distribution at Goldman Sachs Asset Management. By year-end, the company plans to have 28 professionals in its DC unit, up from just four at the end of 2007.
“We've been in the retirement business for 20 years managing defined benefit assets, but are now really ramping up our DC effort,” said Mr. Kilgallen. “You can't compete in this business without an investment in people, so we're really excited to be in a position to add to our staff.”
In addition, GSAM executives hope to stand out from the pack by offering more esoteric investment strategies, such as hedge-fund replication and other absolute-return strategies.
But Goldman is late to the party. The firm — with $10.68 billion under management for defined contribution plans, according to Pensions & Investments data — is not even among the largest 25 DC managers.
Of course, Goldman didn't become a powerhouse of money management until the 1990s, when executives expanded the operation from what was largely a fixed-income shop.
Goldman Sachs Asset Management, established in 1988, has $343.23 billion in worldwide institutional assets under management, spread among a broad range of investment strategies. It currently ranks 16th on P&I's list of largest institutional managers.
Goldman's strategy now is to use the investment capabilities developed for DB plans and distribute those to DC channels.
“We're an investment-only provider so we don't have the bundled offerings and a captive audience,” said Mr. Kilgallen. “But we have relationships with all of the major platforms, with institutions that have had DB plans and with financial advisers. Our goal is to make those relationships even deeper than they are today.”
Mr. Kilgallen said DC plan executives have expressed interest in Goldman's series of five target-date funds, as well as in some of the firm's more complex offerings that aren't commonly found in defined contribution plans. For example, he said his firm has been in talks with several corporate plan sponsors and consultants to add the Goldman Sachs Absolute Return Tracker, a hedge-fund replication strategy, as well as its Satellite Strategies Portfolio, a fund of funds that focuses on the “satellite” or more risky portion of a core-satellite portion.
The conversations, Mr. Kilgallen said, are not just about fund strategies, but also around gaining exposures to exotic betas synthetically. He declined to disclose the names of the plan sponsors or consultants.
Drew Carrington, UBS Global Asset Management's head of defined contribution and retirement solutions, Chicago, said Goldman's best bet will be large plans, which typically work directly with a fund provider without a third party. “The sale at big DC plans is now more like a DB sale than the record keeper-led sales from several years ago. They're really focusing on making the right investment decisions.”
Mr. Carrington, whose firm is an investment-only shop and a competitor of Goldman's, added that for Goldman, as with a lot of traditional defined benefit plan providers, “innovation will be very important. They need to provide solutions that plan sponsors can't usually get out of traditional record keepers. And if they can communicate those solutions, using DC language, and help participants achieve their objectives, they can succeed.”