The Goldman Sachs Group, Inc. (GS) Earnings Call Transcript & Summary

All right. Good morning. We'll get started here. So our first presentation this morning will be from Goldman Sachs. We're very pleased to welcome back John Waldron, President and Chief Operating Officer at Goldman. John will give a short presentation, and then we'll sit down for a fireside chat. So welcome to the conference once again, John, and good to see you in person.

Thank you, Christian. I appreciate it very much. It's good to be here. Good morning, everybody. I'm pleased to be here this morning with you to review the progress we have made in executing on our strategic plan and to further articulate the growth opportunity in front of us,particularly in our Asset and Wealth Management businesses. We remain confident in delivering on our updated medium-term financial targets, as we outlined earlier this year. And since David and I assumed our roles, we've worked very hard to implement a unified client-centric strategy. We've delivered consistently strong financial performance while navigating extremely challenging and highly volatile markets. We generated a 23% ROE in 2021 and then delivered a 15% ROE during a more tumultuous period in the first quarter of this year. We've increased our book value per share by 34% since our Investor Day early in 2020 while continuing to make important strategic investments in our firm. Now we laid out a strategy to strengthen our core franchises and to grow and diversify our firm by executing on our One Goldman Sachs operating philosophy. This strategy is working, and we intend to continue to press our advantage. We're proud of how we've performed by serving our clients, as evidenced by the material improvement in our market shares,as well as the early successes across our important growth initiatives. Now while shown in separate segments in our financial statements, our Investment Banking and Global Markets businesses are increasingly operating as a unified, world-class franchise executing incredibly well for our clients. Our leading Investment Banking business feeds our Global Markets distribution and financing platform. The strength of our global markets, risk management, distribution and financing capabilities enable us to deliver better solutions for our investment banking clients. The power of our leading merger franchise drives attractive financing opportunities, creating significant multiplier effects across both businesses. This is clearly a virtuous ecosystem with real synergy between the businesses enabling us to drive very strong returns. In fact, we produced an almost 26% combined ROE in the first quarter and 24.5% for all of 2021. And as a reminder, these returns are reflective of fully allocating all of our capital and all of our expenses into the business. You should expect we will continue to invest in these businesses to enhance our already leading position, part of further pressing our advantage. Now today, I want to spend the bulk of this presentation accentuating the strength and the tremendous upside inherent in our asset and wealth management platform at Goldman Sachs. But before I do that, let me just remind everyone of our updated financial targets as we outlined in February of this year. These new return targets are fueled by our confidence in the durability of our businesses and the increasing contribution from our growth initiatives. We remain highly focused on our 4 primary growth priorities: Asset Management, Wealth Management, Transaction Banking and Consumer. And we unveiled additional targets across each of these 4 opportunities and expect to be held accountable for delivering on those targets. Let me just highlight the shaded targets on this page: delivering greater than $10 billion in firmwide management fees by 2024, of which greater than $2 billion will come from our alternatives franchise. These are both important targets in further diversifying and strengthening our firm. Now let's dig into our Asset and Wealth Management platform further. Here, we are providing holistic advice to our clients as their trusted adviser complemented with a broad suite of capabilities and solutions to ensure world-class execution alongside that advice. We have observed a clear long-term evolution and how investors are seeking solutions as well as service, which strengthens our resolve to intensify our client-centric engagement. We continue to model the relationship and advisory mindset that underlies our investment banking franchise and translate that into our broad-based engagement with our investing clients. We view the CIO of an institution or a wealthy individual client as analogous to the CEO of a major company in terms of building long-term strategic advisory relationships. And as we look to serve this client base, a major differentiated attribute of Goldman Sachs is a truly integrated platform offering breadth, scale and insights with expertise and execution capability across both asset classes as well as geographies. We are operating a fully integrated end-to-end franchise providing advice, solutions and execution for institutions as well as for individuals with an ability to navigate and understand both public and private markets. Goldman Sachs sits at the nexus of the capital markets with a strong track record and deep investing acumen. We benefit from the strong risk management culture, which is an embedded part of the Goldman Sachs DNA, a significant attribute of our value proposition for our clients and particularly evident in these more volatile markets. Let me now give you a sense of the size and scale of our platform. We are the fifth largest active asset manager in the world with $2.7 trillion in AUS. We are also the fifth largest alternatives asset manager in the world with $431 billion in alternative assets. This is a truly unique platform with scale and deep expertise across both public and direct private markets. And we continue to see growth in the flows across our platform. We received record long-term net inflows in 2021 of $130 billion followed by another $24 billion in a more volatile first quarter of this year. Given that underlying strength, we increased the target for our long-term net inflows in February of this year as we continue to gain confidence in this forward opportunity. We are laser-focused on continuing to scale this franchise, growing our management fees to meet that $10 billion target in 2024, again, with $2 billion of that coming from our alternatives franchise. This reflects a double-digit growth rate in management fees with the alt component growing at double the rate of the traditional component. Now let's step back and review some of the key trends we believe are driving Asset and Wealth Management more broadly. I'll just mention a few. First, we are seeing the continued secular growth and an allocation towards private markets as asset allocators continue to increase and expand their participation in private assets. Based on industry research, private market alternative assets are expected to grow at roughly a 15% CAGR over the next 5 years, taking worldwide private capital assets to $18 trillion. We are also seeing the very beginning stages of a democratization of alternatives into retail portfolios. We estimate that most retail investors have very modest allocation but are showing significant appetite to access alternatives. Second, we hear a very consistent refrain from both institutional and individual clients about their interest in more customization as well as their demand for more financial planning and holistic advice. In almost every client meeting we attend, there is a discussion on ESG and sustainable finance investing. It's pretty clear at this point that building an integrated and holistic capability around ESG to advise clients will be a key prerequisite for any scaled asset manager going forward. Each of these key trends require continued investment in technology platforms to deliver higher levels of client service and capability in a cost-effective and increasingly digital manner. And at Goldman Sachs, we are actively responding to these very clear trends, working to continue to innovate to solve our clients' needs. As I shift to Slide 6, we'll try to bring that to life. Let's start with portfolio customization, where we are increasingly delivering strategies tailored to our clients' specialized needs, building custom portfolios that are more specialized and offer more choice for our clients to express their specific investing views, offering advice across both asset allocation as well as risk management with more dynamic management of portfolios in response to the environment at hand. We are creating more customized separate accounts, or SMAs, focused on individual accounts as low as $250,000 in size, where we have built the #1 platform in retail SMAs. Increasingly, we see real opportunity to develop customized solutions for large asset allocators to dynamically manage their portfolios between the public and private markets. We are uniquely positioned here to provide solutions for our clients given our scale in both public and private markets. And in fact, we've been awarded recently multiple mandates to dynamically manage credit portfolios between public and private markets, enabling our clients to capitalize on the pricing arbitrage and generate better overall returns. On sustainability and ESG, we are building significant capability across both public and private markets where we already have more than $300 billion in ESG AUS. This will be further enhanced by the assets and differentiated offering we are bringing on through our recent acquisition of NNIP. In public markets, for example, we offer customized beta strategies that give our clients the option to customize and index for their own ESG values and preferences. And in private markets, we deployed $7.5 billion in capital last year, and we'll have multiple offerings in the fundraising market this year and increasingly for years to come. In terms of technology, we are focused on building a digitally enabled adviser and client experience for the retail channel. Beyond alpha generation, retail customers are increasingly looking for a differentiated user experience, for example, paperless, digital client onboarding, where in our private wealth franchise, we are targeting the same day opening of brokerage accounts by the third quarter of this year with permission to access to portfolio as well as performance data all stored in the cloud. We are also using data-enabled analytics to drive our investment decisions. For example, in our real estate investing platform, we built an advanced data service in the cloud, leveraging inputs such as geographic intelligence and retail shopping data to track over 14 million CRE properties, accelerating the underwriting of real estate investment opportunities to benefit our clients. Now turning more specifically to alternatives, I want to highlight the scale and breadth of our business here. As I indicated earlier, we have $431 billion in alternative assets. $240 billion of those assets are earning fees with an average fee rate of 65 basis points, putting us well on our way to achieving that $2 billion alternatives investment -- alternatives management fee target in 2024. Now our platform carries several points of important differentiation. We have a unique sourcing engine through our leading investment bank, a global platform increasingly oriented towards finding compelling investment opportunities across the capital stack. We have a proven and very disciplined approach to investing, always with an eye towards managing downside risk through cycles. We have a proprietary distribution channel through our private wealth capabilities, raising significant capital for our funds. And we have strong firmwide relationships with important LPs globally, all of them are very important clients of Goldman Sachs. And we are among the most diversified of the alternative managers with depth across all major asset classes. Now historically, we've executed these investing activities with a merchant banking approach, using more Goldman Sachs balance sheet versus third-party funds. An important component of our broader strategy to generate more durable, sustainable fee-based revenues and to better manage our capital efficiency is a significant repositioning towards a full-scale third-party solutions and management fee intensive model. And we have been building funds-based solutions oriented towards the LP markets and have been actively fundraising over the last few years. This is outlined more clearly on Slide 8. As you can see here, we continue to have very clear momentum in fundraising across our broad product suite. We stated an intention at our Investor Day early in 2020 to raise $150 billion in third-party funds by 2024. We have now raised in excess of $130 billion in third-party funds through the end of the first quarter 2022 with average fee rates of approximately 80 basis points accretive to our existing average fee rate, generating $1.3 billion in fees last year and $375 million in fees in the first quarter of this year, demonstrating very strong momentum towards that $2 billion alternatives management fee target. Given this underlying strength, in February of this year, we raised that fundraising target from $150 billion to $225 billion by the end of 2024. We continue to benefit from the strength of our private wealth channel, which generates a healthy proportion of our overall fundraising. We are also and, importantly, consistently growing our presence in the institutional markets, leveraging the strength of those firmwide relationships with the major LPs globally. While these are significant clients of the firm, as I said, Goldman Sachs has not historically had a consistent presence in the fundraising market, but we are making very clear progress as evidenced by the significant institutional mandates we've been awarded across products over the last 2 years. We have now built substantial breadth and diversity of products across this platform and are slated to have 40 funds in the market over the next 18 months. And the receptivity to our offerings continues to be exceptionally strong. I would just highlight here that generating a more normalized share of this LP wallet over time represents a significant source of upside to these fundraising targets. Now any conversation about asset management at Goldman Sachs must include a focus on returns. We have a long track record of investing success with a clear focus on performance. Our investing teams are measured and rewarded based on their consistent and persistent outperformance versus their key benchmarks. As you can see on the slide, these are the 4 principal strategies in our alternatives investing business, where we have demonstrated clear long-term outperformance, reflecting the durable consistency of our returns. Which becomes even more valuable as we enter these more volatile markets, all of which allows us to differentiate ourselves across our fundraising efforts. Let me now take a couple of minutes to talk about the size, scope and growth opportunity across our Wealth Management platform. We have over $1 trillion in client assets with roughly 2,200 advisers and content specialists serving our clients in a business that generates $6 billion of revenues, which grew over 25% in the last 12 months. Importantly, this business generates ROEs that are accretive to our current targets. Now this performance has largely been driven by our premier ultra-high net worth franchise focused on serving the wealthiest individuals around the world. We see continued growth runway in this ultra-high net worth segment. And we are making consistent investments in both people as well as technology supportive of driving this growth plan forward. We would observe that the investments we made to grow in this heavily fragmented ultra-high net worth market are generating consistently high returns, another example of pressing our advantage. Now while we continue to execute on that growth plan, we believe the corporate and high net worth segments are particularly exciting growth opportunities for Goldman Sachs. We have 50 years of experience providing financial counseling for C-suite executives at large companies around the United States. This is a high-touch, long-term financial planning-led approach versus a product-led strategy with the intent to deliver the same customization and full-service capability I described earlier. This business is now called Workplace and Personal Wealth, where we are serving over 475 corporates, representing over 55% of the Fortune 100, with $115 billion of fee-paying AUS in a business that generated $1.3 billion of revenue in the last 12 months. Again, full-service wealth capabilities with over 800 highly trained, digitally empowered coaches and advisers in a full integrated end-to-end offering, and I want to highlight, this is a highly synergistic business with our investment banking franchise. We are executing this in a true One Goldman Sachs manner. These are the core corporate clients of our firm, some of the most important companies in the United States where we have trusted advisory relationships in the C-suite. Building our presence as a wealth adviser is highly complementary to these banking relationships and enhances our ability to better serve the needs of our corporate clients holistically, which ultimately strengthens those relationships further. Let's now take a look at how this works in practice and what we believe the real market opportunity is for Goldman Sachs. As I said, we have a base of 475 corporate clients today historically providing financial counseling services to the C-suite. More recently, we expanded our capabilities to cover employees throughout the organization in response to a clear push from C-suite leaders for a more democratized offering. In 2019, we made an acquisition of a national RIA platform, which added to our ability to serve more employees across these corporate relationships. And in response to client feedback, we built holistic, digitally enabled financial wellness offerings supplemented by live coaching. Goldman Sachs currently has adviser-led relationships with approximately 45,000 employees, where we are providing financial counseling services often paid for by their employer. This is the top 2 categories on the slide. We see an opportunity to grow this tenfold to more than 450,000 employees as we expand our relationships with this existing base of corporate clients and their employees. Additionally, we cover 1.5 million employees within that wellness offering, also paid for by the employer. So we have plenty to chew on with this base of 475 companies that we are currently serving, but we will, of course, continue to add new relationships. And I am holding this business accountable for adding 30 new clients and 80 new programs annually to our existing base. There is lots of runway in front of us here, and we are laser-focused on executing on this growth plan, again, in a true One Goldman Sachs approach. Now as we continue to grow our Asset and Wealth Management business, we are always looking for acquisitions to add to our global, broad and deep platform. Over the last few years, we have made 4 acquisitions that have improved our technology, expanded our footprint and strengthened our capabilities, namely around ESG and our retirement offerings. In each of these deals, we've advanced our Asset and Wealth Management growth plan by strengthening our capabilities to better serve our clients while increasing the size and scale of our business. So in summary, today, I spent considerable time unpacking the underlying strength and forward opportunity for our Asset and Wealth Management franchise, which represents 2 of the 4 major growth vectors for Goldman Sachs, leveraging the power of our One Goldman Sachs approach to execute upon this franchise opportunity with clear potential to unlock significant value creation for our shareholders. And as I outlined today, we are making considerable progress and see very clear momentum across the Asset and Wealth Management business. We remain extremely excited to continue to serve and execute for our clients while building a more resilient and diversified firm. Thank you very much.

Great. Thank you for that, John. I'd love to dig into more about the asset management presentation, but maybe a good place to start is on the macro backdrop. Clearly, we're in uncertain times this year. The risk of recession seems to be getting higher. How does that impact the outlook for the business in the near term or for the full year?

So I'm going to try not to use any weather analogies, but I would say the following. I think this is among, if not the most complex dynamic environment I've ever seen in my career. We've obviously been through lots of cycles. But the confluence of the number of shocks to the system, to me, is unprecedented. If you just think about the massive demand shock in the pandemic, unprecedented demand shock in the pandemic, followed by unprecedented amounts of stimulus, monetary and fiscal. Then you had as we were getting through and trying to emerge out of the pandemic, you had significant supply shocks in various manners, supplemented, exacerbated by the war in Ukraine, which created an incremental commodity shock. So now we have extraordinary inflation on the back of all that. You have demand inconsistency and supply inconsistency, and you have now massive inflation on the back of that, which leads to a significant tightening in policy. So you went from massive stimulus to very quickly clear and significant tightening and a clear bias to continue and maybe exacerbate that tightening. So it's not surprising that on the back of all that, you have big asset price revaluation and wider credit spreads. And that's what we're seeing. And we're seeing it actually relatively orderly so far. So while it's painful to watch and investors are not performing as well as they would like to perform for sure, it actually has been relatively orderly so far. We obviously see a decline in the capital markets. It wouldn't be surprising that capital raising would come down a lot when you see what I just described. So that's most pronounced in equity capital markets. That was the big growth driver in '20 and '21, massive amounts of -- record amounts of equity capital being raised, public and private. That's obviously now reduced considerably. I think the Street-wide numbers that just came out as of yesterday were 30% decline in equity capital markets volumes quarter-over-quarter, 70% year-over-year. So that's obviously a dramatic reshaping of those volumes. Interestingly, in our risk intermediation businesses and our markets businesses, we're actually seeing pretty healthy volumes as clients are repositioning around this volatility. And so that, the business continues to perform well. But there's no question that we're seeing a tougher capital markets environment. To me, the most interesting thing and I'd say a sign that we're watching maybe most carefully is the resiliency of M&A. So to my mind, as a long-term banker, M&A always represents a proxy for CEO confidence. And right now, we're actually seeing M&A hang in there. The volumes, I think, are kind of up quarter-over-quarter a little, down year-over-year a little but basically hanging in there. And I would say the backlog is pretty strong, and you've seen transactions announced including a large one this week in the technology space. And so there continues to be demand from CEOs to transact, I would say largely driven by the fact that the demand in their businesses remain strong despite the market gyration and the predictions of recession, the underlying demand still remains relatively strong. And so CEOs are still relatively willing to step out and do transactions. We also obviously have a lot of dry powder in the private capital markets. So the record amounts of capital that's been raised along the alternatives trends that I referred to, and that capital is getting deployed. So we have actually relatively strong M&A markets that is inconsistent with everything I talked about earlier. So either that's going to start to roll over because you see demand destruction, CEOs get a little less confident and we start to see roll down in M&A, and then obviously, you start to see more tougher economic environment. That's a reasonable expectation. But we're watching that carefully as a signal. At this moment, I wouldn't say you see a lot of CEOs walking around saying we think our demand is falling down precipitously. So far, it's hung in there. But obviously, given all the negativity around the economy and the signals and the tightening of policy, we expect that there's going to be tougher economic times ahead, and we're certainly prepared for it. At Goldman Sachs, our focus is on our clients, and our focus is on our shares, our wallet shares. If we manage our wallet shares as we have been, if we continue to increase our wallet shares, we continue to be more valuable and more important to our clients, whatever the economic environment is, we will do just fine. And that's what we're laser-focused on right now.

So staying on the topic of sort of wallet shares and clients, you guys actually took up your targets from Investor Day recently in 2019, you took it up recently. Can you remind us like what the drivers of the increase in targets were with the underlying question being, given the dynamic macro backdrop we're in, are they still valid in terms of confidence level of it near term?

Sure. No, it's a good question. We obviously, when we put targets out, we intend to deliver on them. That's the credibility we're trying to build with our investors. So you should assume that when we think about those targets, we think about all weather environments and understand what kind of flexibility we have. So we certainly expect those targets are achievable. We wouldn't have put them out if we didn't. And we certainly expected that we would have a tougher economic period ahead of us. I would say 2 things. We talked about strengthening our core franchises and growing and diversifying the firm. The strengthening of the core franchises really relates to stronger share of wallet in those leading businesses where people would have thought that they were mature or they already had very high shares, we believed and have continued to execute that we can improve those shares because we think we can execute better for our clients. And the overall size of those businesses have grown. The oversize of the market opportunity has grown given the amount of liquidity and activity in the world over the last 3 or 4 years. So we're operating from a higher base. Our shares are higher. We expect to continue to take those shares higher. And that is largely underpinning a lot of the confidence in our targets. But the second thing that I think is increasingly important and will be increasingly evident over time is the contribution from those growth drivers. So whether it's the alternatives platform I talked about or transaction banking or the wealth management growth plan or our consumer plan, you're going to see more contribution over time from those businesses which will obviously buttress our ability to hit those targets.

Speaking of growth drivers, you talked about asset management in the presentation. And it's a business that we've gotten a lot of increasing amount of questions from investors as to Goldman's ambitions. You laid out getting to $10 billion of fees. Maybe help us unpack from where you are now how you get to $10 billion over time.

Sure. So we've talked about both the traditional AUS platform and the alternatives platform. And we've laid out targets for new funds coming into those 2 platforms. In the traditional case, it's $350 billion. In the alternatives case, it's $225 billion. And obviously, attracting those new funds and driving a stronger, more durable management fee base on the basis of having more clients wanting to do more business with Goldman Sachs as an asset management, as a steward of their capital is what underlines that $10 billion target. And the reason we talk about $10 billion and $2 billion in tandem as we want to make it clear how relevant and important and the growth vector that we believe is coming in our alternatives franchise as we think we have one of the truly special alternatives platforms in the world. And so that's really what underlies that $10 billion. But the $2 billion is equally important because that shows continued acceleration in what we believe is a long-run secular opportunity in private markets, direct private markets, alternatives, et cetera.

How dependent market values continues to go up to your target? I mean we've been in a basically bull market for asset prices over the long term, over the last sort of 10 to 15 years. That feels like it's changing. So how dependent are you on that continuing to help your targets?

Well, a large proportion of the fundraising is really based on capital -- on committed capital, right? So it's not based on market value, it's based on committed capital. Obviously, market values matter in the context of overall funds, but I wouldn't say that it's a dramatic impact. And we've obviously conditioned ourselves in those targets for volatility in markets. As I said, when we thought about the broad-based targets, we certainly thought about more volatile environment. So it has impact at the margin, but I wouldn't say that that's the most important driver.

One of the big drivers of revenue or margin for Goldman has been the best in -- on balance sheet to invest in business, and it's one where you're trying to deemphasize over time. How do you think about that business particularly in the context of, again, very volatile markets and potentially some drawdowns, et cetera?

Well, I would say a couple of things. And you've seen in our financial performance significant growth in the equity investing line in terms of the P&L recognized as asset prices went up and as we sold more assets. We obviously will continue to sell assets as we take the balance sheet down and replace that with third-party funds. We believe we're very conservatively marked, so we certainly condition ourselves for degradation of values over time. That's part of our DNA. But obviously, at some point, if the values come down enough, you can have implications on individual assets. But generally speaking, as we sell assets, we generate P&L. And so we expect that we will continue to sell assets, we will generate P&L, but we are not replacing those assets with more balance sheet, we're replacing them with more funds. So it is likely that those lines aren't going to perfectly cross, and there might be some differential in revenue as that occurs. But we believe fundamentally, we're building a more valuable, more durable, more sustainable franchise by having a more clear and predictable sense for what the management fee growth can be. And our balance sheet is not infinite. We have -- as I said, we have this very unique sourcing engine. We are sourcing an enormous number of opportunities for people to invest, ourselves, sometimes with our clients. And that is the way we think about expanding our appetite for investing, which is to have other people's funds that we can manage because our balance sheet is not infinite.

Speaking of funds, very strong success I would say in terms of fundraising. Can you give us some color around where that's coming from, maybe types of strategies, what -- where you're getting the fund reason from? Maybe just unpack a little bit how you've been so successful in terms of fundraising.

Sure.

And what is a particularly, I would say, competitive environment for...

I think the most important thing to say about our platform is it's very diverse. If you think about Goldman Sachs has a 30-plus year track record of investing, we have typically done more of it in a merchant banking construct. But we have a very diverse business. We have strength in all the major asset classes. So we're a long-time investors in private equity. We're long-time investors in credit. We're long-time investors in real estate. We're long-time investors in infrastructure. We're long-time investors around the world. So we have these activities all over the world in different pockets. We're obviously building capability in places like sustainability impact, life sciences, growth, so it's a very broad-based platform. I referenced 40 funds in the market in the next 18 months. That gives you a sense for the breadth of the platform. And so there's not one asset class or one fund that is particularly driving that growth opportunity. I would give you an example. In 2020, we were getting ready to raise a private equity vehicle and actually saw as the pandemic was emerging the opportunity to raise something that was more of a hybrid kind of capital solutions vehicle because we thought that a lot of corporates given the demand shock would need liquidity and would need credit provisioning. And we could do things that would be not straight equity but more hybrid equity, where we would do something that might look like a loan but it would have equity upside. And so we raised a fund that we call West Street Strategic Solutions Fund, which was a very sizable fund that we actually put in front of the private equity fund because we saw the opportunity more acutely. And we ceded some of that with assets off the balance sheet and an ability to get it going more quickly. So again, the balance sheet can be an asset in terms of allowing you to loan something more quickly. And that's an example of a fund that wasn't even on the drawing board 18 months prior that we put in there and raised double-digit billions of dollars. So we have a lot of flexibility. We have an ability to dynamically manage. We certainly see a lot in the markets. We're quick to react. And we now have a quite strong broad-based fundraising capability both on the private wealth side as well as institutionally, where we can get into the market and get a number of funds launched.

How do you think about the competitive landscape, though? There are obviously very big players that are very competitive in the market. How do you see Goldman's competitive advantage?

So it's an interesting question, and I think there's no question it's crowded. So what we observe, and I meet with a lot of LPs myself and so I often ask the question what are you -- how are you guys thinking about the crowded nature of the market. We would observe that the large scaled, diversified managers that have proven records through cycles of delivering the capital back with strong returns are going to do very well here. We're not the only one of those, of course, but we believe we are one of those. So there are going to be half a dozen, plus-minus, large-scale players that can serve these clients across the different product suite and be a strategic partner to them, where it's not just about a fund but it's about a broader-base relationship. I think the LPs are looking for a large handful of those names that they can think about in a more diversified strategic way. I then believe that the really extraordinary performers in the niche areas are also going to do well. So if you're excellent in growth equity or you're excellent in infrastructure, you're excellent in private credit, and that's what you do and you're world-class in doing that, you will have shelf space. I think it's the people that are kind of more in the middle that are going to have a tougher time. I think they'll still raise money, but it won't be as robust. So we like where we sit in that competitive dynamic. I think our brand, our long-term relationships with these clients, our track record, they want our sourcing engine, they want co-invest, that's an important point. The LPs really need and want co-invest, and a lot of that co-invest comes from unique sourcing. And so they want access to that at Goldman Sachs. And that's a pretty unique attribute that we have, that nobody else really does have in the investing business.

Okay. Switch over to the workplace business, a bit of a growth engine for Goldman but also some competitors like Morgan Stanley. So what is the value proposition or the differentiation in terms of the workplace business relative to competitors?

So what we're focused on, and I tried to say this in the presentation, we are focused on financial planning, and we're focused on an advisory relationship. That is the Goldman Sachs brand. That's how we think about CEOs. So it's no different if we're talking about wealth for a CEO or for their employees. That is not a product-led strategy. That is a financial planning-led strategy. So everything we do leads with what is the plan, what is your particular situation and how do we design a plan, whether it's asset allocation, whether it's retirement savings, whatever it is, how do we design a plan that deals with your particular situation. And then let's talk about how Goldman Sachs can execute on that plan. That is the top-down approach. And then as I said, we have this strong base of C-suite relationships. Given that we started with that financial planning led approach and given that we started in the C-suite, we're working our way from the C-suite down. And so essentially, what we're doing is we're working with companies where they need and want more democratized capability to serve their broad base of employees to offer capabilities to their employees. Some of them are wellness. Some of them are more financial planning. Some offers more technology. Some is more personal interaction. It might be a different a different set of offering for the top 100 or 200 executives of a major corporation than it is for the store clerks or the people working in the warehouses or in the manufacturing facilities. But we're designing programs that serve all. And that democratization of that program with the financial planning-led approach, lots of technology delivered particularly as you go down the stack, it becomes more automated, more technology-led. As you go up to the wealthier more executive-level people, it becomes more human capital led. But we've got to be able to deliver both.

Okay. Switch to capital and capital deployment, with the dynamic environment just now, how are you thinking about prioritizing capital between investing in the business, buybacks, M&A, et cetera?

So we laid out a framework where we want to invest in our businesses particularly as they're generating very strong returns, which as I highlighted they have been doing. We continue to want to do that. 2021 was a really good example. We saw enormous client activity. We saw very strong returns. We plot more resource in. When those returns moderate to levels that are less attractive vis-a-vis what we can do in terms of returning capital, we'll return more capital. And we're obviously always mindful of our SCB and our capital regime from the Federal Reserve stress test process. We're obviously on the precipice of learning about the stress capital buffer for this cycle, so that obviously has a huge impact on how we think about it. So I wouldn't want to prejudge that outcome. But as you saw in the first quarter, we moderated our share buyback. That was really for 2 reasons. One, we saw strong returns in the business. We generated a 15% ROE in the business despite the volatility. And we were pre-provisioning for the acquisition of NNIP, which we closed in April and early April. So we were actually being kind of aware of that acquisition in addition to investing in the franchise. I think you should expect a similar kind of mindset going into the second quarter. Less about NNIP this time, maybe more about just being cautious about the environment and watching and seeing how the environment evolves. Back to your macro question, we want to kind of see how that confidence develops, how that demand curve plays, and that will dictate how we think about capital deployment.

How do you think about capital levels over time? You are trying to move to a more capital-light business model. You are winding down some of the balance sheet investments. So that could be a tailwind for SCB over time on the flip side. There might be pressures on GSIB buffer. So maybe give us a sense of how you think about capital levels over time.

So we believe that the strategy we've laid out is both good for shareholders as well as for the capital regime. We think it's a virtuous strategy because it's basically a strategy that makes the firm more durable, more sustainable, more fee-based, more focused on franchise revenues, less focused on the kind of market-sensitive revenues. The on-balance sheet investing revenues would be a prime example of that. So as we reduce the balance sheet on our investing business and we replace with third-party funds, we think that's really good for shareholders. We also think that's really good for capital outcomes. So we would expect over time that as that transition really takes fruit, that we get different outcomes in our SEB. I wouldn't want to predict the actual timing of that, but we believe over the long term, that will be a virtuous cycle both for shareholders and for the capital regime.

What about inorganic opportunities? I feel like we ask questions to you all the time. You've done a few deals already, but you're a banker at heart, you can see bonuses have come down a lot particularly in the fintech space. So maybe give us a flavor of how you're thinking about M&A here.

So we have done, as I said, 4 transactions that are really relating to our Asset and Wealth Management franchise, all of which we are very happy with, all of which I would say really have accelerated our organic plan. And that's really fundamentally the premise that we look at, which is if we have, if we see an opportunity to buy an asset that really allows us to go faster or to expand the TAM that we otherwise thought we had access to, then we're interested in doing it. And then it becomes can you integrate it and does the valuation makes sense. And your point is right, valuations are making more sense, getting more interesting. That opens up the aperture for more things to look at. But I would say, we have a lot to integrate and a lot to operate. And I am the Chief Operating Officer of the firm, so I can't help myself but say that part of my job is to make sure that we integrate and we execute on those acquisitions and that we really solidify the value proposition that we thought we were getting when we bought those assets. And so I am laser focused with our team on making that happen. So I think we will continue to look and find things particularly in asset and wealth management that allow us to expand on the opportunity that I tried to lay out today. Anything that's larger or more scaled, as I often say, the bar goes up quite a lot. Anything that impacts the whole of the firm, you have to think about the cultural integration, the operational integration, the technology integration, so the bar goes up multiple times when you think about something that's more scaled. So we like the kind of thing we've been doing. We continue to look for more of those opportunities. And as we see them and as the values make sense, we'll execute on them as we can -- as we integrate the deals we've done further.

Okay. Maybe switching onto technology, how that impacts the business. Are there any particular areas that Goldman is focused on now in terms of investing, whether it's AI or any other areas? I'd be curious of your thoughts on that.

So we've made a significant investment in technology in our firm for a long time. But I would just say, over the last 3.5, 4 years, where we've been running the firm, we've really amped up the technology investment. And I think about it, it's kind of 2 broad buckets, and then I'll try to give you some specific examples of things that are more dramatic in terms of driving growth forward. We're really renovating the firm as I think a lot of financial services firms need to do because you've got legacy systems, you're not on the cloud in lots of places, and you have to really upgrade your fundamental system and capability. So there's a lot of renovation that I think is going on in a lot of financial services firms. We're no different. And then we're spending dollars to build platforms to create growth opportunities. So I talked a bit about technology in the presentation. In Asset and Wealth Management, we're building a lot of technology capability around onboarding, single sign-on capability, portfolio customization capability, reporting. Reporting is an area where we think there's a lot of opportunity. Most financial services firms are not good at delivering reporting to their clients. We think there's a real opportunity to automate that, deliver that in a very seamless digital manner. So there are a lot of investments you can make, building the Apple Card platform, building the transaction banking platform, restacking the equity stack, where basically we can now deliver a much faster execution capability than we would have 3, 4, 5 years ago. Those are all, in my opinion, growth opportunities where you are building platform. You might be replatforming or building entirely new platforms. Equity execution stack is kind of replatforming and adding and building and improving. The transaction banking platform is building an entirely new, from-scratch platform, both important, both opportunities for growth. We're very focused on AI. We're very focused on automation. I think one of the big unlocks at Goldman Sachs is to create a lot more automation in our processes. We're just scratching the surface on that. We have an entire working group focused on how do we create more automation and are sustainable, durable, creates more efficiency and allows us to actually be more resilient in our systems. One of the things that a lot of firms need to struggle with is operational risk. The more you can automate, the more you can make that more seamless, the more risk you take out of the system. And so there's a lot of opportunity there. And I think there's a lot of opportunity for us to continue to build platforms that are digitizing otherwise legacy interactions. Transaction banking would be maybe my favorite example. It's basically a platform that's built from scratch to digitize the corporate payments flow, which has historically been a pretty legacy kind of ledger, checks and checkbook-oriented, paper-heavy system. Now everybody is trying to do that, but we've built something that's entirely from scratch with no legacy. That's a significant opportunity. And there are other opportunities like that, that we're finding to build new platforms to change the way business is conducted while we're automating and making ourselves more efficient.

Maybe last, I'll switch to ESG. And I just have 2 questions here. Maybe firstly, for Goldman itself, how do you think about just the commission around ESG? It feels like given what's happened around energy and people realize that we need actual fossil fuels. Has that changed the demand or the conversation around ESG? And then we'll dig into the asset management.

Sure. Well, at a headline level, we tend to use the term sustainable finance because we think about a very broad architecture of things that are -- that Goldman Sachs can do, where we can marshal capital that we steward towards a more sustainable world. And we believe deeply in that. So there's no debate at Goldman Sachs about whether we need to have more sustainability going forward. That includes renewable energy. That includes what we call inclusive growth. That includes investing in education, affordable housing, affordable health care in communities where those things are not a given. So that is not debatable at our firm. I think what is debatable is the pace at which you can marshal this capital and the pace at which you can make the transition and the change, let's just take renewable energy as an example. How fast can you go from a fossil fuel laden world to a fully renewable world. What I didn't like so much about the historic language, and maybe it's starting to change a bit, is that there was this perception that you could do it very, very quickly and that all things fossil fuels were bad and all things renewable were good, and there was nowhere in the middle to live. And I don't think that's reality. I think what's the reality is we have a long-term transition to make. Firms like Goldman Sachs have to play a role in marshaling capital to find those new technologies, finance those new technologies, expand and grow those new technologies, bring them to life and allow that transition to happen faster. But it's going to happen over time. It's not going to happen as quickly as maybe some of the rhetoric would like it to have happened. It's not going to happen in a political cycle. It's going to happen over a longer period of time. And it's going to take an enormous amount of capital. And we're going to have to allocate that capital intelligently, which, fortunately, capitalist systems are usually pretty good at doing. And so we think we have a real role to play. But I think that it's got to be thought of as a more balanced over time kind of transition.

Okay. And then lastly, can you talk about Goldman's ESG offerings particularly post the NNIP deal?

Sure. So as I said, we have the sustainable finance architecture. We think about renewable energy, climate transition and inclusive growth. We made a $750 billion commitment to invest, finance or advise on transactions that aggregate to $750 billion by 2030. And we have made enormous progress. We're almost halfway to that target, not quite but almost halfway to that target. So we made enormous progress in identifying projects and opportunities to put our capital to work or our clients' capital to work. So we're deeply focused on continuing to hit those targets and make that effort. I believe in asset management, we have an enormous opportunity to continue to build capability, customize solutions to allow investors to basically tailor how they want to express their views and their preferences around ESG because there is not one size fitting all. Obviously, different clients have different perspectives about what they care most about. Our job is to figure out how to serve them and build capability so they can express those views in the markets. And NNIP is an important acquisition partially because it gives us more heft and scale in Europe and distribution in Europe, but a lot of it is about their climate and the ESG capability. We think they have a very significant capability, and we intend to import a lot of that capability into our firm to strengthen our offerings and our intellectual capital to develop more solutions for our clients over time.

Perfect. It's a good place to end it. Thank you very much for the conversation.

Appreciate it. Thanks, everybody. Thank you.

Thank you, everyone.