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

Great. Very pleased to have concluding our 24th Annual Global Financial Services Conference is Goldman Sachs from the company, David Solomon, Chairman and CEO. David, thank you for being here.

Thank you for having me. We only get 2 minutes?

No, that's 2:00.

It's 2:00. Okay.

We got 3 hours.

I don't think we've got that.

Well, thanks for joining us. I've covered Goldman for a long time now. And we've seen a significant shift since you became CEO and set out to strengthen the kind of the core client franchise, make Goldman a more integrated firm, improve returns and just build a more durable earnings base. Several years into that strategy, what has changed most finally at Goldman?

Well, I mean, I think, Jason, you summed it up well. I mean we're executing very well against the plan we developed back in late 2018 and 2019 to really focus on the growth of the firm. And to get the client centricity and the client focus of the firm really aligned is True North, set out a bunch of objectives to grow the businesses, figure out how to operate the firm overall more effectively and really kind of create a coordination ethos, which we call One Goldman Sachs to execute against that and is confident way as possible. And there is result of it. We're now in the ninth year. The results of it are that we've significantly grown the firm. We've taken the revenue base from 30s. The expectations were in the this year. We've created some leverage to grow the earnings more than that. And I think most importantly, we've made the overall mix of the business much more durable. And so we have a much broader, more diversified more durable business that doesn't mean in different environments, there aren't certain parts of the business that can ebb and flow. But we're also given the nature of our franchises, the strength of our franchises, when there are opportunities like the current environment where there's more going on, we actually kind of grow share and expand our share and capture more of the upside. And I think one of the things that investors are going to see when we go through the inevitable cycles that we go through, is that the base is much higher and much more durable and much broader than it was 10, 15 years ago, and it's a much more durable firm. And the whole -- from a leadership perspective, as we're executing now, our focus is on growing the earnings to the firm. That is our focus. And I know that if we can continue to grow the revenues, you pick the base, okay? I got [indiscernible] and everybody wants to debate. Are we over-earning this? Are we over earning that? We're earning because there's an environment. Could there be an environment where you earn a little bit less, of course. But you pick the base. I think if you look back over the last 8 years, I think we've grown the revenues based on what analyst estimates are for 2026. We've grown the revenues just less than 10% over that period. And if we can grow the revenue 6%, I think we can deliver better than 10% earnings growth. And you can have no debate whatsoever about the multiple, shareholders are going to be very happy. So this is a leadership team that's focused on continuing to expand the breadth of the business and grow the earnings continue to make the overall business more durable, and we see room to continue to do that. And one of the reasons I'm so excited about the next 3 to 5 years is when you look at what's going on with technology, it's giving us an ability to reimagine operating processes and automate in ways that both give us better efficiency and therefore, more margin in certain parts of the business and better returns. And in addition, give us more capacity to invest in growth where we've actually been constrained to investment growth over the course of the last 7 or 8 years. And so I can't pick the environment. I have no idea what's going to happen environmentally 3 months from now, 6 months, 1 year from now, a year from now. But I bet a lot that with a 5- to 10-year view, we can continue to grow the earnings of the firm meaningfully. And I also think we're in a environment based on this technology super cycle that we're going to see real productivity gains in the economy over the next 5 to 10 years, Goldman Sachs has been correlated to that.

Okay. So I guess you said I get to pick the base. So pick 2Q '26 of the base, record results based on everything you talked out -- talked about. I mean, over the next 3 to 5 years, I guess, where do you see kind of the biggest drivers for that continued growth?

So I think, look, we've got 2 big businesses, and I think we have opportunities to drive growth in both businesses. I think one of the things that surprised people is the ability for us to continue to grow our platform and our franchise and bank in the markets, and we still see opportunities to do that. And we also see opportunities in banking and markets to operate the business differently and get more out of it even at the same activity levels given what technology is allowing us to do. And so we're excited about that. And then we've said publicly that we can grow our Asset Wealth Management business high single digits. We're doing better than that. We're now in a place where we've talked about our ability to drive 30% margins in that business and high-teens returns. And the organic growth in that business is excellent. I mean I know you're going to ask a little bit about asset wealth. We know we can save it for some of those questions. But you look at the scale of our platform, our fundraising capability, our flows, and we're performing very, very well in that business. We've also done a few interesting things inorganically that fill in gaps and accelerate some of that growth trajectory. So these are 2 world-class businesses, Global Banking & Markets, Asset Wealth Management. We, I think, are the leader in global banking and markets. We are a top 5 player in Asset Wealth Management the way structured, but we have a right to win in both businesses. We're a leader in both businesses. We have very, very effective scale platforms in both businesses. And I think that just positions the firm very well, especially when you get out of quarter-to-quarter and kind of say, okay, what can they do in the next 3 to 5 years? Okay. You got to get out of quarter-to-quarter. We're focused on growing the franchise over the next 3 to 5 years.

Let me let's double-click on a few of those items. Starting -- we could start with Asset & Wealth Management because that's certainly been the quarter contributor to kind of this increased durability that you've talked about. Maybe just talk through kind of what differentiates this business in the go-forward trajectory.

In terms of banking and markets?

Asset & wealth.

Asset & wealth. Sure. So we had an interesting collection of businesses, but they weren't coordinated on a platform. And I think one of the most important things we've done is a leadership, and this was hard and it created a bunch of noise was we took a firm where people ran their individual businesses and we said, if you bring these all together as a scaled platform, there's enormous scale advantage to it. So we took a merchant bank. We took a public site asset management business. We took a money market liquidity platform. We took a, for lack of a better term, a fund-to-funds kind of platform business and then we took a wealth business, and we put them all together. And so you wind up with a business now that is growing nicely, very nicely is supervising $4 trillion of assets, has $2 trillion wealth assets, I think, is incredibly well positioned for the strong secular growth trends that we're going to see or we are seeing in ultra-high net worth wealth. The acceleration of the amount of wealth in the world and particularly kind of ultrawealthy people and we are as well positioned as anybody to capture that space. And so the business has very, very good growth characteristics. But I think what our clients like is the scale of the platform and what we can offer is very holistic. Nobody can offer across the spectrum top 3 liquidity firm, top 5 fixed income, top 10 public equities player, top 5 alternatives player. Nobody can offer that. So we have an incredible manufacturing facility in asset management that's very broad, very scaled and global. And then we've got very, very strong client base that really appreciates the breadth of the platform.

One thing you kept us business with recently is just acquisition announcements for that segment. Maybe just kind of talk us through the rationale of recent acquisitions and maybe kind of early experiences with industry ventures and innovator?

Yes. So we've done 5 things strategically in Asset & Wealth Management for acquisitions and a partnership with T. Rowe Price. All of these things are meaningful, meaning they're having positive impact on the business, I would say none of these are individually significant. But we have gaps. I talk about the scale platform, we have gaps. And we've been looking very, very carefully for places where there are things that can fill the gaps. And all these things fit that. The partnership with T. Rowe Price was designed to give its distribution access into retirement because I think retirement is going to be increasingly important. And especially over time, I do think there'll be more retirement participation in all. And we have a very, very good manufacturing capability in all. So having a partnership with that retirement distribution channel was important. With Industry Ventures, we serve the venture community and our banking business enormously. But here was a leading player that was seeding this early round venture stuff in a very, very meaningful way, had an incredible network and it was a spot that we weren't playing, but the synergies have seen all the stuff earlier inside Goldman Sachs is really terrific. And the early read on having Hans Swildens and his team at the firm has been fantastic, both by the clients and also the product offerings that we're having for our clients. And so that feels very good. And I'd highlight something in that, that I think is important with all of these. One of the things that happens with these kinds of acquisitions is their talent acquisitions for Goldman Sachs. So all these are small entrepreneurial businesses where the principal that started the business has grown their business and they're basically making the decision that they want to do what they're doing on our platform because they think by doing it on our platform, they have more room to run than they would if they did it independently. And so this has brought a really interesting talent into the firm. With respect to Innovator and NEOs, if you look back, we weren't top 50 in ETFs. We were late in my opinion, in getting going in active ETFs. And so now we've got, depending on how you look at a top 6, 7, 8 position in active ETFs, which is where obviously our firm wants to focus. The early results in terms of fundraising have been excellent Here, again, we got some very, very good talent in both those businesses that we're really excited about doing what they do on our platform. And so we became a scaled player in active ETFs with 2 relatively small acquisitions and have very, very good growth trajectory on those platforms based on the early returns. And then we've said that real estate and infrastructure are 2 places in the alternative side where we feel like there's more opportunity for us to scale. And so the last acquisition, [ triple net ] lease acquisition was an opportunity to further broaden or accelerate some of what we want to do in real estate because that's a place that we don't feel that we're scaled. And this is a little piece, but it's -- we're still not able in real estate. So all of them, they add to places where we're not scaled and they can accelerate some of that growth. They bring talent. We're not going to do it. We don't really like the talent and the talent doesn't really want to be a part of Goldman Sachs. And these are not complicated things to integrate because you're buying small teams of people that have very, very specific talents that are additive to the firm. And that's -- it's a good strategy. Are we going to do some more? Probably. There are some other obvious gaps we have, where if we can find the right things, we do them. But this is kind of a low-risk strategy to accelerate the pace of growth.

Got it. And maybe talk a little bit about wealth management. You mentioned $2 trillion in total client assets across ultra-high net worth franchise. We're also expanding GSAM's capabilities to third-party wealth channels. Just what's underpinning the growth you're seeing across wealth?

I mean, the growth -- there is just so much wealth expanding and the opportunity to provide a full service offering to people. People want a very high-touch full-service offering and we offer that. And our brand, our capabilities. Now the issue with this business is it scales with people. This is not a business that scales with technology and One of the reasons I'm excited with some of the flexibility we have given the process reimagining is it's allowing us to accelerate the footprint of wealth advisers we have around the world in a very, very focused way. And that we know how to grow the footprint of wealth advisers and add to the business. Third-party wealth is a great, great opportunity for us. We've never had privity with retail clients broadly, but we have a great breadth of platform that the third-party distributors find very, very attractive. And so we found our ability to build partnerships with those third-party distributors has been powerful, and that creates a very broad distribution channel for us, given our manufacturing capability.

And then maybe alternatives, obviously, a key growth driver for AWM, a leading player of $700 billion in total alternative assets. Just what differentiates Goldman platform, especially in this market?

Well, with all these things we're talking about, one of the things that I don't think should be lost is performance, performance, performance, performance. You are managing money for people and they want performance, and we've got a very good performance track record over long periods of time. across everything that we're talking about. In alternatives, we have a really extraordinary offering. And we also have incredible relationships and we have the ability when you get to the big institutional capital allocators to customize offerings for them. And so one of the things that I think is making us very, very effective with a large capital allocators, we're just not out pitching a fund. We're basically trying to understand how they want to put capital work over a significant period of time, creating partnerships and customizing what they need, which I think is very powerful. Look, you look at our fundraising, we've thrown out there on a fundraising perspective, $75 billion to $100 billion of volts fundraising a year. This year, we're going to do better than $125 billion. And as you know, through the 2 quarters, we were awfully close to $100 billion. So that's very, very powerful. It's also powerful because I think this year, we're kind of running third when you look at that landscape in terms of our fundraising capability. And that's in the broadest definition. If you actually look at pure alts, we're doing better than that. So the firm is very well positioned in this space. I still believe in the long-term secular growth of these private capital products. there have been some bumps and some noise around it, but one of the things that's been interesting, look at the credit, the institutional credit, private credit fundraising we did last quarter. Institutions, while the noise kind of look and say, okay, this is actually an attractive time. to be deploying. And so where they go, they go to platforms that are broad with experience over a long period of time they trust. And so we're obviously doing very well in that context with the institutions.

I guess, just out of curiosity, record fundraising, where are you seeing the most interest?

There's a lot of interest in credit. I mean there was a lot of interest in credit, institutional credit. We've seen a lot of interest in a variety of the kind of structured products we have in XIG. But credit is really the place where I thought there was differentiation last quarter.

I guess maybe sticking with the durability theme. Financing is another area has seen strong growth. I think 2Q was a record for both equities and FICC financing revenues. Where do we go from here?

Well, I think you've got to think about these financing revenues. And I certainly would be [indiscernible], it's not -- the growth is not going to be a straight line because it's just correlated to market activity and market cap. So if you had a drawdown in the market for a period of time, you would see a softening in that activity for a period of time. But if you believe over the next 10 years, the market cap of the U.S. and the market cap of the world is going to compound at some rate. You're going to see the availability for us to finance our clients is going to compound at some rate. And so we're very focused on risk management. We're very focused on how we package and deliver this, but these are very attractive durable businesses for someone that's got a scaled platform and as a leader. And I actually think there's going to be more and more pricing power over time because at the end of the day, there are only a handful of firms that actually have the capacity to serve clients at the scale they need to be served.

I guess one thing we're trying to get our arms around is just this impact of AI driving significant capital formation areas like compute, data center infrastructure. Maybe just talk us through the opportunity set and how you help your clients finance growth while obviously maintaining discipline with risk structure, distribution?

Sure. I mean everything there are links to everything. And you also -- when you step back and you look at the firm, firm is doing a lot of financing on a lot of things. And while all the attention would be towards AI financing, and I'm not going to say that AI financing is not creating tailwinds in certain parts of our business. AI financing is not driving all the financing activity we're doing. There's a lot of financing going on and a lot of different things all over the world. But with respect to AI financing, if everyone is right and the build-out of the compute capability in the next 5 years is going to take $8 trillion, there's going to be a lot of financing to do that. Now I'm not sure it's going to be a straight line. I'm not sure everybody is estimating at the end of the day, the right capital needs that they've got the right pricing models. But I do think there's going to be a lot of demand, and there's going to be a lot of needs. And this is something we're really good at. And we also sit in a very, very unique position because we're not just a capital provider as an asset manager, the way somebody like Apollo or BlackRock would be, we are that the same way they are. But in addition, we're an adviser. We're a distributor, we're an underwriter. And so we've got a capacity to see these things to get in the middle of these things, and that's what our CSG effort is all about. It really puts us in the center of sourcing for these things in a way where we can be very selective, very, very focused, always with a view toward risk management, very, very focused, things. I'm focused on we all know when you're looking at where the underlying credit risk is, we know what a real investment-grade offtake agreement looks like. And then we also know when people are doing structured things that are getting investment-grade ratings where fundamentally the risk is not the same as true investment-grade risk. That's something we've seen before in history. And so we're watching that stuff very carefully. It's not at a scale at the moment that I'm overly concerned. But those -- whenever you have a psychic like this excess is developed and one of our jobs be very smart to look around corners, be very prudent in how we set limits and create risks and how we distribute what we hold. I think we're good at it. I'm sure we'll have bumps like everybody else when there's a recalibration. But at the moment, there's certainly a lot of opportunity.

I guess as you kind of capture this opportunity, just how do you ensure that it remains consistent with your kind of risk appetite and at the same time, you can support clients that have you come to you?

It's a dialogue. I mean it's a dialogue. There are things that people want us to do that we won't do. There are things where we think we understand them and understand the collateral and understand the structure better and we lean in. I mean, that's fundamentally Jason what our business is. It's trying to pick the winners. It's trying to avoid more of the losers. It's trying to get your clients the best product that you can, but that's what we do.

Got it. And maybe shifting gears to the Investment Bank. I think every year, you're almost -- or #1 in M&A, the gap to #2 is consistently fairly wide and even [indiscernible].