Best Equity Fund House - Goldman Sachs Asset Management
M: Morningstar G: Goldman Sachs Asset Management
M: What is your outlook for 2018 specific to the markets you cover, and how are your portfolio managers positioned to take advantage of opportunities and/or mitigate potential risks?
G: At GSAM, we think equity markets will be carried to new highs by a supportive macro environment in 2018. With the global economic expansion likely to continue, we prefer equities over credit and credit over rates. EM, outside of China, is a bright spot.
We believe investors should look beyond traditional asset classes and borders. We expect continued economic expansion which favors global and emerging market equities, elevated valuations which favor active and alternative approaches to traditional markets and central bank tightening which favors diversified sources of yield. In 2018, we plan to:
- Invest for continued global growth - The economic and market cycle has yet to fully mature. Invest for continued global economic expansion through developed and emerging markets.
- Manage the risks of elevated valuations - US equity valuations are high relative to history, but continue to offer an attractive premium over other assets. Consider implementing buy-write and alternative strategies for elevated valuations.
- Diversify income sources as central banks tighten - We are bearish on US and other developed market government bonds, and cautious on corporate and mortgage-backed bonds. Consider investing in emerging markets debt and municipal bonds.
- Navigate the forces of disruption - Disruption is an ongoing driver of risk and return globally. In our view, the disruptive impact of technology is likely to be even bigger in emerging markets, creating compelling opportunities.
- Uncover insights from Big Data - Quantitative strategies employing deep analysis of big data can potentially uncover return opportunities through market themes and secular changes that connect otherwise disparate companies.
M: Can you comment on the major risks facing financial markets, such as rising US rates and elevated asset prices? How do these risks affect your investment decisions?
G: We expect the expansion to continue but the pace of growth will likely moderate. We see downside risks to the current pace for varying reasons; the US economy is at risk of overheating from easy financial conditions, whereas tighter financial conditions could slow the European recovery and Chinese growth stimulus seems likely to moderate following the 2017 Party Congress.
We think this environment calls for a dynamic approach to asset allocation, an equity strategy that looks beyond the major developed market benchmarks and a fixed income approach that seeks returns outside of developed market government and corporate bonds.
M: What do you think are the success factors in your corporate culture than enables your firm to consistently deliver for investors?
G: We believe there are a number of reasons clients choose our firm:
- An Experienced Partner - Goldman Sachs’ 149-year reputation is built around a unique culture of teamwork, adherence to high ethical standards, and a deeply rooted commitment to long-term relationships and client service.
- Broad Resources and Insights - Leveraging GSAM’s access to the full suite of expertise and resources of Goldman Sachs allows us to provide our clients with unique investment solutions and services. GSAM is supported by broader resources such as technology, information security and risk management, recruiting and people development, legal and regulatory expertise, operational support, and global networks of thought leaders and industry experts.
- Global and Continual Coverage - At GSAM, our global team provides around-the-clock coverage of market activity, portfolio activity and client service. Our integrated team of investment, risk management and client service professionals work together to continually analyze portfolio performance, risks and opportunities.
- Experienced and Diverse Investment Teams - GSAM invests heavily in the recruiting and hiring of the most capable and accomplished professionals in all of our business areas. For example, the interviewing process for new hires is one of the most comprehensive in the industry and requires a significant commitment of time by all of our professionals. This intense recruiting process is a unique characteristic of Goldman Sachs and is critical to maintaining the highest standards of excellence.
- Relationship Management and Client Engagement - Our client relationships are based upon the principles of partnership, full transparency, in-depth collaboration and systematic planning. Our global team is able to provide around-the-clock service to our clients, helping them identify opportunities that shape their portfolios and long-term investment goals.
M: Can you share some of your future business plans with us, such as the launch of new products?
G: Our objectives for future growth are based on a series of forward-looking core goals, combined with a continued adherence to our business principles. The core goals are:
- Provide outstanding client service using all of Goldman Sachs’ resources
- Deliver strong, consistent long-term investment performance
- Seek and nurture long-term client relationships.
- Excel at both fundamental and quantitative research
- Employ team-driven, research-intensive, disciplined and risk-managed investment processes to foster consistency and stability of investment results[1]
- Attract, retain and develop the best professionals
While we are always looking to grow our business, we do not define stated numerical targets for number of accounts or assets under supervision. We value our investment performance and client service over a single-minded focus on growth in assets.
M: Are there plans to further strengthen your investment team? In which areas?
G: GSAM has grown with assets under supervision, and we will continue to add resources in the major areas of portfolio management, research, trading and implementation, information technology and product management/client service as necessary. We believe that we have both a scalable investment process and the resources in place to help ensure that we can continue to grow without encountering capacity constraints.
We plan for staff additions as business needs dictate, so that we are always well-positioned to service our clients. The firm, as a whole, allocates considerable resources to its recruiting effort and strives to identify and hire the best available people from top-ranked universities as well as experienced professionals with significant records of achievement.
[1] The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.
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