I started in business school during the spring of my senior year in college by taking a few of the first-year courses. To be fair, I had taken economics courses for four years already by then, but economics, while connected to business, is simply not the same. So, for all intents and purposes, I have been thinking about the finance business since 1975, a full fifty years at this point.
Wall Street tends to bifurcate itself between what are called buy-side and sell-side activities. In very simple parlance, that’s about helping clients finance themselves by issuing or “selling” securities, or helping clients manage their money by “buying” or investing in securities. Most of the world at large knows about Wall Street is about the sell-side, which is most often called Investment Banking. The buy-side is generally called Investment Management. I spent the first 11 years of my career on the sell-side and then the next 20 years on the buy-side. in my expert witness work I have taken on cases in both realms, but the majority of my work tends to be buy-side work. That’s logical given that I was the CEO of three major money management firms and they’ve been a founder and or CEO of five alternative asset management businesses. therefore, I try and stay current about the going on in that industry. because of a combination of work experience and personal interest, I feel particularly drawn to pension and retirement issues. I’ve written several books on the subject and think about it often. I recently wrote an article, which was published, on the changing landscape of asset allocation and how it is going through changes brought on by changing generational, thinking about the world of investments. The gist of the changes are about increased focus on alternatives, private markets and cryptocurrency.
I feel my experience in alternatives is very strong. I feel my experience in private markets is decent, especially in terms of private equity, but less so in private debt (at least the latest versions of it that have become so pervasive). As for cryptocurrency, I will admit that while I’ve been exposed to it for a dozen or more years, I have tended to stay away from it, so much so that I have to suggest that I am more a casual observer than anything approximating an expert. Convergence in financial markets always seems to happen. I can’t tell you the number of hedge fund managers that have told me that they want to wander over into the private equity space (especially if their sources of alpha are drying up) and, conversely, the number of private equity managers who envy the current-pay nature of the incentives in the hedge fund world. in addition, money management platforms have been expanding from traditional investments to alternatives for many years now. However, as prudent as this gradual shift has seemed, sooner or later, prudence always seems to give way to boldness. Some new maverick comes into the game and decides that inching forward is less good than barreling forward.
For 25 years, the leader in Investment Banking has been Goldman Sachs. They were always a strong player over their 150 years history, but their dominance in this new millennium has been noteworthy. In 2016, in a departure with their focus on investment Banking and institutional clients, Goldman Sachs launched Marcus, their retail banking initiative named after the firm’s founder, Marcus Goldman. It represented their entry into the seemingly lucrative arena of consumer banking. But just because the grass is greener doesn’t mean its easy to grow or tend. Marcus underwent significant changes by 2022. Goldman started to dismantle Marcus and transition those products and clients into their strong, but somewhat sub-scale wealth and asset management businesses. In other words, they retreated into the high-net-worth client game rather than the broader retail market it originally targeted. 2022 earnings release, Goldman outlined a reorganization that would dismantle Marcus. Most of Marcus’ products would be transitioned into the wealth and asset management businesses, and effectively eschewing the broader retail market it originally targeted. Now I read that Goldman has made a $1 billion investment in a relatively large stake in a T.Rowe Price, a well-respected retail funds management platform. This comes at a time when retail funds management in the U.S. has just caught up with its bigger brother, institutional asset management. That $30 trillion prize is simply too lucrative for a swoop like Goldman to either ignore or give up on. Meanwhile, with more than $12 trillion of that in defined contribution plans, anyone who aspires to either manage money or sell into money managers wants to open those doors to themselves and their products…especially the private market ones that are all the rage. Goldman certainly wants to be positioned to be an early follower into that game (they tend not to like leading a new charge). Avoiding the pioneer arrows is a well-proven tactic for them, but they still want a large slice, especially of the private markets gold ring.
Meanwhile, the Big Kahuna in asset management, Blackrock, with its $12.5 trillion in assets under management, has managed to secure the mandate to manage an extraordinarily large block of new retail assets of $80 billion from the Citibank wealth management business. Blackrock is no stranger to retail funds management, being a close second in the space to Vanguard considering a combination of mutual fund and ETF assets. The move is seen by many as a direct preparation for their assault on incorporating private markets into their allocation platforms. I have picked at the edges of the cryptocurrency issue with some friends who are more in that flow and am told that while Vanguard seems to be staying away from the arena, both Blackrock and Fidelity, the two biggest retirement services managers (other than Vanguard) are getting into crypto in many ways, undoubtedly preparing for this tectonic shift in the way people want to see their money invested.
While I continue to have my concerns about many of these new markets, I have spent enough time in the financial markets to understand that it is generally unwise to ignore what the market is telling you. It is a powerful force of nature that may not always be “right”, but is always something that must be taken seriously. I have been a party to several big shifts in the financial markets over the past fifty years. I would even go so far as to say that I was a significant player in some of those shifts. But now that I’m sitting on the sidelines, not altogether absent from the field of play, but certainly no more than an interested observer and perhaps commentator, it feels like a truly tectonic shift is about to occur. Strangely enough, this game changer is in arenas like wealth management and private markets that I know lots and lots about, but then again, there that crypto angle that never makes me feel like I can fully understand the underlying rationale, but must just accept the reality of it. Perhaps I should change my game a little to incorporate digital assets a bit more. If only I knew whee to begin…