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Goldman Sachs netted $349M 'gain' from Creative Planning deal

ByTobias Salinger
January 17, 2024 2:10 PM

Peter Mallouk's registered investment advisory firm, Creative Planning, bought the ex-Goldman Sachs unit once known as United Capital at a significant discount.

Goldman Sachs booked "a gain of" $349 million from selling its Personal Financial Management segment to Creative Planning, according to the megabank's Jan. 16 earnings statement for the fourth quarter. At the time of the announcement late last summer, the PFM business spanned about 200 financial advisors with $29 billion in assets under management across 70 offices; however, the deal prompted a significant portion of the advisors to depart and led to legal actions relating to client nonsolicitation clauses.

While Goldman and Creative didn't officially disclose the financial terms of the November sale of Goldman's PFM unit, the megabank's receipts from the transaction fell far below the price of $750 million in cash it had paid for the former United Capital in 2019. 

On the brighter side for Goldman, its wealth and fund arm drove a positive last three months of 2023 for the firm on the strength of record assets, fees and private banking and lending revenue. The firm's position as a "premier ultrahigh net worth franchise" and its specialties in alternative investments and active management are playing a crucial role in what the megabank refers to as its "one Goldman Sachs" strategy, its quarterly investors presentation showed. 

To see the key takeaways from Goldman's fourth-quarter earnings statement, scroll down the cardshow below. For Bloomberg News coverage of the megabank's overall earnings, click here. To see Financial Planning's analysis of previous periods, follow the links to the firm's earnings for the first quarter, second quarter and third quarter of 2023.

Note: The company doesn't break out most specific metrics for its wealth management business, including the number of financial advisors and client assets. The metrics below relate to Goldman's Asset & Wealth Management segment.

Wealth and asset management client assets

Incoming business and strong performance in stocks and bonds last year boosted client assets for Goldman's fund and wealth unit. 

Assets under supervision jumped 10% year over year to a record $2.81 trillion in 2023, thanks to inflows into alternative investments, fixed income vehicles and liquidity products as well as a net market appreciation valued at $187 billion. Those influxes easily offset the "dispositions related to the sale" of the PFM unit, according to the firm.

Management fees

The higher assets under supervision stemming from the client flows, the acquisition of European asset manager NN Investment Partners in the first quarter and rising stock and bonds led to record management and other fees. That revenue line surged 8% year over year to a record $9.49 billion in 2023.

Private banking and lending revenue

Business from private banking and lending increased 5% from a year earlier to a record $2.58 billion after the impact of Goldman's move away from personal loans through its Marcus brand earlier this year and the subsequent sale of "substantially all" of the unit's portfolio, according to the firm. Higher deposit balances and spreads made up for the hit from those loans migrating off the firm's balance sheet.

Wealth and asset management earnings

For the year, the fund and wealth unit generated net earnings of $1.08 billion on revenue of $13.88 billion. Its profit ticked down by 1%, while the revenue climbed 4% from 2022.

Remark

As part of the new high in management and other fees, those specifically attributable to alternative investments grew by 15% to $2.1 billion. Goldman beat its target fundraising goal of $225 billion in alternative vehicles by $26 billion after clients invested $251 billion last year. That number has soared to more than six times its level only three years earlier, and about 40% of the inflow has come from Goldman's wealth arm in the past four years. 

In a call with analysts, one asked CEO David Solomon how that percentage from the wealth arm compares with previous times and how that unit's clients compare to those from outside the firm, according to a transcript by Seeking Alpha.

"If you go back 20 years, most of our fundraising for these activities came from our private wealth channel and the percentage of the money we managed was much higher than 40% from private wealth," Solomon said. "So as we continue to invest in broad institutional partnerships in the pension community, the sovereign wealth community — areas where historically we had not raised a lot of alternative funding — that percentage of wealth funding will probably decrease. But I'm not going to speculate exactly where it will go. At scale, the economics associated with all these alternatives are extremely attractive. They're attractive in the private wealth channel and they're attractive in our institutional partnerships. But, as I think you all know, they're not exactly identical. And people that allocate or enter a partnership with you and allocate $10 billion definitely have a different economic proposition than somebody that's giving you $50 million or $100 million. And that's been consistent in the business for a long, long time. So we're continuing to scale the business."
Tobias Salinger
Chief Correspondent, Financial Planning
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