Goldman plans to expand model portfolio business

The firm is vying to be a top player in a an industry that's projected to grow to $11 trillion by 2028.

Goldman Sachs Asset Management is charting a path to break into the top ranks of what’s projected to grow into a more than $11 trillion industry by the end of the decade.

The asset manager is aspiring to become one of the “top five” largest providers of model portfolios, according to Alexandra Wilson-Elizondo, co-chief investment officer of the firm’s multi-asset solutions group. GSAM ran $14.5 billion in its model portfolios, making it the ninth-largest player among asset managers, according to a Cerulli Associates 2023 report.

GSAM is one of several firms looking to make deeper inroads into a booming corner of money management in which asset managers and investment platforms package up customized strategies across asset classes. Broadridge Financial Solutions estimates the industry will more than double, to some $11 trillion, by the end of 2028 as financial advisers increasingly embrace the off-the-shelf allocations from stocks to bonds.

“When you have a market growing at 20% per year, you don’t have to take existing market share from someone else,” Wilson-Elizondo said in a phone interview. “You just have to outgrow them.”

Model portfolios are becoming more popular in part because they allow financial advisers to add value in other areas, Wilson-Elizondo said. Outsourcing portfolio management to a firm such as Goldman leaves more time for wealth management matters such as tax and estate planning, she said.

BlackRock Inc. is the largest asset manager involved in providing model portfolios, followed by the likes of Wilshire Associates, Capital Group and Vanguard, according to Cerulli data. GSAM is among those looking to ride the industry’s expansion. State Street Global Advisors is targeting “north of $25 billion” of assets in its model portfolios over the next five to six years, from roughly $5 billion currently, Bloomberg reported.

GSAM provides off-the-shelf strategies, which could offer anything from a 90% allocation to equities and a 10% weighting to fixed income, and vice versa, as well as so-called custom models, which are designed with specific investors in mind. Demand for the latter is rising among wealthier clients, Wilson-Elizondo added.

Goldman has made two acquisitions to help fuel growth. It bought Standard & Poor’s Investment Advisory Services from S&P Global Market Intelligence in 2019, followed by retirement advisory firm NextCapital Group in 2022. Any additional takeovers would be driven by a bid to enhance the firm’s ecosystem rather than to scale up assets, Wilson-Elizondo said.

“It’s something that’s always on the table for us, but at this point, we feel like we have the right players on the field to grow into that top five,” she said. “If we were to look into anything more strategic and less organic, it might be relating to the ecosystem — more support, less friction, ease of business — rather than asset-gathering.”

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