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Goldman Sachs tells its asset managers to tighten belts

Goldman Sachs tells asset management division to curb spending

Goldman Sachs has told staff at its asset management division GSAM to tighten their belts, amid outflows and poor performance from some of its largest funds.

Executives have issued an edict that GSAM's 2,000 employees must curtail spending, including a ban on all travel that is not associated with meeting clients and winning new business.

GSAM's flagship bond fund is languishing in the bottom one-fifth of its class on a one- and three-year view of its performance, and investors have pulled money for 15 consecutive months from GSAM's US mutual funds, according to Morningstar data.

The malaise reflects wider pressures on the industry, where actively managed funds are losing market share to low-cost index trackers. It also complicates Goldman's efforts to build a larger asset management business to balance its traditional investment banking and trading arms, where profitability is being squeezed.

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Other asset managers have also been cutting costs this year because of outflows from active funds, pressure on fees and volatile markets. BlackRock, Franklin Templeton and Pimco have all laid off staff.

GSAM is continuing to grow assets under management overall, topping $900bn in the first quarter, up by $100bn in a year.

However, its lucrative mutual fund franchise has suffered from unfavourable comparisons to its peers, particularly at the strategic income bond fund, an "unconstrained" fixed income fund that has broad latitude to make bets across the bond market.

The fund is down 2.5 per cent in the past year, when the bond market as a whole has gone up 6.0 per cent, and the fund's three-year record is now negative. Customers have pulled $12bn from the fund in 18 consecutive months of outflows, halving it in size.

Eyeing employee emails

According to Morningstar data, GSAM's US mutual fund business has suffered $17.5bn of outflows in the past 18 months, cutting assets to $81bn.

GSAM's next largest fund, a mid-cap equity fund, has suffered 14 months of outflows after five years of underperformance against the average for its category.

Net revenues in Goldman's investment management division, which includes both GSAM and the company's private client business, fell 15 per cent in the first quarter of 2016 to $1.35bn, although analysts expect second-quarter earnings to show a rebound when they are announced later this month.

Parts of the business that have continued to grow include money market funds and outsourcing for investment offices. GSAM has also launched a suite of exchange traded funds to capitalise on the shift from traditional active management to index funds.

A Goldman spokesman said: "Prudent cost management is important but we remain committed to serving our clients through active management and we believe we can grow the business over time by focusing on long-term performance, just as we have done in other areas."

Lloyd Blankfein, Goldman chief executive, has touted the investment management division as a source of earnings that are less volatile than in investment banking and trading. The division has grown from 13 per cent of net revenues in 2010 to 18 per cent last year.