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Blankfein has been wrestling with GSAM for years.


Cover Story

Lloyd Blankfein’s

Headache

The Goldman Sachs CEO is struggling

to turn around the firm’s asset

management arm, whose performance

is flagging. Netscape co-founder

Jim Clark voted with his feet.

By riChard teitelbaum

Photograph by Monika Graff/Landov

On Jan.2, Jim Clark, a founder of such technology icons as Netscape Communications

Corp. and Silicon Graphics Inc., was at home in Palm Beach,

Florida, when he got an e-mail from an executive at Goldman Sachs Group

Inc.’s private wealth management division. Goldman was offering Clark a

chance to invest in the closely held social-networking company Facebook

Inc. The deal—through a fund overseen by Goldman Sachs Asset Management—was

being offered to other Goldman investors at the same time. The firm would

levy a 4 percent placement fee on clients, plus a half percent “expense reserve” fee. It

would also require investors to surrender 5 percent of any profits, known as “carried

interest,” according to a Goldman Sachs document.

Clark turned Goldman down. In June 2009, he had angrily yanked most of the

roughly $400 million he had invested with the firm due to what he considered bad advice

and poor performance, including a big hit from GSAM’s Global Alpha hedge fund.


Cover Story

This offer, he says, just irked him further. A few months earlier,

he had purchased a stake in Facebook through another firm for

a lower price, he says, and without the onerous carried interest.

“I don’t think it’s reasonable,” Clark says. “It’s just another

way for them to make money from their clients.”

Clark isn’t the only investor unhappy with Goldman Sachs

Asset Management. GSAM (often pronounced gee-sam) managed

most of the $840 billion in assets Goldman oversaw in

December, a figure that dwarfs the money managed by brandname

firms such as Legg Mason Inc. and Franklin Resources

Inc. Yet the evidence shows that the behemoth inside the

141-year-old investment bank is generating subpar returns for

investors and is a persistent headache for Chairman and Chief

Executive Officer Lloyd Blankfein.

The CEO has dispatched a series of lieutenants on missions

to fix the listless asset manager, which last year saw

pension funds in California and Nevada withdraw a

total of more than $900 million because they were unhappy

with its performance and concerned about

turnover in the investment management division’s

ranks. At the same time, GSAM has become increasingly

important to Goldman, as the firm’s trading powerhouse

has idled. Revenue from Goldman’s Fixed

Income, Currency and Commodities (FICC) trading

division dropped 37 percent in 2010 from a year earlier,

and the firm’s investing for its own accounts could

further suffer when new rules, including strict limits

on proprietary trading by banks, kick in.

Goldman declined to make Blankfein or any other

executives available for comment for this story.

In March 2008, Peter Kraus, co-head of the investment

division that oversaw GSAM, resigned after

incentive fees—the 20 percent that hedge and other

funds slice off profits—plunged 81 percent in fiscal

2007 and Global Alpha lost 40 percent, according

to investors. Co-head Ed Forst took over. He was

one of a cadre of Blankfein confidantes known as Lloyd’s

Boys, according to former employees. He left after three

months to take a job at Harvard University, and investment

management became the job of Marc Spilker, a

former co-head of U.S. equities, and Timothy O’Neill, a

former senior strategist. They were the seventh and

eighth Goldman investment heads in eight years.

O’Neill and Spilker didn’t do much better than Kraus.

The division’s 2009 net revenue of $3.97 billion accounted

for about 8.8 percent of Goldman’s total revenue

and was down 12.8 percent from fiscal 2008 as both

management and incentive fees declined. A big chunk of

GSAM’s assets are its separate accounts—pools of

30 BloomBerg markets March 2011

money invested for institutions and wealthy individuals.

EVestment Alliance LLC, an Atlanta-based research firm,

tracks about $300 billion held in the accounts and finds that

Goldman trailed its peers in 73.8 percent of the categories

EVestment looked at during the five years ended on Sept. 30.

Chicago-based financial publisher Morningstar Inc. tracks

Goldman mutual funds and found that the 338 fund share

classes it looks at trailed the average return of their respective

peers in every broad category, including U.S. diversified equity,

foreign stock and taxable bonds, over the 3-, 5- and 10-year periods

ended on Dec. 31.

Yet investors have not only stuck with GSAM; they’ve added

tens of billions of dollars to its assets since 2000. “Given the

golden reputation of Goldman, it’s amazing,” says Anton

Schutz, founder of Rochester, New York–based Mendon Capital

Advisors Corp., an asset management firm that specializes

jim clark pulled $400 million out of Goldman.


JoSh ritchie (Left); JiLL GreenBerG/corBiS

in financial stocks and doesn’t own

Goldman Sachs shares. “What we

thought was investing acumen has

turned out to be a tribute to the

firm’s marketing muscle.”

The sales prowess of the Goldman

franchise lost some of its luster

in the deal for Facebook, run by

26-year-old Mark Zuckerberg.

Goldman had planned to sell as

much as $1.5 billion of the Palo

Alto–based company’s stock to clients

through a GSAM-affiliated

fund known as a special-purpose

vehicle. Instead, Goldman on Jan. 17 halted its offering to U.S.

investors due to the copious press the deal garnered. “Goldman

Sachs concluded that the level of media attention might

not be consistent with the proper completion of a U.S. private

placement under U.S. law,” the firm said. Securities

laws forbid investment firms from advertising such offerings

to the general public. Analyst Josh Bernoff of Forrester

Research Inc. in Cambridge, Massachusetts, expects

a Facebook initial public offering in 2012.

Bundling Facebook shares into a GSAM special-purpose

vehicle might have helped Facebook avoid a U.S. Securities

and Exchange Commission requirement that any company

with more than 499 investors meet SEC financial reporting

requirements. Such moves are a common practice in the venture

capital industry.

Goldman and the funds it manages, including GSAM hedge

fund Goldman Sachs Investment Partners, invested $450

million in Facebook before the bank began recruiting investors.

Digital Sky Technologies,

a Russian investment

firm, bought $50 million.

On Jan. 21, Facebook announced

that Goldman had

completed an over subscribed

offering to its non-

U.S. clients for a fund that

invested $1 billion in Facebook

Class A shares.

Goldman is still dealing

with the fallout from its

last run-in with the SEC.

In April 2010, the commission

filed a civil suit accusing

Goldman of fraud for

selling a mortgage-related

security called Abacus

2007-AC1 to clients

jan. 2

the New York

Times reports that

Goldman is offering

clients shares

in closely held

facebook through

a special-purpose

vehicle. netscape

founder Jim clark

gets an e-mail that

day inviting him to

participate.

zuckerBerg’s Goldman deal faced Sec scrutiny.

&

jan. 17

Goldman announces

that it’s withdrawing

the facebook offer

for U.S. investors.

extensive media

coverage of the deal

may run afoul of

rules against

investment firms

advertising private

placements.

without disclosing that bearish

hedge fund Paulson & Co. helped

pick some of the securities linked

to it—with the intention of selling

the security short. Goldman settled

the suit in July, agreeing to pay

$550 million, a record for a Wall

Street firm, without admitting or

denying wrongdoing.

And Blankfein, 56, still hasn’t

put behind him the criticism over

Goldman’s controversial role in

the collapse of American International

Group Inc. in 2008—particularly

its aggressive collateral calls on the credit-default

swaps it had bought from AIG on subprime-packed mortgage

securities, many of which it underwrote.

In April, the Senate Permanent Subcommittee on Investigations

held an 11-hour hearing on Goldman Sachs’s role

in the financial crisis, grilling Blankfein, Chief Financial

Officer David Viniar and others about Goldman’s business

practices. “Goldman repeatedly put its own interests and

profits ahead of the interests of its clients and our communities,”

said Senator Carl Levin, the Michigan Democrat

who chaired the subcommittee.

Blankfein told the Levin hearing that as a market maker Goldman

had no obligation to tell clients about Goldman’s own positions

in the securities it was selling. Clients “are buying an

exposure,” Blankfein told the committee. “The thing we are selling

to them is supposed to give them the risk they want.”

Clark was particularly irked by the disclosures surrounding

Abacus. He had met with Paulson & Co. founder John Paulson

in August 2006 and been

impressed by the manager’s

plans to bet against the subprime-mortgage

market.

His Goldman brokers talked

him out of investing with

Paulson, describing him as

a bit player, Clark says.

jan. 21

facebook

announces that

non-U.S. Goldman

clients have

purchased $1 billion

in facebook shares.

Goldman itself and

russian investment

firm Digital Sky had

already bought

$500 million.

Paulson generated a 590

percent return in his flagship

credit fund in 2007.

“When it came out that

Paulson had the biggest

payday in history, I got angry,”

Clark says. The fact

that Goldman Sachs had

such a close relationship

with Paulson incensed

Clark further. “They just

March 2011 BloomBerg markets 31


Cover Story

butter their own bread and charge huge fees, these jerks,”

Clark says. Goldman spokeswoman Andrea Raphael says the

firm has no comment on Clark’s complaint.

The conflict between what Goldman does for itself versus

what it does for its customers was addressed by Blankfein &

Co. in a 63-page internal document released in mid-January.

The Report of the Business Standards Committee probed a

raft of issues, including conflicts of interest, transparency

and disclosure, as well as the firm’s responsibilities to its clients.

The report recommended the creation of a simplified

balance sheet that would make transparent the division between

the deals it does for its own profit and those it carries

out for its customers. The firm’s operations are now divided

into four reporting segments: investment banking, investing

and lending, investment management and institutional client

services. “It is important to articulate clearly both to our

people and to clients the specific roles we assume in each

case,” Goldman said in the report.

Protecting the firm’s image was a high priority of

the 21-member committee, led by managing director

E. Gerald Corrigan and Goldman Sachs

Asia Chairman J. Michael Evans. “Goldman

Sachs has one reputation,” the report says. “It

can be affected by any number of decisions and

activities across the firm.”

GSAM’s performance puts the firm’s reputation as a savvy

investor under pressure. “The results are, No. 1, surprising

and, No. 2, disappointing,” says Richard

Bove, an analyst at Stamford, Connecticut–

based Rochdale Securities LLC. “First,

Goldman has sold this business as one they

can grow and grow very strongly. Second,

they pride themselves on being able to deliver

results for high-net-worth people.”

The numbers tell the tale. According to

Morningstar, just 44.9 percent of Goldman’s

U.S. diversified stock funds managed

to beat their peer average over the three

years ended on Dec. 31. Just 34.7 percent of

such funds beat their peer average over 5

years and 28.3 percent over 10 years. Only

11.5 percent of Goldman’s foreign stock

funds beat their peer average over 3 years,

6.7 percent over 5 years and zero percent

over 10 years. Similar stories play out in

both the taxable and municipal bond categories.

Morningstar’s calculations were

done on funds holding a total of $59 billion

in assets and exclude money markets. The

32 BloomBerg markets March 2011

funds are sold by brokerages, including Merrill Lynch and

Edward Jones, and by regional banks. “With just a few exceptions,

these funds are chronic underperformers,” Morningstar

mutual fund analyst Karin Anderson says.

Spokeswoman Raphael says the firm’s own research

using Morningstar data shows Goldman mutual funds performing

substantially better in certain categories, though

still trailing their peers.

As for Goldman separate accounts, EVestment looked at

narrower categories—such as U.S. core high-quality fixed income

and Japan small-cap equity—and found Goldman Sachs

trailing more than two-thirds of its rivals over the 3-, 5- and

10-year periods.

Missteps large and small have contributed to the poor performance.

The Class A shares of Goldman Sachs Concentrated

International Equity Fund, for example, were dragged

down by a position in Renault SA during the three years

ended on Dec. 31, according to a Morningstar performance

analysis. The stock lost more than half its value, and the fund

trailed its category average by more than two percentage

points for the period. The international fund’s U.S. sibling,

the Goldman Sachs Concentrated Growth Fund, was hurt by

its overweighting in health-care stocks, a Morningstar analysis

concluded, which fell because of concern over the Obama

administration’s health-care law.

Another possible culprit in GSAM’s underperformance is

expenses. Goldman’s diversified U.S. equity funds sport an

asset-weighted average expense ratio of 1.02 percent versus an

average of 0.79 percent for the U.S. diversified mutual fund

Swelling Assets

Goldman’s assets under management have almost tripled since 2000. Asset

management contributes more to net revenue than the firm’s investment bank.

ASSETS UNDER

MANAGEMENT,

IN BILLIONS *

$294

$532

$840

INSTITUTIONAL

CLIENT

SERVICES

$21.80

2010 REVENUE, IN BILLIONS

$39.16

55.7%

19.3%

12.3%

12.8%

INVESTING AND

LENDING

$7.54

INVESTMENT

MANAGEMENT

$5.01

’00 ’05 ’10

INVESTMENT

BANKING

$4.81

*Figures for 2000 and 2005 are as of Nov. 30; for 2010, as of Dec. 31. Percentages add up to more than 100 because of rounding.


ArnoLD ADLer

universe as a whole. Bove says

GSAM may also be putting an

undue emphasis on marketing.

“It could be that the focus

of an asset manager within a

brokerage is more sales oriented

than performance oriented,”

he says.

So why do investors keep

their accounts at the New

York firm? The prestige of

the Goldman Sachs name is

a big factor. “A lot of wealthy

clients like to say, ‘I have

my account at Goldman,

blah, blah, blah,’” says Michelle

Clayman, founder of

New Amsterdam Partners

LLC, an investment manager that owned 267,000 Goldman

shares as of mid-January.

Even GSAM’s once-vaunted hedge funds have lost their

sizzle. Hedge-fund assets totaled $19.5 billion as of September,

making Goldman the 16th-largest hedge-fund firm, according

to bloomberG marKetS’ annual ranking of hedge funds. (See

“Dr. Brownstein’s Winning Formula,” February 2010.) That

amount was down 34 percent from Goldman’s year-end peak

of $29.5 billion in 2006, when GSAM was the world’s largest

hedge-fund manager. Goldman’s incentive fees—the 20 percent

of profits that hedge funds and some other investment

Flagging Performance

GSAM’s separate accounts have lagged those of competitors, and incentive fees from

Goldman’s hedge and other funds are down sharply.

PERCENTAGE OF SEPARATE ACCOUNT

CATEGORIES IN WHICH GSAM

TRAILS ITS PEERS

As of Sept. 30

Peter kraus resigned from Goldman in 2008.

$962

$187

INCENTIVE FEES,

IN MILLIONS

$231

’06 ’07 ’08 ’09 ’10

*As of Sept. 30. Full-year incentive fees of $527 million include certain merchant banking gains previously

reported as principal investment. Sources: Company reports, EVestment Alliance

*

vehicles generate—totaled just $65 million for the first nine

months of 2010. That’s down from a peak of $962 million for

fiscal 2006. In reporting its financial results for year-end 2010,

Goldman added performance payments from funds run by its

merchant banking business, which had been included in trading

division results, to its incentive fee totals. With such payments

included, total incentive fees rose to $527 million for

2010 from $180 million in 2009.

GSAM’s flagship hedge fund today is Goldman Sachs

Investment Partners, or GSIP, an $8.5 billion fund that

uses fundamental research to buy and bet against stocks.

It’s co-headed by Raanan Agus and

Kenneth Eberts, who both moved

to GSAM in 2007 from the firm’s

proprietary trading desk.

GSIP’s performance has been

competitive. The offshore version

$137

$65

lost 18.9 percent in 2008 and gained

24 percent in 2009 net of fees. That

compares with a 19 percent loss for

the HFR Composite Index in 2008

and a 20 percent gain in 2009.

Through October, the GSIP fund

returned 4.6 percent, according to

Bloomberg data, a return too low to

make bloomberG marKetS’ ranking

of the world’s top 100 large

funds. That compares with a 6.8

percent gain in the HFR index.

As for Global Alpha, it now manages

less than $2 billion, according

to an investor, down from a peak of

$11 billion in 2007. The fund, which

March 2011 BloomBerg markets 33


Cover Story

uses trading algorithms and computerized models to buy

and sell everything from Polish zlotys to wheat futures, returned

3 percent in 2008, 30 percent in 2009 and was basically

flat in 2010. In 2007, most quant hedge funds suffered

because their computer models told all of them to buy, or

bet against, the same instruments. As many quant funds

tried to unwind their positions at once, mayhem ensued,

and Global Alpha lost 40 percent.

It’s the strength of Goldman’s larger franchise that helps it

hold on to investors’ money despite GSAM’s performance. On

Jan. 19, Goldman reported $8.35 billion in earnings for 2010,

down 38 percent from 2009 on net revenues of $39.16 billion,

which were down 13 percent. The culprit was a steep fall in client

trading, with FICC trading revenue down 37 percent to

$13.71 billion. Investment management revenues rose 9 percent

to $5.01 billion.

Since 2000, Goldman’s assets under management have

risen at an annualized rate of 11.8 percent—with three years

of decline, in the bear market years of 2002 and 2008 and in

2010. “Goldman is a brand,” Bank of America Merrill Lynch

analyst Guy Moszkowski says. “Brands tend to be able to retain

customers in situations where performance suggests

they shouldn’t.”

GSAM clients benefit from Goldman Sachs’s

extensive network of business relations and its

dealmaking, with the Facebook investment just

the latest example. Mendon Capital’s Schutz

says that if investors get early access to the latest

hot investment,

it makes it easier to

stomach poor returns

elsewhere in their portfolios.

“If you get in on the

next Google IPO, you’re

not going to be whining

too much,” he says.

Still, as the Goldman

image has suffered in

Congress and the popular

press, its star power

may be dimming. In July, CFO Viniar, responding to a

question on a conference call, said that the 2010 SEC suit

had had some impact on GSAM’s ability to raise money.

In 2010, assets under management fell 3.6 percent as investors

pulled cash from low-yielding money market and

equity accounts. All told, flows out of asset management

totaled $71 billion in 2010.

In March, the $22.7 billion Nevada Public Employees’

34 BloomBerg markets March 2011

ed forst went from Goldman to harvard and back.

Retirement System fired GSAM because the $600 million it

had invested with the firm was trailing the Morgan Stanley

EAFE index it was supposed to track by an annualized one

percentage point. “We have to take action on performance,”

Investment Officer Ken Lambert said at the time. “That’s

what my members are expecting.” He also cited Goldman

asset management personnel changes.

In June, the $2.8 billion Kern County, California, Employees’

Retirement Association pulled $347 million from two

GSAM accounts. Executive director Anne Holdren cited both

performance and turnover at Goldman as reasons.

Goldman has been working to get money management right

for 80 years. The firm’s

first foray into the field

was in 1928, when it

Nevada’S peNSioN plaN

fired Goldman after it

underperformed its benchmark.

started up a partnership

called Goldman Sachs

Trading Corp., which

invested in the thenbooming

stocks of

banks, insurers, utilities

and industrial companies.

The trust collapsed

in the 1929 stock market

crash, eventually losing more than 98 percent of its value.

One big loser was comedian Eddie Cantor, who spent

years afterward skewering Goldman Sachs in his vaudeville

act. “They told me to buy the stock for my old age, and it

worked perfectly,” Cantor quipped, according to The Partnership

by Charles Ellis (Penguin Press, 2008). “Within six

months, I felt like a very old man.” Cantor sued Goldman

Sachs for $100 million and, according to the New York

Joe tABAccA/BLooMBerG


Cover Story

Times, settled for an undisclosed sum in 1936.

Leon Cooperman, Goldman’s longtime research chief,

lobbied for years to expand Goldman’s money management

efforts. When GSAM was created in 1988, he served as its first

CEO, leaving Goldman in 1991 to found hedge fund Omega

Advisors Inc. Asset management remained a small part of

Goldman until the mid-1990s, when Chairman Jon Corzine

and President Henry Paulson decided to build it out after taking

note of the profits being generated in asset management

by rival Wall Street firms.

GSAM set up offices at 32 Old Slip, several blocks away from

the parent firm’s 85 Broad St. headquarters, and formed a separate

culture—academic, collegial, less cutthroat, according to

former employees. In 1994, Corzine and Paulson tapped David

Ford to run GSAM, and in 1996 he was joined as co-head by John

McNulty, a visionary broker in the wealth management department.

It was McNulty’s idea to organize the firm into 10 boutiques,

each with a different investment strategy, independent

of each other and of the front office.

The bankers and traders at 85 Broad and 1 New

York Plaza looked down on the money managers,

say former GSAM employees. “GSAM has always

been the stepchild at Goldman Sachs,” says author

William Cohan, who’s writing a book about

Goldman, scheduled to be published later this

year. “It’s never been as sexy

as investment banking, trading

and private equity.”

The firm had just $52 billion

in assets under management

in 1995. The next year,

Goldman bought CIN Management,

the pension plan of

British Coal Corp., for an undisclosed

amount, to gather

assets and increase its visibility

in Europe. A year later, it

purchased Liberty Investment

Management, a growthoriented

mutual fund firm in

Tampa, Florida. Then it

snapped up Commodities

Corp., the Princeton, New

Jersey–based firm cofounded

by Paul Samuelson, a

Nobel Prize winner and author

of the best-selling college

textbook on economics.

Commodities Corp. had been

36 BloomBerg markets March 2011

gsam now resides at Goldman’s new headquarters.

a launching pad for such hedge-fund stars as Tudor Investment

Corp.’s Paul Tudor Jones and Moore Capital Management

LP’s Louis Moore Bacon. It became the base for what is

now the firm’s fund of funds business.

In 1994, a University of Chicago Ph.D. named Clifford Asness

joined Goldman Sachs to build a quantitative research

department. Asness soon began managing money and started

Global Alpha in 1995. In 1996, the fund scored a 111 percent

return, and in 1997, a 42 percent gain. Investors clamored to

give Global Alpha their money. In 1998, Asness and three colleagues

went on to found AQR Capital Management LLC.

McNulty retired from Goldman Sachs in 2001, the year the

firm’s assets under management hit $351 billion. Since 2007,

Goldman has played musical chairs with the division’s management.

In September of that year, Forst, who had been

Goldman’s chief administrative officer, was named co-head

of investment management with Kraus, who had run the

business, with other co-heads, since 2001. Forst, now 50, took

over as sole head when Kraus left in March 2008.

Forst resigned from Goldman just three months after

Kraus’s departure, taking a newly created administrative position

at Harvard University reporting to President Drew

Faust. In the fall of 2008, he briefly worked with Neel Kashkari

at the Treasury Department in creating the new Office of

Financial Stability. In May 2009, Forst abruptly resigned

from Harvard, returning to Goldman in September, first as

head of strategy and then, once more, as co-head of the

investment management

division. In that capacity, he

replaced Spilker, a 20-year

Goldman veteran who had

been tapped for the post in

June 2008, only to resign

after a run of less than two

years. He’s now president of

private-equity firm Apollo

Global Management LLC.

Forst’s co-head today is

Tim O’Neill, another former

head of strategy. One

recurring element in the

constant turnover: none of

the new investment heads

had spent their careers in

asset management. “It was

demotivating,” says a former

GSAM employee.

Last year, Goldman named

Jim O’Neill (no relation to

Tim), who was head of global

economics, as chairman of

tiMothy fADek


Cover Story

GSAM. He works out of London

and reports to Forst and

O’Neill. One of his assignments

is to keep a watch on

the so-called BRIC countries—

an acronym for Brazil, Russia,

India and China that O’Neill

himself coined.

The executive shake-ups are a reflection of Blankfein’s

determination to crush any independent tendencies at

GSAM that might be left over from the days of McNulty and

Kraus, former Goldman employees say. Blankfein and his

charges have pushed efforts to “Goldmanize” GSAM,

according to a former GSAM executive. Among other things,

that means assessing performance on short-term, rather

than long-term, results.

Senior level turnover generates tensions, Merrill

Lynch’s Moszkowski says, especially in investment

management, where clients yank accounts

with little cause. “Investment management organizations

are delicate organisms; it’s all about human

capital and intellectual property,” he says.

Management continuity should be priority No. 1, money

manager Schutz says. “The key at any asset manager is to

avoid the kind of turnover GSAM has seen,” he says. “You

need a history of keeping people in the same positions.”

Blankfein & Co. periodically remind investors of the firm’s

commitment to expanding GSAM. In a February 2010 letter to

shareholders, Blankfein and President Gary Cohn said the

firm would be looking for money management clients at home

and in developing markets,

including Brazil, China and

the Middle East. In a Janu-

ary investor call, Viniar said

GSAM was primed for new

hiring. “There is more focus

on the investment management

business than on other

areas,” he said.

Less publicly, Blankfein

and Cohn have been overhauling

GSAM in moves

designed to tether it more

closely to its parent, former

employees say. GSAM

has moved into Goldman’s

new offices at 200 West

St. The head office has

38 BloomBerg markets March 2011

jim o’neill was named GSAM chairman in 2010.

consolidated McNulty’s 10

investment boutiques into

four broad groups: quantitative,

fundamental equity,

fixed income and alternative.

Compensation of GSAM

investment professionals,

which under Kraus was tied

directly to performance and revenues, is now largely determined

subjectively at the discretion of management, according

to two former GSAM portfolio managers. A risk manager

from Goldman can demand that portfolio managers cut holdings

or reduce leverage—something that didn’t happen under

McNulty and Kraus. At one point, two former employees say,

Goldman’s top management was demanding hourly profit

and loss statements from certain teams, reflecting their

short-term, trading mind-set.

Their independence gone, a parade of portfolio managers

have left for rival firms or to start their own. Many newcomers

come from the banking or trading side of Goldman.

None of the changes Blankfein has ushered in will matter

much if the lifeblood of any asset manager—performance—

doesn’t rebound soon. Investors can be an impatient lot. Jim

Clark, for one, didn’t wait. “I concluded that I don’t need

these hedge funds and I don’t want these Goldman Sachs

managers,” he says. In 2009, Clark moved almost all of his

money to Morgan Stanley.

richard teitelBaum iS a SeNior writer at bloomberG marKetS iN

New yorK. rteitelbaum1@bloomberG.Net with aSSiStaNCe from

christine harPer iN New yorK.

to write a letter to the editor, send an e-mail to bloombergmag@bloomberg.net or

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