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Goldman’s tertiary business is starting to make some noise

Yelling

Goldman Sachs surprised most analysts with its second quarter earnings report. The bank survived an overall decline in trading revenue – 10% in fixed income and 13% in equities – with a rather impressive investment banking performance. But there was another unit within that firm did much of the heavy lifting, just without all the fanfare.

With more than $1 trillion in assets, Goldman’s investment management business, a unit that took a beating during the financial crisis, appears well back on its feet. The business generated $1.4 billion in revenue during Q2, up 8% year-over-year.

Now that doesn’t match the 15% increase seen in investment banking, but that’s not really the point. Goldman Sachs, like some other Wall Street banks before it, is positioning its investment management unit as “the centerpiece of its growth strategy,” according to a Reuters report based on interviews with current and former Goldman staffers and clients.

The business, which saw significant outflows following the financial crisis, has since stemmed the tide, receiving $61 billion in net long-term inflows so far this year, according to the report. Part of that turnaround is surely do to the fading memory of what happened five years ago, but Goldman has also been much more active, acquiring seven businesses and doing plenty of hiring. The unit now has 5,000 front-office employees, with plans to continue adding to its ranks.

“We certainly want the business to be bigger in every metric – revenues, pretax, performance statistics,” said group co-head Tim O’Neil.

Is Goldman pulling a Morgan Stanley, ditching most of its high-risk, high-reward businesses for the calm waters of asset management? Certainly not. But the unit is clearly becoming a bigger part of Goldman’s business.

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Quote of the Day: “Basically, when you get to my age, you’ll really measure your success in life by how many of the people you want to have love you actually do love you. I know people who have a lot of money, and they get testimonial dinners and they get hospital wings named after them. But the truth is that nobody in the world loves them. If you get to my age in life and nobody thinks well of you, I don’t care how big your bank account is, your life is a disaster.” – Warren Buffett

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