For the March issue of Bloomberg Markets magazine, reporter Richard Teitelbaum explores the riddle wrapped within the squid that is Goldman Sachs Asset Management. Specifically, why investors stick with GSAM when evidence suggests they should take their money and run (GS's funds have "badly trailed their peers over the three, five and 10 year periods ended December 31st" and yet assets under management have nearly tripled since 2000, rising an annual rate of 11.8 percent). To tackle this question, you could analyze data, talk to experts, see a palm reader or poll large groups of people familiar with the matter. Or you could save yourself a lot of time and remember that the simplest explanation is most likely the right one. And the answer to this conundrum is not just simple but brief. It can be summed up in three words, in fact, or two if you count the hyphenated one just once: Brand-name whores.
GSAM clients stick with the Squid no matter how badly it treats them, no matter how much their friends tell them "you could do so much better!" because they are brand-name whores who like to tell people their money's with GS. At least, that's how Bank of America Merrill Lynch analyst Guy Moszkowski and New Amsterdam Partners LLC's Michelle Clayman see it.
Sure, they don't use the term "whore" (sayeth Moszkowski: “Goldman is a brand. Brands tend to be able to retain customers in situations where performance suggests they shouldn’t." Sayeth Clayman: “A lot of wealthy clients like to say, ‘I have my account at Goldman, blah, blah, blah,’”), but that's what they're getting at. Goldman Sachs retains these clients because these clients are whores for the GS name.
Take Jim Clark. His tale opens the the cover story and hoo boy! is he steaming mad.
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...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.”
He sounds pissed, doesn't he? You can't really blame him, though. This was just another example of Goldman assuming Jim would bend over and take it. One example in a long line of many in which the firm done did Jimbo wrong. In addition to the Facebook deal, there was the "big hit" he took from GSAM's Global Alpha hedge fund, in addition to the generally bad advice and poor performance he'd witnessed since first forking over around $400 million. Another memorable occasion involved Paulson and Co, and Goldman telling Jim not to waste his time with such a peasant.
Clark was particularly irked by the disclosures surrounding Abacus. He had met with Paulson and 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. 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 butter their own bread and charge huge fees, these jerks," Clark fumed to Bloomberg. Jerks he says, jerks! Clearly Jim had just about had it with these guys. And to show them he meant business, to show them he was pissed, you know what he did? In 2009 he "angrily yanked almost all of his money to Morgan Stanley," emphasis ours because guess what Jim? You didn't have the stones to yank it all and Lloyd Blankfein still owns your ass. When you're ready to send a real message, you give this guy a call.
Lloyd Blankfein's Headache [Bloomberg Markets Magazine]