US investment bank Goldman Sachs is busy building its product solutions group for private investors in Asia as it strives to tap into the region’s expanding wealth management market.
The firm established its private investor product group (PIPG) two months ago in Asia to serve retail, high-net-worth and ultra-high-net-worth investors, although the clients it targets directly are third-party distributors such as commercial and private banks and insurance firms.
The regional PIPG business is being set up by Stefan Bollinger, managing director of the group’s securities division, who helped to build the bank’s original PIPG in Europe starting in 1993.
In an interview with AsianInvestor, Bollinger says: “In Asia this is a very fresh business, a new approach and one which will be integrated with our European products group.
“If you look at any of the major consultancy firms and their forecasts," he adds, "in the next three years Asia is going to be the biggest market for high-net-worth individuals.
“From a business point of view, it is helpful that the wealth is concentrated among a few individuals. What that means for us is that we can enable a business by accessing a relatively small group of investors.”
Goldman’s PIPG started as a simple equity warrants business out of London 17 years ago, but has since evolved into a multi-asset, multi-client operation, partly thanks to regulatory changes on the back of crises such as the bursting of the technology bubble in 2001. Prior to that, structured products had largely been traded over the counter and as such were opaque and illiquid.
“What the regulators did was force that business onto the exchanges, which meant that instead of just offering warrants, we could basically offer any type of solution to clients over an exchange in a very liquid and transparent fashion,” notes Bollinger. “This also meant access to the retail industry became much easier.”
Bollinger says he started doing the groundwork on how best to build a business in Asia about a year ago. “I had to think about this business in a way to make sure we sell the right products to the right people in the right fashion,” he adds.
Goldman’s PIPG in Europe has a staff of 70, while in the Asia-Pacific region it has a headcount of 25, with personnel stationed in Australia, Hong Kong, Japan and Singapore. They cover marketing, planning and execution, post-trade support, legal and compliance.
“We want to add a few more people,” Bollinger confirms. “I think we can get to maybe 50, but then we need to stabilise the team. After that, we can take the next step to grow.”
The group has already committed to hire eight technology staff to build the platform in Asia, and recently signed Gary Suen from Deutsche Bank as head of public distribution. He is scheduled to start in a few months, having resigned late last month as managing director of db-X, the German bank’s listed products platform.
“I think we can do a little bit better [than Deutsche] by adding a few more delivery mechanisms,” says Bollinger, breaking from Goldman’s tradition of not discussing rivals. “By having a cross-asset sales team, I think we can become a little bit more open-minded to other products.”
Bollinger, a Swiss national who started his career with Goldman in interest rate derivatives trading before moving into sales, describes PIPG as product- and asset-agnostic – in other words, one that offers a potentially unrestricted range of products, solutions and delivery methods.
He notes that the business is not very cyclical as a result, and underlines that investors globally and in Asia are predominantly focusing on simple and transparent products at present.
“We are not part of equity derivatives or any other specific product area, therefore we do not need to put down the latest exotic product,” he says. “Nor are we part of a trading desk. We are a solutions-driven business that can respond to client demands.
“While other people have been downsizing their activities in this business, this environment for us is good because people are not looking for another layer of complexity," adds Bollinger. "They want ideas that work and that they understand.
“I firmly believe that [retail distribution] is a business that is much better if you are able to give clients full transparency and liquidity at any point in time.”
Still, in terms of the profitability of the PIPG business, Bollinger is far less forthcoming. “Goldman is not a retail house, but if you think we manage to do in a very retail-driven business the same amount of money that we have in our institutional business, I think that gives you a perspective that this is a very significant business.”