His staff insists he does this in the friendliest possible way.
“We hold an annual rationalisation process for both pooled vehicles and separate accounts, which identifies strategies to be restructured,” said Mr Sotir, commenting on GSAM’s latest results. Net revenues in 2006 were $4.29bn (€3.25bn), 45 per cent higher than 2005.
This often means cajoling institutions, used to preferential treatment in specially constructed segregated accounts, to move their money into pooled funds, along with high-net-worth clients.
“This decision is ultimately up to our clients and depends on their requirements in terms of cost and investment guidelines,” insisted Mr Sotir. “The level of client service we offer our institutional clients will not differ according to whether they invest in a fund or separate account.”
But in reality, it is difficult for clients to resist the mixture of charm and gentle pressure, typified by Mr Sotir, and used in liberal doses by his European marketing operators, applied consistently on repeated visits.
It is no coincidence that almost the entire marketing budget for GSAM during 2006 was deployed to convince clients to invest in funds registered under European Ucits III legislation, allowing extensive use of derivatives, particularly in fixed income. “Ucits III has allowed a greater number of attractive institutional-style strategies to be available in a pooled form. Over time, we may see more of our clients investing in funds as a result,” confirmed Mr Sotir.
Net inflows of $94bn, boosting assets to $676bn, are also reflected in the earnings figures. As pointed out by Michael Hecht, who analyses Goldman for Bank of America, sales across the US, Europe and Asia are roughly equal, although Mr Sotir believes the US operation will eventually be eclipsed by European and Asian inflows. Mr Hecht has previously said GSAM, which now provides 15 per cent of total Goldman Sachs net revenues, is not properly appreciated by its parent bank.
Mr Sotir has admitted that GSAM is at something of a crossroads if it wants to expand further, as big spending would be needed in order to achieve brand awareness in Continental Europe. The big distribution houses such as Deutsche Bank, whom GSAM is more than keen to befriend, have stipulated partners must put aside marketing expenses. But spending on advertising is contrary to the GSAM ethos.
Where the group has been successful is in squeezing additional assets into existing institutional mandates and being awarded a second or third mandate from an existing client. This is much more cost effective than gaining brand new clients, admitted Mr Sotir.
YB
