BREAKINGVIEWS-Goldman shopping spree confronts Solomon’s paradox

By Stephen Gandel

NEW YORK, Dec 1 (Reuters Breakingviews) - Goldman Sachs GS.N CEO David Solomon is fighting the Solomon paradox. Named for the biblical king, the term describes the widespread tendency to give wiser, more dispassionate, counsel to other people than when trying to solve one's own problems. A recent shopping spree suggests that Wall Street's preeminent consigliere, which has largely avoided M&A for itself, is determined to defy both its history and the advice contradiction.

The investment banking powerhouse on Monday agreed to pay $2 billion in cash and equity for Innovator Capital Management, which oversees $28 billion in specialized exchange traded funds. It is Goldman's third acquisition in four months, following the $1 billion plan to buy venture capital firm Industry Ventures and $1 billion investment in mutual fund giant T. Rowe Price TROW.O as part of a broader partnership.

For the most part, Goldman's own deals have been sparse but served as an endorsement for its business of helping CEOs around the world shape their merger blueprints. Purchases of commodity trader J. Aron in 1981 and market maker Speer, Leads, and Kellogg in 2000 helped cement its dominant position.

Solomon's transactions, however, have been notably unsagacious. Wealth advisory shop United Capital, acquired a year into his tenure in 2019, was jettisoned four years later for a small gain. Lender GreenSky unraveled in less than a year at a loss. This latest binge looks more promising. All three are in asset management, where Goldman has long had a bigger business than most of its rivals. None of them are going to meaningfully reshape the bank, but they will further boost assets under management, which have swelled to $3.5 trillion over the past five years from $2 trillion in mid-2020. Most of that, however, has come from building not buying.

The deals also further Solomon's strategy to fortify his financial institution against downturns. Asset management clients, unlike those of the trading desks or investment bankers, typically stick around and keep paying fees even through slumps. Goldman calls such revenue "durable." Although it hasn't fully tested the thesis, it has been working for rival Morgan Stanley MS.N. If the acquisition strategy works in this regard, the CEO will establish a Solomon's paradox of his own.

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CONTEXT NEWS

Goldman Sachs said on December 1 that it had agreed to buy asset manager Innovator Capital for $2 billion, which manages $28 billion in actively managed exchange traded funds and structured products such as defined-outcome ETFs that aim to generate a specific range of gains or losses over a set period of time.

The investment bank said on October 13 that it would pay $1 billion for venture capital firm Industry Ventures. On September 4, Goldman said it intended to invest $1 billion in T. Rowe Price as part of a larger partnership with the retail-focused fund manager.