← Alt Goes Mainstream: The Latest on Alternative Investments, WealthTech, & Private Markets
Alt Goes Mainstream: The Latest on Alternative Investments, WealthTech, & Private Markets
AGM Unscripted: Goldman Sachs' Kristin Olson - The Evolution of Alternatives: Bridging Private Markets and Wealth
00:18:10
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- [00:00]
A
We've been advising clients on asset allocation broadly for decades and whether it's for our ultra high net worth clients in our wealth business or whether it's for our OCIO business. And so we have the ability to talk about strategic asset allocation, tactical asset allocation, and then to do the implementation and to draw on the broader intellectual capital and resources of Goldman Sachs. And so I think that is a real advantage to us in terms of serving clients, not just delivering them an alternative investment product, but providing them sort of the guidance around how to think about that in a portfolio and how to construct a portfolio.
- [00:42]
B
Welcome back to the ALCOS Mainstream Podcast. In this special series, we went behind the scenes at the Goldman Sachs Alternatives conference and interviewed six Goldman Sachs Alternatives leaders about their current thinking on private markets and and how the firm has built and evolved its private markets capabilities. The next interview in this series is with Kristin Olson. Kristen is the global head of Alternatives for Wealth within Asset and Wealth Management. In her role she oversees the global alternatives platform and Alternatives product strategy across wealth client businesses. We had an interesting and insightful conversation. Thanks Kristen and please enjoy. We're going mainstream. Kristen, welcome to the Elkos Mainstream Podcast.
- [01:21]
A
Thanks for having me.
- [01:22]
B
Well, thanks for having me here. We're at the Goldman Alternative Summit. I think such an emblematic evolution of where both the industry is, but where you as a firm are and your career the intersection of private markets and private wealth. You've been doing this for quite some time. That's where I'd love to start because love to hear your background and also share your background in the context of the evolution of your career. But how that's also seemingly married the evolution of the industry.
- [01:51]
A
I'm very lucky to be at the intersection of alternatives and wealth. 25 years ago that wasn't really a thing anyone cared about and today it seems the thing that we talk about a lot. So you know, I started the firm, did a quick stint in investment banking and then fell into what at the time we called special investments. So that's what alternative investments were 25 years ago. Special and essentially it was thinking about the alternative investment platform for our Goldman Sachs private wealth clients for our wealth clients, ultra high net worth. And so I think the interesting thing is we've been talking about alternative investments in a wealth client portfolio for 30 years. So this is not new to us but obviously tremendous amount of evolution, innovation and change over the last several years trying to open up the aperture to get alternatives to a broader segment of the of individual investors.
- [02:41]
B
I want to unpack that Comment in two distinct points. So one is what are the lessons learned from working with Goldman wealth clients on private markets that you've taken and applied to the broader wealth channel, whether that's just Goldman in general or the third party wealth channel that you've opened up as well.
- [03:03]
A
I think the first thing I would say is and we talk a lot about as they think about democratization, education, but I bring that up in the context of one of the most important things first for our clients is what is the strategic allocation that you want in your portfolio to alternatives high level, what percentage of your portfolio do we want in this asset class? And making sure that the client and the investor understands that because this is a illiquid long term asset class and so make sure that you're comfortable up front and that you're going to stay the course with that allocation. So I think that education piece first and foremost we often talk also about diversification within alternatives. Alternatives has lots of different asset classes under it private equity. And even within that you've got venture growth buyout. You want diversification by strategy. Under that alternative umbrella you want diversification by manager and you want diversification by vintage year because you don't want to put all your capital in one particular year. And so that brings a lot of complexity into how you create that portfolio portfolio and how you construct the portfolio. Again, leading back to education. How do you do this, why do you do this and how do you stay the course for the long term?
- [04:08]
B
The point about education I think brings up an interesting second question from your earlier comments which is how do you think about serving the third party wealth channel and what makes that maybe a bit different than how you've worked with the Goldman private clients?
- [04:23]
A
I think different needs. If you thought about our Goldman wealth clients, very much ultra high net worth, as you think about our broader wealth partners and other individual investors, you want to be able to serve a client segment that's broader high net worth and maybe over time mass affluent in the alt space. And I think what's interesting is over the last few years a lot of these changes in terms of the product structures and product innovation are allowing that group of clients actually access alternatives in many cases for the first. So I'd say in the ultra high net worth segment you still see a lot of closed end traditional drawdown allocations. But as you go down the wealth spectrum, the need for evergreen type of strategies becomes imperative. And part of the reason for that is they don't want to manage the complexity of capital calls and distributions. Some of the more complex tax filings. You want to make it simple for that type of an investor and then also bring down the minimums so that they can actually size positions appropriately. So I think slightly different way that you approach it for a high net Worth Client vs and Ultra High net.
- [05:26]
B
Worth buy it on that point. Feels like we're at this interesting place in private markets as it relates to working with private wealth where there's this balancing act of customization but at scale. To your point, the wealth channel is not monolithic. There are different types of wealth channel clients and how do you serve all of them? You have the benefits of having a really large platform. At Goldman on the investment side, how do you think about balancing customization with the scale that's required, both from an investment perspective, but also from a distribution?
- [05:57]
A
Yeah, I think we're lucky and maybe a lot of people don't recognize this, but we're one of the largest alternative asset managers at Goldman Sachs. I think over $540 billion of assets under supervision and it's across a wide range of strategies. And so I think what we're doing is taking all of that investing excellence and capabilities and figuring out different ways to package it for different client segments. So it might be that we take the same investment opportunities in a closed end structure for institutional and ultra high net worth clients, but then maybe for a broader high net worth client, it's in an evergreen that's multi strategy where you're picking from a number of different origination sources and a number of different investors that are actually putting that capital to work. And it can be almost a one stop solution in an evergreen that's easy for a 5 million client, different from what we might do for a $100 million client or a large institution or sovereign wealth fund.
- [06:49]
B
What does the additional sources of capital do to enhance the investment side of your platform and what does it do to the deal teams in terms of how they're able to partner with companies or investment opportunities?
- [07:03]
A
I think it broadens out the different investment strategies that we have because we have a lot of demand for alternative investments. We have a big origination engine. How do we marry those together in different formats?
- [07:14]
B
So you bring up an interesting point, which is how do you make sure you meet the needs of both client types? You recently did a survey on the wealth channel. What were some of the interesting or maybe less obvious results that came out of the survey?
- [07:31]
A
Well, so one that's gotten a lot of conversation has been the part about millennials. When we looked at their Allocations, they had the highest of the different generational groups. I think it said 20% was the millennial allocation, which seemed pretty high. And the reason for that was different than Gen X and the boomers. For the Millennials, it was about access to growth industries, access to unique investment opportunities. Whereas if you went to Gen X and boomers, you saw more of them responding, that it was for diversification. So different reasons that they were doing it versus the Millennials. I think part of that is millennials have grown up watching tremendous wealth creation and innovation and technology in health care and biotech. And I think they realize that those opportunities are private opportunities. They're in the private markets. And so I think they have more of an affinity towards alternatives as a result of that.
- [08:20]
B
That's a really interesting point, because where my mind goes with that is you have a pending wealth transfer, tens of trillions of dollars over the next 20 or so years. You have younger investors who've grown up thinking differently about investing. How does that make you think about how you build the Goldman Sachs brand to make sure that it resonates with the client of the future?
- [08:45]
A
I think we have already a top brand in terms of being a leading global investment bank, a leading alternative asset manager. I think the part for us is how do we connect that and get that more broadly recognized by young investors, Millennials? I think part of that is our efforts around education. Some of the things we do at scale. We talked about launching our Goldman Sachs Investment University, having more people out there talking to individual investors. So all of those things, conferences, like what we're doing today, your podcast, I think those are all the different mediums that we can get our brand connected with our investment excellence around alternatives. And so we're spending a lot of time. The other interesting thing from the survey was the number one source of information for I think all of the generations around Alternatives was actually financial media, followed by advisors. I think having to talk more about the asset class and be out there doing things like podcasts is going to be helpful in terms of raise a brand.
- [09:44]
B
Where do you think we are in the evolution of education in this space? You mentioned Goldman Sachs Investment University. That's a critical component. I think every firm needs to have education as part of their platform and its table stakes. What, in your mind, though, is the next evolution of education? What are people not necessarily talking about that going forward, they win?
- [10:05]
A
Well, I think the first step is even just having the conversation. If you looked at our survey, most of the people we surveyed were covered by a financial professional but only 40% of those professionals had ever spoken to them about alternatives. So I think you're starting from just even having the conversation. And part of the conversation is being prompted by the fact that they're hearing about it on financial media and then asking their advisors. They're actually bringing it to their advisors. So I think there's a lot of room to grow and to educate. Starting by first just having the basic conversation of what is an alternative.
- [10:38]
B
How it feels kind of ironic to ask you this question given that you've been in private markets for really 20 plus years. So you've seen the evolution of discourse around it and how people think about the space. But how early are we in private markets as it relates to the Wealth Channel's adoption?
- [10:59]
A
I think we're early, early innings. Ultra high net worth has been investing for a long time, but I think the evolution of this to broader wealth, early innings, part of that's we only have the product structures to accommodate individual investors really come to market over the last few years. And then you go to the point that most advisors aren't even talking about alternatives with their clients. And so I think we're very, very early in the adoption. A lot of room to run.
- [11:25]
B
How do you think that advisors and clients will start to approach private markets? For those who haven't done it as much, do you think they will do more with less and they will concentrate or consolidate their relationships with a select few set of gps or platforms? Or will they try to spread out the relationships that they have and the types of firms they work with?
- [11:47]
A
We advocate diversification and you want to make sure you have managers that are providing different types of strategies under that alternative umbrella. But I think as a starting point you will have some concentration because people are going to be looking for those resources to help guide them as they take the first step on an alternative journey. So I think in the beginning you will see more concentration and then it'll expand. Similar to if you look at where more of the wealth flows. Flows are going right now in alternatives, predominantly to yield strategies. So they're starting their education journey around private credit yield oriented strategies. And then as they get comfort with that, they're diversifying and thinking about, hey, should I look at equity, should I look at infrastructure? So I think you're going to see them evolve and diversify over time.
- [12:29]
B
Well, you mentioned the word consolidation. That's a key theme that's defining private markets in many respects. Right now firms are consolidating with each other or they're partnering. You recently acquired industry ventures that provide LPs with more options within one consolidated platform. What's your thought process around adding capabilities to your platform either through partnership or through acquisition that enables you to serve the wealth clients even better on industry ventures?
- [12:59]
A
Really interesting for us, we have a leading secondaries franchise and this just deepens that into the technology venture growth space where they've built their niche in the secondary space. And I think the industry ventures acquisition really allows us deepen our ecosystem around solutions in tech and venture.
- [13:17]
B
I think that you connect the dots between what you shared about the survey, particularly younger investors, millennials wanting access to private markets, particularly private tech companies innovation. That's an interesting connect the dots moment with industry ventures. They have access to a lot of really high quality venture managers that are often hard to access. Late stage private companies through secondaries co invest they get from their managers. That seems like there's a lot of interesting elements there of what you can do to help serve the wealth channel through enabling a smaller platform. Not 7 billion of Aus is not small, but relative to the size and scale of a platform like Goldman, they can now really enhance their distribution channels through Goldman.
- [13:59]
A
That's exactly right. And we've also known industry ventures for a really long time. We've invested in them.
- [14:02]
B
Own a stake in them.
- [14:03]
A
Exactly. We've owned a stake in them. So I think it really helps us in terms of investment opportunities that we can originate through their channels for our wealth clients and then broadening for them their ability to tap into a broader investor base working with us as they think about new product structures that allow more democratization of access, as you said, to venture growth and tech companies.
- [14:24]
B
You mentioned new product structures. You spend a lot of your time really thinking about product strategy. And it also feels like we're at a really interesting place in private markets where there's this convergence between public and private. You're seeing hybrid products be created. What do you think is the next frontier of product creation and product strategy?
- [14:43]
A
So the product creation and that evolution is moving quickly. Obviously we went from a world of predominantly closed end funds to suddenly having a slate of evergreen type of strategies. And now you're looking at the next wave of evergreens around things like tender offer funds, interval funds, interval funds which you can buy with a ticker. So I think you're gonna continue to see that evolve. Obviously talks about do you ever get alternatives into ETFs? So I think a lot of time is being spent figuring out how to make these products more available to a broader set of clients. But I think the other place where we're gonna see evolution is then how do you get to solutions? How do you provide implementation that's easier? And that's when you start to think about model portfolios. How do we make this easier for an advisor to implement this in a client?
- [15:32]
B
I think that's a really interesting point because within asset and wealth management you have public side of your business. The origins were really in some senses around the OCIO world and partnering with big pension plans, etc. You also have Geo wealth as a partner. How do you think that the broader platform you have serves as an advantage to doing all the things you want to do as a solutions provider?
- [15:56]
A
That's where I think we have a real advantage and it even goes into our private wealth business. You obviously heard Sharmeen, our CIO speak earlier. We've been advising clients on asset allocation broadly for decades and whether it's for our ultra high net worth clients in our wealth business or whether it's for our OCIO business. And so we have the ability to talk about strategic asset allocation, tactical asset allocation, and then to do the implementation and to draw on the broader intellectual capital and resources of Goldman Sachs. And so I think that is a real advantage to us in terms of serving clients, not just delivering them an alternative investment product, but providing them the guidance around how to think about that in a portfolio and how to construct a portfolio and then to your point, ultimately making it easy through things like our partnership with Geo wealth to actually turnkey implement that portfolio.
- [16:42]
B
What advice would you give to investors who are starting their journey in private markets today? Having the benefit of having seen the evolution of the industry since its early.
- [16:53]
A
Days and go back to where I started a bit, which is think about what percentage of your portfolio you want in this asset class, recognizing that it's going to be a liquid and that even if there is a mod of come of liquidity that may be offered, that you don't want to have to avail yourself of that because it's likely not going to be available when you most need it. So really strategically understand what this is going to do in your portfolio, the benefits going to bring in terms of alpha and performance in terms of overall portfolio diversification, set that allocation and then try to have a very long term mindset on sticking with that allocation.
- [17:28]
B
I think that's such a great way to wrap up this conversation. It gets to much of what you've done throughout your career, which is understand private markets at a deep level. First principles, mindset of really understanding the point of private markets in a portfolio and then how you actually create products around it depends on the type of investor, but figuring out where it fits at the right time and why. You explained that so well today, so thanks so much.
- [17:51]
A
Thank you.
- [17:52]
B
Great conversation.
- [17:52]
A
Thanks for having me.
- [17:53]
B
Thanks for listening to this episode of Alt Goes Mainstream. I hope you enjoyed it. You can read more about Alts at my substack altgoes mainstream.substack.com Thanks a lot and have a great day. We're going Mainstream.