All right. Good morning, everyone. Thanks for making it in again for the second day. We'll get started here with our first session for the day. We have Goldman Sachs again. Representing Goldman, we have John Waldron, Chief Operating Officer and President. Thank you, John. I think it's your probably seventh time at the conference.
I've lost count, but I-
Yeah, it's a few times.
But I love this event. You guys do a wonderful job. It's always good to be here. Thanks for having me.
Great. We appreciate your time here, so, thank you. So I know, John, you guys put up a slide deck this morning about the asset and wealth business, so we'll dig into that a little bit. But I wanted to kinda start a bit more broad picture, and then we can go into the asset and wealth business. Think about over the last couple of years, you've described the macro backdrop as challenging, one of the most complicated you've seen in a while. Curious what you're seeing right now and how it's affecting your client base.
Yeah. So you're right, we've, we've described it as challenging. I've described it as challenging. I actually think it's getting a little more benign and actually fairly constructive. You know, I think there are four major... If I think about our clients, what our clients are focused on, and what we tend to talk to our clients about, there are four major issues. One is the U.S. economy and inflation. Two is geopolitics. Three is the U.S. election, which is kinda coming into focus. And four is broad technology, AI, digital transformation. Those tend to be the big tentpole topics. On the economy and on inflation, I would say inflation is clearly moderating. You know, the disinflation is clear, but it's still sticky. We were just talking. I was at an event yesterday with a handful of CEOs, and most of whom are here speaking today.
And we all kind of agreed it's still there, it's in the system. Companies are used to getting price. They plan to get more price. The customer, whether it's a consumer or a, or an institutional business, B2B customer, is used to absorbing the price, and so it's in the system. Wages are still sticky. There's some commodity price inflation. So, you know, supply chains are still not fully normalized, so it's just stickier, and I think the, the Fed obviously sees that. Employment is strong. The consumer is very resilient. Maybe a little bit of weakness at the lower end, but broadly, quite resilient. And the fiscal spend, particularly in the United States, but I'd say globally, but particularly in the United States, is a big tailwind.
Yeah.
So in terms of GDP growth, you get a lot of fiscal impulse. So our view as a soft landing is still the base case. It seems to be fairly well baked in the cake. There's risk to it, of course, but it seems like the most likely scenario. Fed policy is basically working, I think, as designed. I think the lags are longer. I think because we had such a unique experience in the pandemic and all the stimulus, which was extraordinary, we're seeing longer lags than would be the traditional kinda lags you would see in monetary policy. But their policy, I think, is basically working. It's putting some brakes. There are signs of slowdown. It's not dramatic, but you can see the economy getting a little bit softer.
I think if you're the Fed, you really have to slay the inflation dragon. You know, the worst thing they can do is take their foot off that brake too fast, and inflation doesn't really get subdued, and you end up having it come back, and then they're a little bit chasing it, which was what happened in the '70s. This won't be anywhere near as pronounced as the '70s, but they have to make sure that doesn't happen. So our clients, I would say, are operating with a soft landing base case, but everybody's focused on inflation because it impacts the way you make decisions, whether you're an investor or you're running a corporation or you're running a government. It has huge implications, and most of us, for most of our careers, haven't had to run anything with that kind of, you know, impact.
So it's definitely the biggest issue. I think on geopolitics, markets, to me, are pretty good at seeing through geopolitics. But I think what I see with clients is this notion that we're one shock away, one more shock away from having an impact, whether it's on commodity prices or rates or putting the Fed in a tougher place. You know, if you have a tougher, if you have a shock in the Middle East, again, you know, does that spike oil, and does that put the Fed in a tougher place than they're already in at the moment? So I think that's the issue people are wrestling with. On the U.S. election, you know, now I think the focus is beginning. We're just getting into the summer. The debates are set. There'll be these two debates.
I think those debates will be very important, you know, in the context of the election, but also in the context of how people perceive policy differential and where, you know, where things are going. And so I think we're going to get a lot of focus this summer. And then AI and digital transformation is an enormous... We could spend a lot of time on it.
Yeah.
We don't need to do it here, but it's an enormous investment opportunity. We see a big super cycle coming in terms of investment. I think there's going to be an enormous amount of global investment made. You're going to see a lot of the global asset allocators want to put money, I'd say globally, but particularly into the U.S., in driving some of the infrastructure spend, power, data center, and so forth. That has to happen for the AI, you know, wave to really take hold. And then more broadly, every company is finding some way to get more automated, more digital, and a lot of that is generative AI, but not all of it.
There's an enormous amount of investment, enormous amount of focus, enormous amount of software spend, a lot of engineering capability being built, a lot of implementation going on, which I think is pretty fundamental and pretty important to a lot of companies around the world that we certainly see a lot in our dialogues.
Perfect. I'm glad you are sort of more constructive, relative to the last couple of years, and we're certainly seeing that in your results, playing out. But let's just step back a little bit here. I think the company has, over the last 12 months, made strategic narrowing, however you want to phrase the shift in focus for Goldman. Maybe talk us through what you've done over the last year, how you think about the Goldman strategy, today, and how it has played out into your results.
Okay. So I appreciate the question. It's been, it's been a, I think, a very constructive and productive journey over the last five years. Not a straight line. We obviously had the pandemic, and we've been really working hard on the firm. I would say there's two major things that I think we've done with the firm over the last five years that have had a pretty significant impact. One is we executed this One Goldman Sachs strategy and architecture, which is much more than a slogan. It's actually an operating philosophy and an infrastructure approach to how we're gonna run the firm-- how we are running the firm, which really has a lot to do with figuring out a way to break down the silos in the firm, create incentives in the firm for everybody in the firm to serve our clients holistically.
So when we think about going to market, we think about bringing the full throw weight of Goldman Sachs, as opposed to just a product, a desk, or a business. And that is having, I think, a very big impact on our client franchise, and you can see it in the wallet share. So over the last five years, we've gained hundreds of basis points of wallet share, and with a pretty mature marketplace. And so that's had a significant financial impact on the firm. Then the second biggest thing that I think we've done is we've invested enormously in an Asset & W ealth Management platform, the pieces of which we had in various parts of the firm. But in essence, you could think about, we've done kind of a series of internal mergers.
So it's almost like going out and buying three or four businesses and putting them together. We've done that inside the firm and businesses that we already had in place, integrating them into one unified platform and really investing a lot in that platform. Those are the two biggest things going on in the firm, and they're having a disproportionate impact. So financially, we've grown our book value per share 54% over the last five years. We've more than tripled the dividend. We've more than doubled the stock price, and our TSR is 170% over that timeframe. So we've financially performed very well, and I think fundamentally, we've lifted the return profile of the firm, which has been an important element, and a lot of that has come in that markets banking business.
So we've got two big businesses in the firm, both of which are large, global, and now very interconnected. Global Banking & Markets, which is what you would historically think of as investment banking and our sales and trading business, and Asset & Wealth Management, which is the combination of our asset management businesses and our wealth management businesses. Both scaled, both now operating in a way where I would say One Goldman Sachs 2.0 is finding a way to create the synergies between these two platforms. So in Banking & M arkets, very clear set of strategic priorities. One, is to enhance the leadership position we already enjoy in a series of these businesses. So you think about Goldman Sachs, mergers, equity capital markets, rates trading, credit, commodities, equities, prime, and any number of other examples.
We have number one position in all of these major platforms, which is a super important place to be in, in an increasingly narrowed competitive set. So we're in a really good spot. We wanna keep investing to strengthen those positions. We can. By doing so, we can maximize that wallet share opportunity. There's more wallet share to get. We've gotten a lot, but there's more to get. But by investing in those franchises, we can continue to garner more share, which obviously helps you lift the overall returns of that business. And I'd say most importantly, we've shifted the mix of the business much more towards financing.
Right.
as a relative proportion of the total business. So we've been a very big risk intermediator over time. We continue to be that. We don't wanna shrink that up, that activity, but we've really grown our financing business. We think that particularly in this new rate environment, there's an enormous appetite in the world for financing. All that secular growth in alternatives, private market assets, all has to get financed on some basis. There's a tremendous amount of AUM growth in the world, and many different asset classes have to get financed. Goldman Sachs is very well positioned to do that. So by growing financing, maximizing our wallet share, we believe we can really run mid-teens returns through the cycle in Banking & Markets, which is a scaled business that should be very, very accretive to the firm.
And then when you get to Asset & Wealth Management , here we see more of a secular growth opportunity where we are under-penetrated, so we can really ride that secular growth opportunity and increase our penetration. We think we can drive high single-digit growth in what we call durable revenues, which is really management fees and private banking and lending. Those are the two kind of big components of, of what we would call durable revenues. And we think we can grow those revenues at a high single-digit rate. We have been growing them at double-digit rates, but we don't expect that to continue at that pace ad infinitum, but we think we can, for a long time to come, grow them at high single digits.
We're gonna release more capital from this business because we historically have been running more of a balance sheet-intensive business and less of a funds-intensive business. As we've transitioned largely now to funds, we release more capital. As we complete that journey, we think there's another upwards of $5 billion of capital that we can release. And we think we can run that—this business in a mid-20s margin, which ought to be higher over time, but we're gonna get to mid-20s before we can prove that we can, that we can get higher, and I'm sure we're gonna come back and spend some more time on that. And we can run at a mid-20s margin, this business, with the capital release at a mid-teens returns. So you really have two large-scale businesses that can run mid-teens returns.
We're gonna continue to sustainably grow our dividend. We think that drives a lot of TSR for our shareholders, and it's a pretty clean and clear story.
Just to follow up on One Goldman Sachs, I, I think it was one of the first presentations you did, you did at the Bernstein conference, and you really hammered home this One Goldman Sachs concept, and it seems to be paying dividends over the last couple of years. Is there a way you measure that internally in terms of how it's benefiting the firm and, and driving returns?
Yeah, we measure it extremely prescriptively. We have a series of large, multidimensional clients in the firm that touch the firm in multiple parts of the firm, that we run through a very clear program, where there are team leaders, there are broad-based teams across divisions and there are metrics, which typically are non-revenue metrics. We're very good at counting revenue, but we wanna be very focused on the non-revenue metrics. So it would be share of wallet, it would be number of times, if it's a corporate, you're in the boardroom, mandates, softer non-revenue metrics, where you're measuring effectively: Are you strengthening your relationship? Are you becoming a trusted advisor? If it's an institutional client, it would tend to be more wallet share.
But we're very clear and prescriptive, and we go out to each of these clients every year, and we ask them the same set of questions. And we've been doing that now for five years, so we now have baseline in terms of where we started and where we are now, and where we wanna get to. And we're getting now very clear feedback that this is working. It's made a big difference, but there's still room to go. And then what I would say, importantly, is we've actually expanded that program now. So in the institutional markets with large institutions, we were running a program for 100 large institutions. Now we're at 150. That incremental 50, not surprisingly, has lower penetration than the first 100.
They're a little smaller, but they're pretty big, and we have a lot of running room there. Then in the first 100, we were measuring top three. Now we're measuring top one and top two. So it's kinda walking and then jogging and then running, and as we keep going, we're seeing really good returns. And I think now it's just becoming part of the way the firm behaves, which is a big, you know, a big, a big victory inside the firm.
So, on that theme of wallet share gains, it's been very clear, particularly in markets business, that, you know, Goldman is taking a lot of market share, particularly post-COVID. So, maybe a couple of questions on the Banking & Markets business. Feels like capital markets are reopening, feels like we're in an upward trend here. What are you seeing near term, just here in terms of capital market activity, and then medium to longer term, how are you thinking about that business?
Sure. So in Banking & Markets, as I said, we're, we're very pleased with how we're doing. We've driven 16% average returns, ROE, from 2020 to 2023. We think that's the highest ROE, fully allocated of anybody in our industry. And that was 18% in the first quarter of 2024, which was an extraordinarily strong quarter and a very good opportunity set. So we're doing very well in terms of driving real returns in these businesses. There's clear upside from here because, as you said, the capital markets are recovering. They're not anywhere near where they historically have operated. And Goldman Sachs is very well positioned to benefit from that recovery. I would characterize the investment banking opportunity, if you think about the banking side of B anking & Markets, and the environment right now is kinda good, not great.
So you know, the capital markets are getting better. Debt Capital Markets have actually been strong kind of all year. We expect that to continue. The market is adjusting quite quickly to the new rate environment. Spreads have tightened a lot. There's an enormous amount of refinancing going on, and we think there's gonna continue to be a lot of volume. So that feels, that feels very, very good. Equity Capital Markets is clearly improving, but it's been much, much slower. So if you look at Equity Capital Markets, we're still at about a 30% discount to the 10-year volume average. So we're really not anywhere near where you historically would think Equity Capital Markets would be. And in IPOs, we're actually at a 50% discount to that 10-year average. So we're still really climbing our way back to more historical averages.
We've priced a series of IPOs at the beginning of the year. I would say they went okay, at best. They were priced pretty richly, and they didn't trade as well. This last series of IPOs that we've priced in the last six, eight, 10 weeks have actually gone very well. The discounts have been bigger, broader. The stocks have traded very well. There's been a lot of demand. And so this is what happens when you start reopening the IPO markets. You start to see investors are making a little bit of money. They're feeling better about the performance. That garners more confidence, and you can start to build on that, and we're starting to see that. So we're pretty optimistic about the second half of the year, but I would say thus far, on the equity side, it has been definitely slower.
And then if you go to the M&A market, M&A market, I would characterize as very solid, with some real signs of improvement. But you have two big components of the M&A market that are not really firing at max capacity. One is private equity portfolio companies, which at this juncture, is a very significant piece of the M&A market. You know, it could be 30%-40% of the M&A market, over the next five years. And large cap M&A, which really gets into antitrust-
Right
... you know, territory, is also not really firing because we're in a fairly rough antitrust environment globally. If you could get those two pieces really firing, which I think will, over time, start to fire on a more substantial basis, you can really see a much better M&A environment. So right now, the measure we look at a lot is M&A volume as a percentage of overall equity market cap. So right now, M&A volume is about 3% of overall equity market cap. Equity market cap's obviously grown a lot. M&A's been relatively stagnant. 5% would be kind of the 10-year average, and it has run at 6%+ when you're in a really buoyant environment. So we've got a lot of running room to go.
It's not here right now, although we're seeing some real signs of improvement in the last, you know, few months in terms of mandates and pipeline. And so I'm pretty bullish on M&A, but I think it's just taking a little bit longer to get on track. We really need those two pieces to fire. When you get to the markets business, clients are engaged. There's clear, significant opportunity for activity. There's catalyst for activity, both in FICC and in equities. But when you look more near term, you know, this quarter in particular, we had, as I said, very strong first quarter. And, you know, 18% GBM ROE was a real outperformance in the first quarter. Typically, the second quarter seasonally is going to be slower....
We're not really seeing that same level of strength in the first quarter, in the second quarter as we saw in the first quarter. And so this quarter is trending down sequentially pretty significantly, which is not surprising to us. But I would say importantly, our wallet shares are strong, and we feel very good about our client franchise, and I think you're gonna see pretty good activity levels as we get into the back half of the year. But right now, we're still, you know, we're still kinda navigating a little bit of a sequential decline from the first quarter.
Okay. Do you wanna characterize that versus year, versus year over, the year-
No, I think what I said-
- quarter?
I think what I said is pretty clear.
Okay, perfect. Let's dig into Asset & Wealth Management . It's one where we get a lot of questions, in terms of what you're doing and the opportunity sets. I think on some of your slides, you did put out, some information around where you think there are growth opportunities. I'd love you to maybe unpack some of those.
Sure. So we have a $3.5 trillion platform. It's a very global platform, and it's very deep across products and solutions. Basically, think about it as a large-scale active asset manager, a large-scale alternatives private markets asset manager, and a premier ultra-high net worth wealth franchise. So what I mean by ultra-high net worth is the wealthiest individuals and family offices in the world. That, that's like an $8+ billion business, that wealth business. So it's a scale business focused on the wealthiest, you know, individuals and family offices in the world. We're top five as an alternatives player. We've demonstrated extremely strong investment track record through cycles. We've been at this a long time, so we're very experienced investor over a long period of time.
And as I mentioned, and from a durable revenues basis, we're generating over $12.5 billion of durable revenues, which is really management fees and private banking and lending, then interest margin. And we're growing, and historically have been growing this platform at double-digit rates of return, at double-digit CAGRs. We see real significant opportunities for growth. So on wealth, I would highlight three primary areas. First, we can grow footprint. So our wealth business at that high, high end, is very focused on human trusted advisor set of relationships. When we put footprint and advisors out on the field, and we surround them with the content specialists and the investment around them to support, we get very good returns on that investment over time.
I would say the firm has historically been a little episodic in how it's made those investments, and we're really trying very hard now to be focused on making those long-term investments persistently and consistently, because we really like the returns we get, and you just have to be a little bit more patient over a two, three, 5-year period to see those returns start to come to fruition, and that's global. So we've kinda doubled our business in Europe, we've doubled our business in Asia. We ought to be able to do that again over the coming years. There's a lot of opportunity. We're very well penetrated on a relative basis in the Americas. We're very under-penetrated globally, so there'll be consistent investment, you know, on the advisor side and in footprints. The second major opportunity is in lending.
We historically have been very advisor-driven, very advice-driven, very, very, you know, human-driven, less capital-driven, not surprising, given our heritage. Our lending penetration is kind of at around 2% of client assets, which I think is very low-
Yeah
... relative to what I understand the average to be in the outside world at more like 8%. So we've got a lot of running room there, and we're getting much more focused on our lending capability, our lending penetration. This is very similar to what we did in investment banking back 10 or so years ago, where we started building our debt businesses to be much bigger. We did much more lending, and we got very good returns. We're gonna run the same, the same play here. And then the third major area is in alternatives. Because our wealth business is focused on the wealthiest people in the world, they are big consumers of private market assets. They are very wealthy. They can suffer the illiquidity, they like the returns, and they want to be invested.
We've done, I think, a very good job over the years from an asset allocation standpoint of encouraging them to be persistently invested in alternatives. So that, that remains a very big opportunity. When you go to alternatives more broadly, in addition to the opportunity and wealth, we have a big opportunity in terms of our own asset management capability and alternatives, which is, as I said, a very big top five player. So we're building out our platform. We're gonna continue to build new products and solutions across asset classes. The second thing we're doing is we're really focusing on our penetration in the institutional client base. So unlike the traditional managers you would know in the alternatives world that built their businesses with those institutional pension funds and endowments, we historically were not really in that marketplace in the same way.
So we've got actually a lot of running room there. And then away from our own wealth management channel, we've got a big third-party wealth opportunity on the big wirehouse platforms and the brokerage networks and with the RIAs. So you'll see us continue to build there. And then the third major opportunity in alternatives is margins. And I'm sure we'll talk more about that, but our margins are really not where they should be in that, in that business. And when you get to solutions, here, I would just focus on our clients are very clearly asking for, demanding customization. So they want more SMAs, they want more direct indexing, they want active ETFs, in a structured form. They want tax solutions, particularly on the wealth side.
And so what I feel good about here with Goldman Sachs is we've actually spent a lot of time over the last 10 years building these capabilities, building customized, investing in customized solutions. So one major example would be our outsourced CIO platform, where if you look at large corporations and insurance companies, increasingly they are, particularly those that don't have big asset management capabilities, are saying: "Why are we really doing this? Why are we in this business? We ought to be focused on our core area of activity, whether it's insurance or running our corporation." And so you're seeing a big trend towards outsourcing those asset management plans. We have been a very, very big player and have won a lot of recent new mandates. I think we're the largest player in the U.S. now in OCIO.
We just won a big mandate with UPS that got some press, you know, $47 billion mandate, and you're gonna see us continue to invest in that franchise, which I think will be a growing piece of our AUM story.
Great. Let's dig into alternatives a little bit, because one, we get a lot of questions. There are clearly a lot of public managers out there with scale and size. Where does Goldman fit in terms of its scale and size? And more importantly, how do you think about the competitive advantages-
Sure.
for Goldman's business?
So we're not as well known as an alternatives investor as the traditional players. All of them are big clients of our firm, and we love them all. Our business is over 30 years old, so we've been doing this a long time. But the way Goldman Sachs started in the alternatives business was with our own balance sheet and our partners' money. We never really started or got into a persistent kind of fundraising mode, and then we built it into the private wealth channel. So we had our own money, our partners' money, and then we went to our wealth clients, and we asked them to invest with us, and we started building the business that way.
So it was really built more in a merchant banking model, and with our wealth and our own capital versus that traditional institutional third-party channel. So that's one of the reasons why we're not as well known, because we've not historically been in the funds business the way the other firms have been. We're $500 billion in assets. That's a top five player, so we're very big, we're very scaled. And we've grown our asset base in the funds model as we've transitioned now over the last five or so years at a 10% CAGR. So we've been growing funds at a very healthy clip. We've raised $265 billion since 2019, which I think is about fifth or sixth, you know, in the marketplace.
So we've been a very persistent fundraiser and scaled, you know, ability to raise funds. Our advantages, I would say, really relate back to One Goldman Sachs. So we have great investors. We have a great track record. We know what we're doing. A lot of people can say that. There's a lot of good investors out there. But what we bring is we bring the full throw weight to the firm. That includes sourcing. So we've got this big investment bank out in the world that has offices and people out all over the place talking to companies, sourcing transactions. We can invest in those transactions. We partner with our clients often in those transactions. We've got a very big global footprint, so we wanna have a private equity business in Asia. We can ride on the back of that broad franchise.
We wanna build something in Brazil, we can ride on the back of that broad franchise. We have long-term relationships with these big asset allocators, so while we haven't been persistently fundraising with the state of California, the state of Texas, the state of Florida over 30 years, we've been serving them as an intermediary in the marketplace, so we're well known to them. We just haven't built this particular part of the relationship. We have this wealth management franchise, which is an enormous advantage, because, as I said, our wealth management clients love to invest in alts, and we've been feeding them alts, both our own alts and our clients' alts, for many, many years now, and they've been beneficiaries of that, so they have a very positive, virtuous feeling about it. We have great risk management capabilities as a firm.
That, at the moment, hasn't seemed to be so unique because the markets have been going like this, and everybody's been performing quite well. But when we have a cycle, which invariably we will have, we will, I think, perform very, very well because we're, we're pretty deep in terms of looking at structure and terms and understanding how to manage risk. And we've got an ability to really bring value add to our portfolio companies. Because of the breadth and depth of our firm, we've built a big Value Accelerator inside our asset management platform. We've hired a number of ex-executives that are on our platform now that help us from sourcing, marketing, purchasing, it's, you know, digital transformation, and so forth.
We've got a lot that we can bring to the table that really speaks to the full throw-weight of the firm, which is very advantageous for our alternatives platform.
Let's talk about margins in the broader asset and wealth business. I think your targets are about mid-20s, 25-ish%, which I think you're roughly already there. Can you talk about how you think about margin progression from here? You mentioned earlier that you think there's probably room for that to expand over time.
Yeah. So we've made a lot of progress, and as I said, we put these businesses together inside the firm, so we've had our own merger integration work going on inside our firm, although more internal than external merger. Our margins in 2022 in this business were about 10%. In 2023, in 2022 and 2023, we ran about 10% margins. In the first quarter of 2024, we ran a 23% margin. So over the course of the last two and change years, we've made an enormous amount of progress getting our house in order and really getting the right footprint, the right headcount, the right infrastructure to start driving better margins. As you said, our target is mid-twenties. We ran 23 in the first quarter, so we're certainly getting there. Twenty...
Mid-20s should not be the limit of our ambitions.
Yeah.
We should be able to do better than that. You know, when you see the benchmark margins of some of the peer firms, obviously we should have higher ambitions. When you look at the blended benchmark as between active asset management, private market asset management, and wealth management, the biggest margin opportunity for us actually is in alternatives. So what I find attractive, when I look at this, is that's the biggest margin business. That's the highest margin business in asset management, and we have the biggest delta. So, you know, you think about the peer firms that are speaking here are probably running margins in the 30s and 40s. Our margins are well south of that. So we've got a clear amount of running room to improve that margin over time. And really, it's gonna come in a handful of places.
One is the maturation of our funds platform. Because we were running balance sheet money, and we were not persistently a fundraiser, we don't have a mature funds platform yet, where you get the real benefits of that. The second major area is, as we start raising more flagship funds, which are the larger scaled funds, whether it's private equity, hybrid and solutions, private credit, mezzanine, secondaries, we've got very big scaled flagship programs. As we raise more and more of those programs, you get better economics, and that can have a big impact on the margins. And then third, we still have work to do on our infrastructure. We're still working down the balance sheet. We still have people working on balance sheet positions as opposed to just on the funds.
We're getting much closer to the end of that journey, but we still have some tail left to go. So we've got infrastructure challenges in terms of, do we really have the right size and scale exactly? There's a big automation opportunity. You know, back to digital transformation, this is a very paper-based legacy, you know, kind of business where we can really automate and I think make some significant improvements. All that having been said, we should be driving higher margins. We will drive higher margins, but the nice thing about this opportunity in Asset & Wealth Management is there's secular revenue growth.
Yeah.
So the worst thing to do would be to just drive margins and miss that growth opportunity. So we've got to find a way to do both, which is the hardest thing to do when you're running a business. And so you'll see us try to balance investing to grow, make sure we capture that secular growth, but also get that margin. And obviously, those two things are, you know, correlated. So the more scale you get in revenue, the more you can drive that scale economy. And so you're gonna see us, you know, kind of toggle it with a more balanced approach 'cause we wanna make sure we grow, and we are gonna continue to improve the margins.
Speaking of secular growth, growth opportunities, private credit is one that comes up a lot and is a big area of interest, and it's one that Goldman is investing quite a lot in. Every other day, we see a big announcement in terms of fundraising from yourselves. How do you think about opportunities, but also risk management in the private credit space?
So for us, private credit is a great and scaled business. We've been doing this. Really, it wasn't called private credit back in the day, but in the mid-1990s, we built a private debt business, which really started, you know, kind of as a mezzanine finance business, which is what you did back in the 1990s. We now have $139 billion of private credit, which really runs the gamut from direct lending, kind of at the top of the capital structure, all the way through mezzanine and hybrid. So we can cover the full, the full complexion of a capital structure. Importantly, we have experience through cycles, so I'm a big believer in private credit.
I think private credit is a great asset class, but there will be cycles over time, and when there are cycles, there will be dispersion in performance. When there's dispersion in performance, the firms that understand how to garner recovery when things aren't going quite as well, will do better. The firms that know how to put money to work in a tougher environment will do better. Those are the firms that I think have experience through cycles, understand how to work out difficult credits, and are really good in more distressed environments. Everybody can look quite good when it's all going up to the right, but it gets tougher when you go through cycles. I think Goldman Sachs will benefit on a relative basis when we have a cycle in terms of our outperformance.
Not rooting for that, but I think when that happens, we will do very well. We have that risk management DNA, which I think is a very important competitive advantage. We think there's a lot of secular growth in private credit. I kind of look at private credit and say, "This is sort of where private equity was 10 or 15 years ago." There is significant demand in the LP base. We have a more attractive yield environment, so you're getting a much more attractive base level of yield. There's an enormous amount of disintermediation going on in the banking system. There's capital constraints in the banking system.
There are big origination franchises that have now been built by a bunch of the private credit players, and so there's much more competitive threat to the banking system out there, and I think that's going to continue, and the regulatory environment's not making that any easier for the banking system. And so, you couple a lot of origination, disintermediation, strong yields, and an enormous amount of investor demand. This category is going to grow. We like our position for a couple reasons. One, we've got a great origination franchise. We've got a big investment bank. We've got a big markets franchise. We're out at seeing an enormous amount of flow. That does a couple things: It allows you to grow. It also allows you to be a little choosier.
When you're picking what you want to invest in, what you don't want to invest in, you benefit from seeing an enormous amount of the playing field and not having to be... You know, not having to invest in kind of everything that comes down, down the pike. We also have a lot of capability up and down the capital structure, which is going to increasingly be important as you get into more of a cycle over time. We're very innovative. We can build lots of different solutions, you know, up and down, different structured capabilities. And I'd say importantly, and this is what makes us fairly unique, if not completely unique, is we've got a very big syndicated business.
Right.
So we're the number one or number two leverage finance player in the marketplace, depending on how you wanna look at the different league tables. That gives us an ability to understand exactly what's going on in the syndicated public markets and toggle between public and private. So when we go to our clients, we're not saying, "You must do private credit. You must do syndicated." We're showing them options, and we're looking at the different pricing, the different credits, credit structures, different terms, different documents, and we're trying to give our clients the best advice. There are deals we've done where we've had a hybrid solution. We've done some public and some private in the same capital structure. I think that will continue.
The deals we've done more recently have tended to be more public, because actually the pricing in the, in the syndicated market has been pretty attractive. So we're not sitting here saying it has to be private credit all the time. We're saying: We're gonna give the best advice to our clients. We're gonna benefit from the growth in private credit. We're gonna do very well there, but our syndicated businesses are also gonna do very well. And I think we're very uniquely positioned to understand where the credit provision is gonna come, you know, more broadly in the economy. We've said that we think we should be a $300 billion AUM player. We're at $139 billion today. We see a clear path to getting to 300.
We gotta get to 200 before we get to 300, but we see, we see a very clear path. You'll see us continue to build that senior direct lending platform, which is kind of direct originated lending out in the marketplace. A lot of that is the United States. We see a big opportunity in Western Europe. We, like a few others, will build a big investment-grade, asset-based finance platform. There's significant demand, particularly from insurance companies and pension funds, for investment-grade credit. This is, I think, an interesting dynamic when you think about the installed base of liquid fixed income investment-grade paper that's out in the world that many people invest in. I think you're gonna see an increased amount of disintermediation from private investment-grade credit that's gonna get originated and created as an alternative to that liquid product. We will be a big player there.
Big opportunity in Asia. We've announced some recent mandates in Asia. There's a lot of private credit opportunity in Asia. And I think a hybrid, hybrid solutions will be increasingly interesting when you think about the mix between equity and debt, and being able to blend those two capabilities, whether it's convertible structures or otherwise, there's gonna be more opportunity there, and we've got a very big platform in hybrid capital. So this is gonna be a great category for some time to come.
To follow up on that, I'm curious how you manage... You mentioned disintermediation of banks, and you're unique in terms of having a syndicate desk, investment-grade desk, private credits folks, and, obviously, fighting for Goldman in terms of how you make money, but internally, you could, where, where does revenues accrue could be, could be different. How do you manage that process internally to make sure the firm is driving, or-
First of all, I think that disintermediation is most pronounced in the more regional banking system. I don't think the disintermediation is as pronounced with the larger scaled players. So if I were to pick the place where I'd be more worried about that disintermediation, because a lot of this direct lending is in middle market and upper middle market, or issuers, that's gonna be more felt in that regional marketplace. And to the second part of your question, we run One Goldman Sachs. We don't stress a lot about internal P&Ls. We've got people positioned to think about what's best for our clients, drive the best solution. If it ends up sitting in Banking & Markets, fine. If it ends up sitting in Asset & Wealth Management, fine. We've got these two big businesses. They're both important.
They're both gonna generate mid-teens returns, and we're not, we're not fixated on the internal P&L.
Okay. Let's talk about fundraising. Again, you've more than surpassed kind of your targets. I think it was $225 billion, and that's actually a raised target from the original target, and you surpassed that a year early. So how are you thinking about fundraising now? How are you thinking about the potential over the next couple of years?
So we've raised, as I said, $265 billion since 2019. We originally said at our first Investor Day, we would raise 150. We raised that target to 225, and we're at 265, and we got there a year early. So we've had a very good run. Now, it's been a good environment, but I think we've done a very, very good job in a very good environment. We're viewed in that marketplace as a pretty safe place to put money. You know, we're a good investor. We've invested over cycles. We're, we're viewed, I think, as a large-scale manager along the lines of some of the other larger-scale managers.
And I think those large firms are going to do very well, because if you're an LP in this environment and you worry about what happens when you have a cycle, you want, you want that money in the hands of the people that have been at it for 30, 40 years, and Goldman Sachs is certainly one of those firms. We also have a very broad set of investment solutions, so we can show you an enormous amount of capability and breadth. So the firms that are narrowly focused on private equity or narrowly even focused on private credit or just infrastructure, you know, are gonna have a tougher time over a long period of time when you've got to go through cycles. Goldman Sachs has a very broad set of solutions, and we continue to try to innovate and build even more solutions.
So right at the moment, to your earlier question, private credit is a very big driver of fundraising. We just announced that we raised over $20 billion in, in a Loan Partners vehicle, plus some SMA vehicles, which is really direct lending to, to the earlier conversation. And so we're seeing enormous strength in private credit, but we also just raised a $14 billion secondaries fund, you know, just recently, and we're seeing good, you know, good amount of demand and a strong amount of demand in, in the secondaries product. We're also, I think, gonna see good demand in equity. Private equity is starting to come back. We're gonna be out with our, our fundraising on the marketplace, you know, kind of imminently, and so we're, we're expecting to see strong demand there as well.
So I think it's gonna be a pretty good environment. You know, all along, you're gonna have to be broad, and you're gonna have to have capabilities in many places. We think we'll raise $40 billion-$50 billion in alternatives this year. We raised $14 billion in the first quarter, so we're well on our way to that $40 billion-$50 billion level. And I think this is, to me, a secular growth area where, you know, the growth rate will wax and wane over time, but you're gonna see pretty persistent growth well above inflation and GDP, I think.
Okay. You spoke to opportunity to increase your institutional penetration in alternatives. Could you speak more about what you're doing to do that?
Sure. So really, we're talking about our wealth management opportunity and our institutional opportunity. So if you look at wealth. As I said, our wealth franchise is very unique. It's generated about 40% of our overall fundraising. So when I talk about the 265 of alternatives fundraising, wealth is a very big contributor to that. That's our wealth channel. We, as I said, have a client base that really likes investing in alternatives and done very well by doing so. We are showing them more and more opportunities. It's a very open architecture platform. So one thing that we do, I think well, is we show a lot of Goldman Sachs products, but we also show a lot of our third-party client products.
So that gives our client, our wealth client, the ability to invest in all the interesting things that we, as a firm, see, and we think that's important in terms of serving them most holistically. But obviously, a lot of Goldman Sachs product gets funded through that channel, and that will continue to continue to be the case. We also see real opportunity in the third-party channel, away from our own wealth management channel.
And so if you look at Morgan Stanley or UBS or Citigroup or HSBC or some of the large private banks in Europe, there's an enormous amount of third-party wealth where Goldman Sachs product fits very nicely, and we've had a significant amount of success in the last five years, improving our penetration and our positioning there, which is not something we historically have been as focused on. And so that, to me, is a very big opportunity, and it makes for some strange bedfellows.
I mean, I would just say Morgan Stanley and Goldman Sachs are not thought to be, you know, necessarily partnering, but if you ask Dan Simkowitz about Goldman Sachs, my guess is he's gonna say, "We're doing a lot of good things together because our content is on their wealth platform, and they like that, and we like that, and we're doing really well together." And that will continue to be the case in lots of other areas. We also see the broad RIA community as a very attractive client base for Goldman Sachs. We just ran, a couple of weeks ago, a big investor forum for the 100 largest RIAs in the United States, where we talked to them about all the things Goldman Sachs can do for them. And alternative is obviously one area where we have a lot to offer.
We're doing, like others are, these open-ended vehicles, you know, that are kind of private credit, private real estate. There's a lot of SMA structure. There are interval funds. So you're gonna continue to see us put our product on other people's platform across wealth, which I think will be a much bigger contributor to our growth over time, alongside our own wealth channel, which will continue to be a very big contributor to the firm. When you go to the institutional side, as I said, we've got these firm-wide relationships. If you look at the biggest asset allocators in the world, institutionally, Goldman Sachs is an important partner to them, but our alts dialogue is much less mature. So we don't have the breadth and depth and history of alternatives relationships with the large asset allocators institutionally, so we're building it.
We've made a lot of progress over the last five years, but this is a long-term journey to build it. What I like about our position is, unlike most people who are very penetrated and are probably now turning to wealth because they're so penetrated, they don't see a lot more growth, we actually are not that well penetrated. So we can get on these platforms. We can. If we can start positioning ourselves with some of the large pension funds, there's a lot of running room 'cause we're pretty under-penetrated. So for us, this actually is a big growth opportunity, whereas for others, it's a little bit more of a mature opportunity. And so you'll see us continue to build, you know, more presence there.
Okay, we're getting to the end of the presentation. So let's kind of put it all together in terms of your asset and wealth business. How are you thinking about getting to your targets? And ultimately, how does it drive value for shareholders?
So, as I said, we're at, we're at margins now in the, call it, low 20s. Our targets are mid-20s. Our ROE in the first quarter in Asset & Wealth Management was 10%. Our target is mid-teens. So that's kinda, that's kinda where we are and where we're heading. The way we're, we're getting there is, as I said, high single-digit growth in the more durable revenues. That's management fees, private banking, and lending. We have lots of conviction that we can continue to drive high single-digit growth. There's secular growth in the industry, and we think we're gonna do really well from a penetration standpoint, given all the things we just talked about. The balance sheet revenues, which historically were much larger for the firm, are normalizing around $2 billion.
That's equity and debt investments that are the residual balance sheet revenues that come from our balance sheet investments, either legacy positions or investments in funds. That's about $2 billion on a normalized basis of revenues. We also think we can drive incentive fees that normalize at about $1 billion. So you're talking about durable revenues growing, high single digits, balance sheet of about $2 billion, incentive fees about $1 billion. And then, as I said, we're gonna have big, expense, automation, infrastructure work that we're gonna continue to do, and we're gonna make ourselves even more efficient, garner some operating leverage and some scale economies, and release, we think, about $5 billion of capital over time as we continue to work that balance sheet down.
All that blended together gets us to mid-20s margins and mid-teens returns, with an ambition to do better over time. But we're gonna obviously... We're gonna try to jog before we, you know, get into a full sprint. So if we get Asset & Wealth Management into the mid-teens, we have a firm that ought to be in the mid-teens. And really, you've got two big businesses now that are, that are running platforms that should be teens return-- mid-teens returns businesses, which we think is a big shareholder value unlock, because right now, the market doesn't look at us really as being able to run the firm that way.
We've done better, stock's done better, but I think if we can get Asset & Wealth Management to really hit these targets, which we think are super achievable, the stock ought to trade better, and it's ought to unlock a lot more value over time, and so we feel good, we feel good about the story.
As I always mentioned, it's mid-teens ROE, not ROTE, so much, much tougher-
Yeah, I appreciate, I appreciate you saying that. We are an ROE firm. We've always been an ROE firm. We believe all the equity matters. And so we speak about ROE, we're incented on ROE, and you'll continue to hear us talk a lot about ROE, and that is how we will run the firm.
Fantastic. We're out of time here. So, John, thank you so much for the time, as always, and John will be taking questions in the breakout room. So for any questions, we'll head there. Thank you, John.
Appreciate the time.
Thank you, everyone.
Thanks, Christian. Thank you.