Okay, so I'm delighted to be joined by Denis Coleman. I think Denis is well known to everybody here. He's the CFO of Goldman Sachs, joined the firm in 1996, so coming up on your 30th year at the firm. Served in a number of different geographic locations and different roles before taking over as the CFO in 2022. So Denis, thank you very much for joining us. Why don't we start with just a broad discussion around how you're thinking about the macroeconomic backdrop, both here but globally, to the extent that you want to talk about it, and maybe talk a little bit about how the election result from just over a month ago plays into how you're thinking about the macroeconomic outlook for next year. Okay.
First, I'd just like to start by welcoming everyone. This is our 35th annual financials conference. We have over 100 companies presenting today, 1,400 people expected to attend, so it's become a very big event. We're very grateful that you've all made the time to be here with us today. I guess taking a look at general macroeconomic backdrop, I think there's no question the U.S. has proven to be quite resilient. Our economists continue to call for a soft landing heading into 2025. Given the election, I think it's fair to say there are some policy uncertainties with the new administration, but there's also an expectation that sort of the regulatory burden should be reduced. That should serve as a tailwind to risk assets. Economies around the world have been managing inflation down, sustaining some levels of growth.
If we look at the rate outlook, that is also supportive. Market calling for 25 basis points by the end of this year, incremental cuts into 2025. So from where I sit, the overall macroeconomic backdrop looks very supportive for increased levels of activity and particularly supportive for our mix of businesses heading into that type of environment.
So maybe we can talk about the outlook for capital markets specifically. Maybe we can start with M&A. Now the election's behind us. Have you seen a significant change either in pipelines, client dialogue, or activity? And has the election in any way changed your view of the outlook on the M&A market heading into next year?
Sure. So the M&A market has been active over the course of the last year. Given our position as the annual leading M&A advisor in the world, we've seen strong levels of activity through this year. But overall levels of activity are still trending below 10-year averages. And I think following this election result, there are elevated levels of optimism. There are also expectations that regulatory burden less could unlock more activity on the strategic front. I would say the intensity of our client dialogue is accelerating, and there are aspects of the overall strategic activity which are becoming more pronounced, which would be, for example, demand for capital-committed deal financing types of activity. The overall capital-committed deal book activity over the course of the last couple of years has been relatively muted.
You've seen much higher levels of aggregate DCM activity that's reported through debt underwriting lines, but the proportion of that that is capital-committed, strategic in nature, is lower than it has been. And I think there is certainly elevated confidence with CEOs and clients that there could be more by way of larger scale transactions, more strategic activity that could take place. And it also does feel like we're approaching the point in time where we could see reemergence of elevated levels of sponsor activity, another segment of the market that's been less active. So I'd say my overall assessment for strategic activity heading into 2025 is accelerating, normalizing back towards those 10-year averages, and no reason to say that we can't actually go above those averages if we sort of sustain the kind of momentum that I think we see.
So you mentioned financial sponsors, so maybe we could just follow up on that specifically, because if we look back over time, I think you take 2021, sponsors represented about 40% of announced transactions. It's obviously well below that level today. Are you seeing momentum in that part of the M&A market specifically as well? And what do you think's been holding that market up? And do you think the pieces are in place for that to recover in 2025?
Yes. I mean, sponsors historically are a very big piece of our portfolio of activity, and they have been far less active, whether it was economic outlook, rate outlook, cost of capital, availability of financing, or actually finding closure between bid-ask levels on strategic transactions. No question they've been less active. But if you look at where we are today, the debt capital markets are wide open. The ability to understand the pricing for debt capital is there. The availability of debt capital is there. I think the underwriting risk appetite is there. They continue to have lots of dry powder from an equity deployment perspective. The IPO market, the sponsor IPO market, is also functioning. So there are multiple tools in the overall deal activity toolkit that are sort of back online.
Over the course of 2024, there was actually decent sponsor deployment and buy-side activity, but the sell-side activity was probably at something like 60% of that. So there has been some deployment. There hasn't been as much by way of monetization, either through sale or IPO. And I think that's where you could see more activity. The equity markets are well priced. They are ready to absorb IPOs. The discounts for IPOs have been closing. So I think you're really getting closer to closing, fundamentally, the valuation bid-ask, which is something that I think has held back some of the activity. The other impetus is the pressure on behalf of the sponsors' LPs continues to elevate, and they are looking for return of capital.
I think there are not a lot of reasons from a market structure perspective and an availability of capital perspective why we can't and shouldn't see more sponsor activity in 2025. I think we will.
And then you did mention briefly ECM and IPO activity. That's obviously lagged as well. You mentioned sponsor IPO activity potentially picking up. But just more broadly, what are you expecting in terms of IPO activity? And do you think that the ECM market could normalize relative to historical averages next year?
Yeah, ECM obviously quite depressed, versus just take a 10-year average. Both aggregate ECM and then in particular IPO activity is probably 50% below the average. Again, I think the building blocks are coming into place, so we have all been calling for the reopening of the capital markets writ large, and of course, across the course of 2024, we saw more and more market subsegments open. IPOs are open. We have not seen a huge number of large-sized sponsor monetization IPOs, although there is a bid for sponsor IPO product, and so I think with where the equity markets are, some of the risk appetite we see on the investing side, and then certainly the backlog of clients that would like to access the equity markets, I think you will see more elevated levels of IPO activity generally, and then for sponsors specifically as you head into 2025.
Okay, so let's talk about the longer-term outlook for Goldman. Maybe we can just start off with a discussion about your strategic priorities, the strategic focus heading into next year, and maybe talk a little bit about the key drivers that you think will get the firm to the financial targets that you've set out.
Sure. So I think our opportunity is very clear. We have two large world-class interconnected businesses with extremely strong client franchises. Our Global Banking and Markets Business has been for the last four-plus years delivering mid-teens returns while establishing leading market conditions across investment banking, equities, and FICC. We have an Asset and Wealth Management business inside of which we have a premier ultra-high-net-worth wealth business. We have a solutions business. We have an active asset manager that is in the top five. We have a top alternatives business. And the collection of businesses inside of asset and wealth management have been delivering high single-digit top-line growth, have been migrating their margin profile towards the mid-20s returns, and have been elevating the overall return profile of that business.
As we continue to see growth across the AWM segment and we start bringing those returns towards the mid-teens, then we'll have the two big businesses of the firm generating that type of return profile, and we continue to make progress shedding the consumer-related activities and shrinking the impact of the drag from Platform Solutions.
Okay, so let's talk about the businesses. Maybe let's start off with global banking and markets. If we think about the trading businesses, FICC and equities, they're still running significantly ahead of where we were pre-COVID. I mean, if we look at the FICC and equity run rate, both for the firm but also for the industry, they're 20%-30% ahead of where they were in 2019. Can you talk about the sustainability of revenues in those businesses? And where do you see the best opportunities for growth in those businesses for Goldman, just given the very high levels of market share that we now have?
So we've been getting asked that sustainability question each and every year since 2019, which has been heralded as sort of some benchmark level of performance. I think there's also an alternative case to be considered, that the overall size of the market is larger, and that if you have a leading market share position, and we've been growing our market share position over that period with a franchise that we describe as global, broad, and deep, meaning we're in all regions with all product areas, and we have leading market share positions and capabilities. We have delivered performance across those suite of businesses, but it has been different one quarter to another, one year to another, with different components of the businesses contributing more significantly on a relative basis based on what the opportunity set is in markets.
So our expectation is that we have assembled a world-class collection of businesses that will enable us to address whatever type of market environment presents itself. And our focus is to continue to drive share with our top clients, expand the clients with whom we can drive incremental share, and make sure that we sustain a very front-footed orientation. It's also a business that we have continued to invest in and make sure that they have the resourcing and support to continue driving more and more client activity. So our expectations are, I couldn't tell you exactly what the mix will prove to be in the future, but I think we have assembled the right portfolio of expertise and client franchises.
And then just as a follow-up, maybe you can spend a couple of minutes talking about the financing businesses, which sit within FICC and equities. That's obviously been an important source of growth in the last three years. Can you just remind us of what sits in those businesses, what the growth drivers are, and maybe talk about how we should think about the revenue trajectory for those businesses in a lower-rate environment?
Sure. So the contribution from those businesses is the result of a very deliberate strategy that we laid out a number of years ago, where we looked across the entire portfolio of Global Banking and Markets businesses and have chosen to drive a larger proportion of durable recurring revenue streams. FICC financing and equity financing are key to that strategic decision. The FICC financing business, which if you break it down, has multiple subcomponents, the most significant of which is mortgage and structured financing, but also repo, and then to a lesser extent, commodity financing. But this is an area where we see very significant demand from our clients to provide them with credit extension that they can use to obtain leverage across portfolios of different types of asset types.
And while we've had a lot of success in growing that business, growing the notionals, growing the number of accounts, maintaining a diversified portfolio of these exposures across sub-asset types, it remains the case that there is far more demand from our clients to provide them with that type of financing than we are choosing to provide them. And so we think that it's a business that continues to present opportunities for growth. Our expectation is we will grow it on a disciplined basis, being attentive to our underwriting standards and generating the right risk-reward. Obviously, with rates moving lower, we can have an impact in terms of how we price the extension of that credit. There are also hedging implications, market volatility implications, our own funding implications.
But our expectation, based on the engagement that we have most recently, and we continue to roll these extensions, if you think about it, you have a portfolio of on-balance sheet credit extension. It has a maturity profile. It rolls off, and then you replace it, or you extend it, or you reprice it. And we remain optimistic based on all of the engagement and the incoming demand that we see from clients that we will continue to be able to grow that in line with our own sort of underwriting expectations.
Okay. So let's shift to Asset and Wealth Management. Maybe we can just start off with the strategic priorities for those businesses and maybe talk a little bit about how you're performing relative to the targets that you set out a couple of years ago.
Sure, so people will be familiar with this, but the asset and wealth management business presents a very attractive growth opportunity for us. We have set out an objective to grow the more durable components of that business: management fees, private banking, and lending in the high single digits. We have been achieving that to date. We set out an objective to reach mid-20s for a pre-tax margin, and through the first three quarters of this year, we have been at around 24%, so making progress against that mid-20s target, and then also driving better returns through the reduction of capital in the segment and the sell-down of some of the historical principal investments, again, bringing the return profile of that business back in line with the overall firm-wide medium targets, so the outlined performance objectives are being satisfied, but we have room to run.
And we have a number of areas to focus on to drive incremental growth across that segment. The most notable components, I think, would include incremental growth in our wealth management business, our alternatives activities, and then our solutions business. And we think that growth opportunity presents an opportunity for us to continue to drive improved margin and improve the return profile overall for the segment.
So in wealth management in particular, where are you focused from a growth perspective? And I think it's fair to say everyone's focused on growing that business of your peers. So what do you think really differentiates Goldman when it comes to the wealth management piece of that?
Our business today is already a large-scale business. I think it's different from many of our peers in terms of the composition of the clients and their portfolios. The average client wealth position is around $70 million. If you think about the type of advice and the type of solutions and the type of investments that are appropriate or are desired by a client that's managing that level of wealth, they have to manage a much sort of more diversified portfolio of investments. They probably can afford to take some illiquidity risk given their overall level of wealth. They probably can afford to add more risk-oriented investments within their portfolio. If you compare it to a client that has a million dollars or two million dollars of wealth, the risk profile that's appropriate for that type of client is very different.
And accordingly, the composition of their portfolio is very different. And then what the opportunity is to help them make those investments is also, in turn, different. So for us, we have a client type with an average account size and a set of objectives from an investment perspective that map very well onto the offerings that we have, both that we provide as a firm as well as through open architecture that we make available through third parties. So that, I think, is a differentiated starting point. Now, that being said, our overall penetration or market share, which is very difficult to discern in the wealth business, is very, very small. So relative to certain other activities of the firm, we have extremely well-established leading market share positions.
The growth is a lot to do with improving the way we operate, improving the way we price, improving market share on the margin, and sustaining changes in market activity. This is an activity where we can make investments in our advisor footprint that can grow across the U.S., across EMEA, across Asia. We can add more lending penetration to our existing clients as well as use lending to help bring on board new clients into our relationship. We obviously have the ALT capability that I mentioned, which is very attractive to that segment of clients. And so there actually are multiple avenues of growth for us to drive improvement in wealth, all of which are within our gift.
The overall addressable market, while competitive with plenty of other capable providers, just the aggregate opportunity set in terms of the white space where we do not have client base is an attractive growth opportunity for us.
In Alts, that business is clearly at scale. It's obviously a much, much larger business. You have talked about that as still being an area of very attractive growth going forward. Maybe you can unpack a little bit where you see the best growth opportunities within the ALT business. Also, similar to what you did with Wealth, talk about what differentiates us in the ALT business relative to alternative asset management, but perhaps also other banks with offerings.
Sure. I mean, the Alts business is also already a scale business. We have over $500 billion of Alts assets. If you think about actually for the overall AUM of the firm, it's just over $3 trillion. So the $3 trillion asset management business, you have Alts assets of over $500 billion. And compare it back to the wealth business, we have $1.6 trillion of client assets in wealth. These are all substantial existing businesses. The Alts business is substantial at over $500,000,000,000 in assets. And we have been in that business for a long period of time. We have been successfully executing on a fundraising program over the last number of years, raising over $300 billion of Alts assets since 2019, consistently resetting our targets and beating them.
We feel like we have scale operations, good fundraising momentum, and we have an environment where it should be a better environment for deployment as well as a better environment for monetization. That will also accrue benefits to us through the realization of incentive fees over time.
Okay. So let's talk about private credit. It's a really important theme. I know we talked about this last year, but it's still very much, I think, top of investors' minds. So maybe you can talk about how Goldman is positioned to capture the opportunity in private credit and also talk a little bit about our relative positioning in that market.
Sure, so private credit remains very topical. Lots of people have different definitions of what they think private credit is. I would suggest that Goldman Sachs has positioned itself to play across the entire continuum of private credit, so if you think about it, the firm has a leading leveraged finance business, number one or number two market shares in leverage loans and high-yield bonds each and every year, a leading sponsor franchise. So we have a very robust capability to originate transactions for underwriting and distribution into the institutional market. We talked about our alternatives capabilities. We've been very large in private credit for a long period of time. We've been in that business since 1996, so that means lots of experience, lots of cycles, lots of underwriting expertise. We have scale loan funds, MES funds, strategic solutions funds.
So we have capital that's set up across the risk continuum that we can make available to clients as an alternative to an underwritten solution. So we have the ability to underwrite and distribute or to lend directly to clients to catalyze deal opportunities. Those various funds are also attractive to clients of the asset and wealth management business as an opportunity for them to get access to that type of yielding instrument. And then finally, the FICC financing piece fits into this as well because it's through that type of activity that we provide credit extension to many of those same ALT managers who are actually deploying their own investment capital and investing in different types of portfolio assets and using our leverage to improve the return profile for them. So across each aspect of the private credit universe, we have a leading position.
And then furthermore, I would say that we see good opportunities to continue to grow private credit. The FICC financing activity that we undertake is largely investment-grade in terms of its risk profile. People talk about increased opportunities for investment-grade credit origination. We see opportunities from our investing clients in AWM to get access to investment-grade credit. And so we're trying to make sure that we take our position as a leading sourcer of private credit transactions and help clients understand how we deploy our own capital, how we deploy our own expertise, and which investment opportunities we make available to which suites of clients across the entire firm. This is one area that is very much 1GS in terms of its orientation, where we have clients coming into different parts of the firm, and we have leading capabilities across the entire spectrum.
I'm not sure there's really any other company that is set up with that complete continuum of private credit expertise.
Let's shift to expenses and the outlook for operating leverage and efficiency improvements. And I think broadly, maybe you can start off by talking about how you're balancing the need to invest in the business to drive some of the growth opportunities that you've talked about versus delivering near-term operating leverage. And then if you take a step back, how would you characterize the competitive dynamic or environment for talent today? It feels that everybody is prioritizing growth in their capital markets business. Are you seeing that show up in terms of just greater cost inflation perhaps than we saw six or 12 months ago?
Okay. Maybe I'll take those in two pieces. So on overall operating efficiency, that remains a very big priority for the firm. Many of you have heard us speak about that before. We have an extremely structured program for the management of our entire non-compensation expense series of line items with enhanced sort of governance and protocols for how we manage that spend. That has been, that remains a huge focus for the firm. We are interested in creating the capacity to drive increased investment, particularly in tech, in AI. There are some virtuous benefits. We can free up capacity to make incremental AI investments. We are discovering that that unlocks incremental levels of developer productivity.
So, if I have a suite of sort of tech or software-built projects that I want to execute, the more I can enhance the ultimate throughput and productivity of the developers, then the more projects that I can actually finance to sustain uplift in our overall platform's ability to scale, be resilient, serve clients, etc. So we have a very deliberate process where we are discerning exactly how much investment spend, which will drive and unlock which types of efficiencies, taking a look at the entire setup of the firm from a human capital perspective. Where do we look from a location perspective? How do our pyramids look?
So there is a very sort of granular set of analyses that we're going through to make sure that we continue to operate the firm as efficiently as we possibly can, drive down towards our efficiency target of 60% while being able to fuel investment. And we think there are good opportunities to do that. On the second piece of your puzzle for talent, as you mentioned, I've been here almost 30 years. It has been the case that there is a desire for talent across the financial services businesses writ large each and every year of my 30-year career. It is no different. This year, it remains an absolute top priority of the firm to execute as well as we possibly can. We do need to attract, develop, and importantly, retain the most talented people.
And if you look through our different businesses across the firm, for our most talented people, there remains a very, very significant demand around the world, and they have lots of opportunities. And so we're very focused on making sure that we continue to have a setup inside the firm where we are serving the world's leading clients. People are having the best possible professional experience they can. We have a culture, collaboration, teamwork, working on those things that bind people to the firm, and then obviously making sure that we're in a position to pay for performance where that's warranted while balancing our desire to deliver returns to shareholders. So that is an equation that we manage each and every year.
I think this year is, for the most part, no different, with the exception that there is a very, very strong bid for the most talented people across various pieces of our business.
Okay, so let's talk a little bit about capital. It feels like we've been talking about the Basel III endgame for at least two years, maybe even longer. What is your expectation around whether that's going to be finalized? Is it something you think should be finalized? And look, given that uncertainty around capital requirements for the industry is likely to persist at least into 2025, how are you thinking about managing the capital base for the firm, just given that uncertainty around what the requirements ultimately are going to be?
It certainly does feel like we've been talking about it for a long time because we have been talking about it for a long time. I think the important thing is that we need to get it right. The regulators themselves, as recently as last week, continue to say that we have sufficient levels of capital, certainly in the largest banks in the U.S. banking system. That's certainly our perspective. There was a revised rule put out in the summer that obviously was headed in the right direction, but we do not think went far enough. So I think more progress is needed there, and the other important thing is it's not just Basel III. It's the stress testing regime, CCAR. It's G-SIB. It's leverage ratios.
There is a full suite of capital regulations, all of which need to be appropriately assessed and calibrated so we can get the U.S. banking system and the U.S. economy in the right position. And it remains to be seen exactly how the constellation of regulators are going to come together and address that. But it's certainly something that remains very top of mind for us. We have been advocating significantly and on a sustained basis together with other industry participants to get that to the right place where we have better levels of transparency, better levels of accountability, and a better aggregate level of capital for the system. And so I don't know exactly where that's going to end up, but I think we have room to get to a better place, and we will get to a better place.
As it relates to our own capital management, as we go through this period of uncertainty, we've been living through a period of uncertainty. We will continue to be in a period of uncertainty. Our philosophy will be unchanged. We will continue, first and foremost, to deploy our capital into accretive client opportunities. And based on the backdrop that I articulated that we see heading into 2025, we should have very attractive opportunities to deploy the capital that we generate into our client franchise in support of those types of activities, which are our bread and butter. So the first component, I think, is a ripe and attractive opportunity set for us. The second component, sustainably growing our dividend. We remain committed to that. That is the second component of it. And then last but not least, we will return excess capital to shareholders, as people have seen.
We've been managing our excess capital in a reasonably consistent fashion, making sure that we have the capacity to lean in and to support client activity when it comes, as well as run an overall prudent level of buffer. But I think, for the philosophy, unchanged, for the opportunity set, first category should be more attractive.
So we've got a couple of minutes left. So let me ask two other questions. The market clearly has got a very, very positive view on the outlook for next year. From a risk perspective, do you think the market's missing anything? What's top of mind for you today? And are there risks that you're focusing on more acutely today than perhaps three or six months ago?
I mean, there's always a panoply of risks. I could spend the entire remarks listing out the risks that we focus on. If you were just to couch it in top of mind, and we just take the last week, we have multiple governments being overthrown or threatened to be overthrown in Korea, in France, in Syria. That's like the last week. So to say that there is geopolitical instability in the world would be a gross understatement. To say that the market appears to be fully pricing all of those risks would be not correct, in my view.
So there remain a lot of uncertainties and risks in the world, all of which have secondary and tertiary follow-on impacts, things that we spend a lot of time thinking about, running scenarios, running stress testing, trying to understand how those types of activities could intersect negatively with our activities, our clients, economies writ large. But there is a robust area of geopolitical risk to sink your teeth into and think about. So that is definitely top of mind. And then another area that's top of mind, which everyone knows about, but it really is top of mind, is cybersecurity. The breadth of cyber risk in the world is also very elevated. We have significant capabilities at Goldman Sachs. We assess our vulnerabilities. We make investments. We think we have an excellent team that works extremely hard to keep the firm safe.
But we and other big companies around the world, we have exposures. We have risks. There are plenty of bad actors out there that are looking to deploy cyber technology to their own advantage. The good news is this is an area where the collaboration between the private sector and the U.S. government in particular is absolutely excellent. It is very, very synced up, very coordinated. And I think it's mutually beneficial. But I'd be remiss if I didn't mention that as a sort of constant top risk that's on my mind.
Okay. So to wrap up, maybe you can conclude with the key messages you want investors to take away. And then I'm also curious, you spend a lot of time talking to investors. What do you think is the most underappreciated part of the investment case for Goldman Sachs stock today, given where it's trading?
Sure. So maybe I'll wrap up again, thanking everyone for their time and their attention. We have been, for those of you following us closely over a number of years, on a strategic journey of repositioning our portfolio of activities inside of the firm. That has been against an evolving backdrop. We feel like we're now in a position where we have the full focus of the firm on our two leading businesses that have leading market shares in each and every subsegment in which they compete. And that collection of businesses should be levered to elevated levels of activity, which is our view as a firm for the 2025 forward.
So while we have been making progress towards our medium-term return targets and taking the necessary steps one at a time to improve the overall profile, we believe as we look forward to 2025, there will be an opportunity for incremental growth against those targets as we see bigger and better contribution from some of our most consequential businesses. I think in terms of the piece of the puzzle that writ large investors spend more time understanding, it would be inside of the Asset and Wealth Management business. I think the Global Banking and Markets business is well understood in its leadership positions. I think the quality of our wealth business and the opportunity to grow that business, the scale of our asset management business, both in the public and private arena, positions us very well as a leader in that space.
I think that our ability to execute, quality of our culture, our people, our teamwork, and our fabric to focus in on executing against two big businesses where Goldman Sachs has long-standing DNA and excellence gives me an enormous amount of confidence about our ability to continue to improve the firm heading into 2025.
Okay. With that, thank you for joining us. Hopefully, see you next year. Thank you.
Thank you, Richard. Thank you.