GOLDMAN SACHS MARCHES TO OWN BEAT: IPO OR NO, THIS FIRM WON’T JUST FOLLOW HERD IN THE RACE TO ASSETS

Despite Goldman Sachs Group LP’s plan to go public this fall, don’t expect the nation’s preeminent investment bank to get caught up in the feeding frenzy over asset managers.

In its 129 years, the white-shoe firm has always trod its own path. Though its $42 billion of retail mutual fund assets and $29 billion in pension assets pale in comparison to what competitors manage, it’s thirst for assets isn’t enough to compel a blockbuster deal any time soon.

Indeed, the firm expects to raise only $2.5 billion this fall in its initial public offering, a 10% to 15% stake for investors. It might buy a few small firms, but given the prices for mutual fund companies, Goldman partners are unlikely to be on the prowl for giants like Fidelity Investments, Vanguard Group or Capital Research & Management.

“The nice thing about Goldman is they do their own thing,” says David Ellison, manager of Richmond, Va.-based Friedman Billings Ramsey’s FBR SmallCap Financial Fund. “Now that they’re becoming public, everyone’s saying they have to act like someone else — buy an asset manager because that’s what’s hot.”

Still, large investment banks have not shied from paying big bucks for money managers. Morgan Stanley Dean Witter & Co. acquired Van Kampen American Capital for $1.17 billion — and that was nearly two years ago. And Merrill Lynch & Co. spent $5.3 billion on Mercury Asset Management Co., a huge London-based institutional manager, to beef up that business and gain more products for its retail customers. J.P. Morgan also bought a 45% stake in American Century for $900 million. And executives at Travelers Group Inc. have publicly acknowledged it’s on the prowl for a mutual fund family.

Despite Goldman’s desire to go public, it remains guarded about its asset management strategy: requests for interviews with executives were declined — but its rapid growth hasn’t gone unnoticed.

A recent report by Financial Research Corp., which monitors mutual fund sales, calls Goldman Sachs Asset Management “a powerhouse in the making.”

Stock fund assets have grown 38% so far this year, compared to the industry’s 17% rate. Much of the growth has come from sales through financial advisers at regional securities firms like St. Louis-based Edward D. Jones & Co., the largest distributor of Goldman products.

stock money pouring in

Whereas three-quarters of Goldman’s mutual fund assets are still in low-yielding money market portfolios, most of the growth has been in stock funds — net equity inflows have risen about 138% since 1996 to $7.5 billion.

“They have the resources in terms of the capital, the talent on the marketing and management side, and they have the Goldman name,” says Thomas B. Tyson, a senior analyst at FRC.

Over the past two years, Goldman has quietly built a team of industry veterans to lead the charge. It is headed by Goldman Sachs Funds President Douglas Grip and includes Glen Casey, vice president of strategic planning, and sales executives from Fidelity Investments and OppenheimerFunds Inc.

Mr. Grip had been president of Massachusetts Financial Services Inc., a Boston mutual fund company, before joining Goldman in 1996. Mr. Casey, who followed shortly, was a mutual fund consultant at Boston-based Cerulli Associates Inc.

In addition, Goldman has quadrupled its sales staff — commonly referred to as “wholesalers” — to more than 20 over the past 18 months while beefing up support services for brokers. Goldman provides asset allocation models and access to a limited amount of the firm’s research, according to FRC.

Finally, Goldman boasts a roster of 22 long-term funds, which include two launched last month: an international small company fund and a Japan fund.

returns buoy sales

Sales have likely been bolstered by performance, too. Four of six core-equity funds finished in the top quarter of their peer groups, according to data from Lipper Analytical Services Inc. And Goldman ranked 13th in Barron’s 1997 performance ranking.

Goldman’s low profile belies its marketing strength. Few realize, for instance, that it owns the largest mutual fund company in Japan, with $10 billion in assets, an executive points out.

But the funds back home are growing so fast that “I don’t know what an acquisition would do” for the company, the executive says.

Resisting a retail mutual fund transaction mainly reflects the firm’s culture of catering to the rich, figures analyst Dean Eberling in the New York office of Putnam Lovell Thornton & de Guardiola. “To do a big retail transaction,” he says, “is something partners would balk at.”