📚 AI In The Front Office, Front Office Bonuses 2024, Goldmans Unique Growth Strategy

Hey!

This morning I read the following articles and found them interesting. I thought you might like them too (scroll down for key takeaways and summaries).

1. AI Has Moved from the Back Office to the Front Office

2. Goldmans Explores Unique Private Bank Growth Strategy

3. The Feminisation of Wealth Management is Coming

4. The Bankers’ Investment Banking Awards 2024

5. How to Get a Job in Asset Management

6. Blackstone Wants In On Beyoncé and Bieber’s Music Rights

7. McKinsey Global Private Markets Review 2024

Scroll all the way to the bottom to:

1. See the 3 ways I can help you.

2. Submit 1-click feedback.

THIS MORNING’S TOP 3 READS

AI Has Moved from the Back Office to the Front Office - Asset managers are increasingly using generative artificial intelligence to guide financial choices. As such, the AI arms war in asset management is shifting from compliance and marketing (support roles: back office) towards helping advisers make smarter decisions (revenue generating roles: front office). Here are 5 key takeaways from the article:

1. AI Integration in Asset Management: Asset managers are increasingly incorporating artificial intelligence to enhance investment decisions, monitor portfolio manager habits, and identify lucrative opportunities. AI is transitioning from compliance and marketing tasks to directly aiding investment professionals.

2. JPMorgan's "Moneyball" Tool: JPMorgan plans to expand its generative AI tool, "Moneyball," later this year. This tool helps portfolio managers by flagging questionable decisions, correcting biases, and improving decision-making processes. It leverages decades of data from JPMorgan’s Spectrum portfolio management platform.

3. Voya Investment Management's Virtual Analyst: Voya has implemented a virtual analyst to monitor stocks for potential risks. This AI complements human analysts by providing feedback and red flags on securities. The AI's decisions have proven to be high-value signals, enhancing the decision-making process.

4. Legalist's "Truffle Sniffer" for Litigation Finance: Legalist uses an AI tool called "Truffle Sniffer" to find promising investment opportunities in litigation finance. This tool scans court records to identify cases with favourable outcomes, such as those with favourable judges or strong pre-trial rulings.

5. AI Skepticism in Long-Term Returns: Despite the advancements, some remain skeptical about AI's potential to drive long-term returns in asset management. Critics argue that most AI efforts focus on short-term gains rather than accurately predicting long-term earnings potential, which remains a complex task.

Goldman Sachs Explores Unique Private Bank Growth Strategy - Goldman Sachs wants to incentivise it’s traders and bankers to send potential clients to it’s wealth management arm in exchange for a referral fee based on successful client referrals. Kind of like the referral fee you get for successfully referring a friend to a role at the company you work at. This all makes sense given the traders and bankers will have existing clients who could also use the services of Goldman’s wealth management business. Here are 4 key takeaways from the article:

1. Fixed Formula for Bonuses: Unlike the current discretionary bonus system, Goldman is developing a plan to use a set formula to calculate bonuses for referrals. This proposal is controversial, as some employees believe additional incentives should not be necessary for collaboration between divisions.

2. "OneGS" Program: CEO David Solomon's "OneGS" program seeks to enhance collaboration across Goldman’s traditionally siloed business units. The goal is to improve client relationships and streamline operations by clarifying bonus calculations for collaborative efforts. Right now the firm, like all global investment banks, has multiple divisions and business units operating as individual entities. There are definitely benefits of a ‘OneGS’, but achieving so is a lot easier said than done.

3. Comparison with UBS: UBS has considered a similar referral incentive structure but ultimately decided against it, citing complexity and the belief that investment bankers did not need additional bonuses. This highlights the challenges and differing opinions within the industry regarding referral incentives.

4. Focus on Ultra-High Net Worth Clients: Goldman has shifted its wealth management focus to ultra-high net worth clients, requiring a minimum of $10 million to open a private bank account. This strategy is part of Solomon’s broader effort to build a more stable, less volatile business model by increasing assets under supervision, which currently stand at approximately $2.85 trillion.

The Feminisation of Wealth Management is Coming - Sallie L. Krawcheck is the former head of Bank of America's Global Wealth and Investment Management division and is currently the CEO and co-founder of Ellevest, a digital financial advisor for women launched in 2016. She has been called "the most powerful woman on Wall Street” and argues that given the industry is mostly run by men, the passing of this boomer generation will see a transfer of wealth in the tens of trillions of dollars changing hands. Here are 5 key takeaways from the article:

1. Current State of Wealth Management: The wealth management industry is perceived as healthy and stable, delivering predictable earnings that are attractive to Wall Street, unlike the more volatile and capital-intensive trading and investment banking sectors.

2. Growth and Demographic Challenges: Much of the industry's growth has been driven by capital market performance rather than organic growth, with 70% of asset growth between 2012 and 2021 attributed to market appreciation. Additionally, the industry faces demographic challenges, with an ageing workforce and a lack of diversity.

3. Upcoming Wealth Transfer: A significant shift in wealth ownership is anticipated as the ageing baby boomer generation passes away, resulting in tens of trillions of dollars changing hands. This wealth transfer will initially benefit women, given their greater longevity.

4. Need for Strategic Shifts: Wealth management firms must adapt their strategies to better engage with female clients, who often feel overlooked and disconnected from their financial advisers. Women seek more financial planning, goal-based investing, and alignment with environmental, social, and governance (ESG) policies.

5. Potential Societal Impact: Successfully addressing these shifts can lead to broader societal benefits, as women with wealth tend to be more philanthropic, invest more in their families and communities, and support moderate political candidates and climate change initiatives. The industry must recognise and prepare for this inflection point to avoid significant repercussions.

Notable Mentions

The Bankers’ Investment Banking Awards 2024 - Worth taking a look at if you want to know which investment banks are doing well across regions and products. Always useful information to know ahead of going into interviews, networking events, meetings, etc.

How to Get a Job in Asset Management - This efinancialcareers article is quite lengthy but a worthwhile read for those of you keen on breaking into the world of asset management. A good breakdown of most of the things you need to be aware of including roles, investment styles, salaries and preferred qualifications.

Blackstone Wants In On Beyoncé and Bieber’s Music Rights - Hipgnosis is a music management company responsible for the management of over 150 of the most successful and culturally relevant song catalogues in the world including artists like Beyoncé and Justin Bieber. But the company ran into problems recently due to rising interest rates which also impacted the valuation of its songs. As such, Blackstone see this as a strong potential investment opportunity and have offered to takeover the company for $1.6bn.

McKinsey Global Private Markets Review 2024 - According to McKinsey’s latest Global Private Markets Review, private markets entered a slower era in 2023, with macroeconomic headwinds (challenges), rising financing costs and an uncertain growth outlook weighing on fundraising, deal activity and performance.

Front Office Banking Bonuses 2024 Update - 2023 wasn't a great year for banking bonuses. 2024 may not be all that much better - unless you have the good fortune to work in areas like debt and equity capital markets, where revenues per head are surging.

Hit reply to let me know if you enjoyed today’s newsletter (or scroll down to the blue box below and vote in the poll). Much appreciated!

Afzal

Whenever you’re ready, there are 3 ways I can help you:

1. Summer Internship Career Accelerator: I’m looking to help 100 summer interns convert their internships into full-time roles. Click here to register your interest.

2. Career Guides: Break into the industry 10X faster using my in-depth finance and banking Career Guides. You’ll also get my Goldman Sachs CV and Cover Letter for free with Plus or Premium.

3. Promote yourself to 5,500+ subscribers by sponsoring my newsletter.

BEFORE YOU LEAVE