BY KEVIN OLSEN AND DOUGLAS APPELL
PUBLISHED: MARCH 16, 2012
Article from Pension and Investment
Goldman Sachs Asset Management shouldn't see a major fallout from a scathing op-ed piece in the New York Times earlier this week by Greg Smith, former executive at parent Goldman Sachs, industry sources said.
Mr. Smith, who resigned this week as Goldman executive director and head of U.S. equity derivatives in Europe, the Middle East and Africa, wrote in his op-ed Wednesday that the environment at the firm now “is as toxic and destructive as I have ever seen.”
“Over the last 12 months I have seen five different managing directors refer to their own clients as ‘muppets,' sometimes over internal e-mail,” Mr. Smith wrote. “Goldman Sachs today has become too much about shortcuts and not enough about achievement. It just doesn't feel right to me anymore.”
One fund executive overseeing more than $1 billion in assets, who declined to be named, said if a GSAM client were looking for an excuse to fire the firm, this example of headline risk could provide one. But he predicted no major fallout, noting that the “scandal” touches on questions of moral fiber and character, rather than any directly attributable losses for clients.
However, James Wilbanks, executive director of the $10 billion Oklahoma Teachers' Retirement System, Oklahoma City, said the op-ed piece furthers the pension fund's belief that conflict can occur when hiring a manager that is owned by a bank.
“I would say we have certain biases when hiring investment managers,” Mr. Wilbanks said in a telephone interview. “We have a bias against asset managers owned by banks and insurance companies. Those asset managers can forget who they work for. They can be working for the bank instead of the clients, which is me.”
Oklahoma Teachers terminated GSAM earlier this year from a $480 million domestic large-cap growth mandate because of personnel changes; it does not have contracts with any money managers that are owned by banks in its active investment portfolio now.
“We've always been very, very keen on culture for our due diligence process,” Mr. Wilbanks said. “We are very cognizant of the qualitative issues.”
Nothing in that article would surprise anybody who has read “Liar's Poker,” Michael Lewis' book about his experiences at Salomon Brothers 20 years ago, noted Erik Knutzen, chief investment officer at consultant NEPC. The “headline” impact may give momentary pause to plan sponsors, but it merely serves as a reminder of the importance of assessing the pros and cons of working with a Wall Street-based money management firm, he said.
In the op-ed, Mr. Smith calls out Goldman Sachs CEO Lloyd C. Blankfein and President Gary D. Cohn for losing hold of the firm's culture under their watch. Messrs. Blankfein and Cohn responded in a statement posted on Goldman's website defending the services the firm provides and cites an intraoffice survey that shows 89% of employees said the “firm provides exceptional service to (its clients).” It says a similar percentage resulted from the responses from nearly 12,000 vice presidents, a group that included Mr. Smith.
“Needless to say, we were disappointed to read the assertions made by this individual that do not reflect our values, our culture and how the vast majority of people at Goldman Sachs think about the firm and the work it does on behalf of our clients,” Messrs. Blankfein and Cohn stated in a news release posted on Goldman's website.
Morgan Stanley CEO James Gorman said he told his staff not to circulate the op-ed criticizing Goldman Sachs' environment and that he does not understand why the New York Times would publish the piece with Mr. Smith attacking the top managers and treatment of clients, according to information from Bloomberg News.
“There but for the grace of God go us,” Mr. Gorman said.
— Contact Kevin Olsen at kolsen@pionline.com and Douglas Appell at dappell@pionline.com
Article from Pension and Investment
