Folks were greeted earlier this week to a Goldman Sachs banker's op-ed piece published in the New York Times. While there are many kamikaze-like departures where an employee will suddenly hit his former company with a scathing critique of their business practice, this one was different. It came from Goldman Sachs, a firm with an almost cult-like atmosphere amongst its employees. An aura where the pride is just as strong being called alumni, as it would be to be called an employee. Secondly, the social media dimension was unique. It hit my Facebook Newsfeed and Twitter from sources not in the habit of posting happenings in the financial industry.
The focal point of the piece was that Goldman Sachs does not care about their clients but making as much money as possible for themselves. Honestly, this was hardly a revelation to many folks following the firm. He goes on to say that the firm is damned, if it does not start to do so. I am not entirely certain of that. As long as Goldman Sachs plays the role as market maker and continues to be on the forefront of financial innovation, there will be institutional investors clamouring to invest in their products. As long as Goldman Sachs plays the role they do in the financial markets...As long as it is their game, the clients will be there. People like to liken the financial markets to a casino. Well, croupiers and casino management do not have their patrons best interest at heart. Their priority is to make money. And the best of people clamour into the casinos despite the odds of winning constantly being against them. They love the game, and it's the best place to play.
As an institutional investor, if you want to "play," your interests not being a priority is a sacrifice you will have to make. Goldman Sachs is a leader in financial innovation. For example, Jim O'Neill, chief economist of Goldman Sachs Asset Management, came up with BRICs as we know it today. He pegged Brazil, Russia, India and China as the emerging markets of the future and Goldman Sachs created investment products that combined the markets of those four countries. Today, the BRICs as an investment is a portfolio decision that needs to be made by all investors. However, a decade ago, the Goldman Sachs clients that had been around then would have been the first to invest in this asset class and could have been paid off handsomely for it. Would a client take their business elsewhere with the risk of taking away such a potential edge? I think not.
Am I defending Goldman Sachs? Hardly. But, Greg Smith's Jerry Maguire moment was directed at the plight of institutional investors. The money managers of sovereign wealth funds, hedge funds and pensions have been educated and attuned to the contradictions of the industry they work in. Relatively speaking, they have it better than retail investors...the average joes of the world, who are not as qualified. Perhaps we should start there.
All that being said, my hat goes out to him for putting himself out there.