Goldman Adds Deutsche Bank’s Stable Value Asset Management Unit

September 30th, 2013 by Trefis Team
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Goldman Sachs (NYSE:GS) is acquiring Deutsche Bank’s (NYSE:DB) stable value business in what comes as the latest move by the investment banking giant to grow its asset management business. [1] The deal will add $21.6 billion in assets under supervision to the $34 billion in existing assets for Goldman’s stable value unit housed under the Goldman Sachs Asset Management (GSAM) division.

The move is yet another step by Goldman Sachs to boost the share of less volatile revenue streams in its business model amid increasing regulatory pressure to downsize its riskier trading operations. On the other hand, Deutsche Bank would only be happy to get the unit off its hands as it reorganizes itself by getting rid of non-core and less profitable operations with an eye on improving its capital structure.

See the full Trefis analysis for Goldman Sachs | Deutsche Bank

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Stable value funds are setup with the objective of ensuring that the invested capital remains protected over the investment horizon. These funds only invest in high-rated bonds and mitigate sector-specific and interest rate risks by holding a diversified portfolio of bonds and by entering into hedging arrangements with banks and insurers. As a capital preservation investment option, stable value funds form a major component of retirement savings plans.

Goldman Sachs is a prominent manager of stable value funds with roughly $34 billion in assets under supervision for its stable value business. The announced acquisition from Deutsche Bank is the second major deal by Goldman on this front, following its acquisition of the stable value asset manager Dwight Asset Management early last year. [2] The stable value business in itself is a part of Goldman’s defined contribution (DC) arm which manages no less than $55 billion in mandates.

While Goldman Sachs and Deutsche Bank remain tight-lipped about the price at which the unit traded hands, you can get a rough idea of the figure using the chart below from our analysis of Deutsche Bank. A reduction in the size of assets handled by Deutsche Bank’s asset management business by $21.6 billion results in a loss of just over $100 million in value for the German banking giant. As the stable value business is non-volatile and does not have much risks associated with it, Goldman would most likely have acquired the unit at around this figure due to the limited scope for a discount or premium to this estimated value.

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Notes:
  1. Goldman Sachs Asset Management To Acquire Stable Value Business From Deutsche Asset & Wealth Management, GSAM Press Releases, Sept 25 2013 [↩]
  2. Goldman Sachs Asset Management Acquires Dwight Asset Management From Old Mutual Asset Management, GSAM Press Releases, May 15 2012 [↩]