Inside Goldman’s New Private-Public Model Portfolios

Public or private? Goldman Sachs just couldn’t decide. 

The storied Wall Street bank is following in the footsteps of other prominent asset managers by launching new model portfolios that package private investments alongside traditional mutual funds, ETFs, and equity SMAs, according to a statement. Through a partnership with GeoWealth and the alts platform iCapital, the models can be custom-designed by the advisory firms themselves, allowing CIOs to adjust their investments to suit their advisors and end clients. 

The new products are addressing demands from clients looking to tap into a private investment marketplace that’s traditionally been the playground of the world’s wealthiest investors. “The recent surge in public-private investment platforms isn’t just industry hype,” said Will Trout, Datos Insights’ director of securities and investments.

Shiny and New

Goldman isn’t the first major financial institution (or likely the last) to launch public-private investments. In recent months, BlackRock, Blackstone, State Street, and Vanguard have announced similar offerings that come with more complex fund structures and fees, but offer the promise of higher returns. “Obviously an important aspect of this offering is customization, but more generally, I see this initiative as part of a broader industry trend toward integrated public-private portfolios,” Trout said. 

While the strategies open up new doors to advisors, it’s not all hunky-dory and there are significant hurdles to overcome. Firstly, some advisors wonder about the risk tolerances of their clients and whether the products are in their best interest. They also must navigate higher fees, and overcome operational complexities. “Private investments aren’t suitable for every client, inherently limiting their addressable market,” Trout said, noting a handful of other issues:

• Liquidity. Private investments typically involve longer lockup periods, meaning the products are better suited for clients with longer time horizons.
• Goals. The allocations should be tied to specific client goals, like retirement funding or legacy planning, not chosen just because they’re new and shiny.
• Education Gap. Advisors should get up to speed on the products before recommending them.

“What advisors are really asking for is help integrating private assets efficiently into public portfolios,” said Greg Weiss, head of Goldmans’ wealth customized solutions, adding that private equity has outperformed public markets by 3.2% over the past 15 years.

Back to Black. Through a partnership with the massive turnkey asset management platform Envestnet, BlackRock launched similar models last month that use public-markets ETFs, SMAs and mutual funds, and will offer private markets and other alternative exposures in the near future. “For forward-thinking RIAs, these platforms represent both a value proposition enhancement and business growth opportunity by providing sophisticated options that might otherwise drive clients to larger firms,” Trout said.