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In a world of understanding client needs and providing bespoke solutions (as every banker claims they do now, ad nauseam), Goldman had a head start. It was never a bank that relied on faxing term sheets to clients in the hope they might execute a trade. Goldman, the event bank, went bespoke long before other banks cut their cloth in the same way.
From there, the business has grown to become one of the most important in the firm. It’s sensitive stuff, and not an area that Goldman bankers are yet entirely comfortable sharing with the outside world. It’s also more of a priority than ever before for its clients.
“Risk management now features more highly on the agendas of top corporate executives,” says Steve Windsor, partner and managing director at Goldman. “We’re not just there to help our clients with risks around events; we’re there as a long-term risk adviser.” This long-term advisory role extends to other sectors: for example, Goldman has a team dedicated to advising pension fund trustees on managing risks.
Goldman has never been accused of not being smart. But part of its business intelligence is to break down internal barriers that other banks can’t or won’t. For example, while other banks might split their structuring teams between FICC and equities, Goldman has one group across them. It has also moved people from its primary markets team into its structuring division. This, it says, helps the bank to focus more on the solution to a client’s needs than the underlying problem; and it creates a team that knows how to distribute risk, making its offering to clients not just possible, but also more competitive.
That spreading of risk is important – the sector is increasingly adopting an originate-to-distribute model. One area where this has become particularly prevalent is in swaps. Goldman has taken the lead on bifurcating market and credit risk in large swap transactions in a three-step process: it executes the market risk in a confidential manner with one bank that has best pricing and execution skills; then auctions the credit risk to the cheapest providers of credit lines, subject to corporate counterparty limits; and then assigns the swap to counterparties offering best price.
“Clients want us to hold some of the risk. But they also want to have that risk diversified and the appropriate risks held by the appropriate holders, as that helps them achieve the best all-in final price,” says Gudrun Wolff, managing director in the investment banking division.
Goldman has also pioneered synthetic cross-currency basis swaps, which allow clients to source liquidity without having to consume all the bank credit capacity by eliminating clients’ exposure to credit and capital intensive resettable cross-currency swaps in the interbank market.
| We’re not just there to help our clients with risks around events; we’re there as a long-term risk adviser|
Goldman can run off a long list of deals it has done for its clients: the financial institution for which it structured a synthetic securitization transaction to achieve efficient capital relief of its corporate loan portfolio; the market access guarantee to a European utility that was concerned about liquidity; or the hedging for a European high-yield issuer that needed to swap euros for Swiss francs in the aftermath of the SNB floor removal.
But it would be wrong to think that Goldman relied purely on event-driven risk solutions. Far from it. Take deal-contingent currency hedges, a common product now for companies looking at cross-border M&A deals, or issuing bonds denominated in foreign currencies. Goldman is good at this, and it involves running a high-risk book – but not just for its advisory clients. Although it’s by no means anyone’s idea of being one of the top five FX banks globally by volume, about half of its event-contingent FX trades are for clients where it does not have the advisory mandate.
All investment banks are looking at how they can use big data to improve their businesses. It should be no surprise that Goldman is at the forefront of thinking and doing on this. “Our job is to disrupt ourselves,” says Francois Mauran, a managing director in the securities division whose role is exactly that.
One of the areas where Mauran and his colleagues at Goldman have looked at the wealth of data within the investment bank is debt issuance.
Goldman analysed more than 2,000 US dollar transactions on which it was lead manager, with the aim to examine the elements that go to create a successful bookbuilding process; and most importantly of all, to ascertain if there was a secret sauce that helped build momentum in a book. That helps clients to de-risk issuance. The results have been shared with a number of clients.
Goldman is also giving clients more digital content and online risk management tools. Through its Marquee platform, it provides clients with a number of state-of-the art apps that help clients monitor trade performance, perform risk/correlation analysis and proactively monitor their portfolios for restructuring opportunities.