In an effort to downsize its non-profitable units, The Goldman Sachs Group, Inc. (GS) announced its intention to quit the South Korean asset-management division. The U.S. banking giant took this decision after incurring loss from this division for roughly five years.
The unit is expected to be closed by next six months. Goldman will consider offers from other asset managers to take over some of the seven funds managed by this division.
Goldman’s foray into the South Korean market dates back to 2007, when the company acquired a joint venture between Macquarie and IMM Asset Management for a sum of Won160 billion ($147 million).
The South Korean asset-management division presently has 40 employees. While the fate of majority of the staff still hangs in the balance, the company spokesperson stated that some will be offered positions in Singapore and others in Korea.
Despite possessing a flourishing investment banking business in South Korea, Goldman did not achieve a strong foothold in the asset management market of the country. The primary reason behind this is the huge competition on fees and the dominance of the local peers.
Further, most of the overseas players struggle to combat the local asset managers in South Korea, owing to their strategy of relying more on the off-shore products rather than local equity funds.
Management at Goldman Sachs Asset Management division felt that the local Korean asset management business has not lived up to its expectations. However, Goldman will continue to invest in South Korea through its overseas funds management division.
Other than Goldman, asset management divisions of Deutsche Bank AG (DB) and BlackRock, Inc. (BLK) are also struggling in the competitive South Korean market.
With Goldman enduring crisis since the financial meltdown, the overhauling measures are aimed at developing its core businesses and downsizing the troubled units. Further, lower returns and stringent regulatory challenges proved to be headwinds. The company has been trimming down the less-profitable units over the past year and aims to refocus on building its wealth management division to meet such challenges.
Goldman currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. Further, we believe that prudent rightsizing of businesses can lead to improved efficiency and reinforce its competitive edge, leading to upward estimate revisions. These factors may lead to an improvement in its Zacks Rank.
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