Goldman Sachs CFO Stephen Scherr Recaps the Firm’s First-Ever Investor Day

Episode Summary

Executive Summary: The episode pairs a Goldman Sachs markets update with CFO Stephen Scherr’s reflection on the firm’s first-ever Investor Day. The discussion highlights Goldman’s push for greater transparency, a new three-year business model, segment reorganization, and an ambition to lift returns through growth in core businesses, newer consumer franchises, and a more deliberate embrace of the bank model.

Main Topics: Markets outlook: EM flows, PMIs, volatility, and geopolitical risk: Jen Roth outlines the most important market variables she is tracking, including emerging-market fund inflows, soft-growth indicators like PMIs, unusually low currency volatility, the Iowa caucuses, and coronavirus uncertainty. Goldman’s first Investor Day and increased transparency: Scherr explains that the event was designed to open up the firm, show its strategy and capabilities, and give investors a deeper understanding of Goldman’s businesses, people, and technology. Three-year model and return targets: The firm used a new three-year planning framework to set enterprise-level goals, including a minimum 13% ROE and mid-teens long-term returns, balancing ambition with conservatism. Business mix: core franchises, new consumer businesses, and asset management: Scherr argues that Goldman’s investment bank and markets businesses remain strong, while asset management and consumer/wealth platforms are larger and more promising than many investors realized. Embracing the bank model: Goldman aims to benefit from lower-cost, more diversified funding and a digital-first bank strategy without trying to imitate larger retail banks or build branches. Resegmentation and market reaction: The new reporting structure was presented as a clearer blueprint for the firm’s future, and Scherr says investor reaction was better than expected. Leadership, culture, and Scherr’s path to CFO: Scherr describes the new leadership team’s collaboration, the cultural shifts under David Solomon, and his own winding 27-year Goldman career.

Key Arguments: Emerging-market fund inflows are a key barometer of risk appetite, and Goldman is watching whether 2020 can match 2019’s strength despite less support from core rates. Global PMIs are useful sentiment gauges, but hard data like export data and current activity indices matter more for assessing growth. Currency volatility is unusually low despite multiple risks, suggesting systematic vol selling and the belief that developed-market central banks will remain on the sidelines. Goldman’s Investor Day made the firm more transparent and, in investors’ eyes, more investable by clarifying strategy, targets, and business quality. The 13% medium-term ROE target is intentionally achievable rather than extreme; the firm wants to exceed it over time. New consumer and lending businesses are temporarily dilutive because reserves must be built during growth phases, masking underlying economics. Goldman’s asset management business is materially larger and stronger than many investors had appreciated, and it can drive more third-party fee income. The firm is not trying to become JPMorgan or Citi; it is embracing the bank model on its own terms, mainly to secure better funding and lower costs. A recession would alter outcomes, but Goldman’s planning assumes a range of macro conditions and includes a risk-management playbook for downturns. The leadership transition has been smooth because the CEO, president/COO, and CFO have long-standing working relationships and complementary roles.

Data Points: Emerging-market fund inflows in 2019: $33 billion - Jen Roth says this is the benchmark she is watching to see if it can be repeated in 2020. Emerging-market fund inflows in 2020 so far: $8 billion - Roth cites this as evidence of a strong start to the year. Global PMIs: Above 50 on average - Used to indicate expansionary territory, though Roth says they are more sentiment than hard data. One-year euro volatility: Below 5 - Roth says euro-dollar volatility is at all-time lows despite multiple macro and geopolitical uncertainties. Iowa caucuses timing: 3 days away - Roth references the caucuses as a market-relevant political event. Potential New Hampshire boost from Iowa win: 5 to 10 points - Roth says the Iowa winner likely gets a meaningful momentum boost. Dollar-yen gap risk pricing for Iowa: 30 basis points - Roth says the market is pricing very little event risk around the caucuses. Confirmed coronavirus cases: Not specified - Roth says she is watching the number closely because of its potential growth and economic impact. Investor Day attendance: 4 or 500 people - Scherr says the firm literally opened its doors to external attendees at headquarters. Three-year model horizon: 3 years - Used as the medium-term planning period for targets and capital allocation. Enterprise ROE target: Minimum 13% - A medium-term return objective set at Investor Day. Enterprise ROTE target: 14% - Referenced alongside ROE as part of the target framework. Longer-term return goal: At least mid-teens - Scherr says the firm expects stronger returns over a longer horizon. Goldman asset management assets: Grown from $900 billion to over $2 trillion - Scherr cites this as evidence the business is larger than investors realized. Goldman workforce: 40,000 people - Used to describe the internal audience affected by Investor Day and the broader obligation to execute. Scherr tenure at Goldman: Almost 27 years - He describes his long, winding career path at the firm. Lending-business reserve buildup: Hits bottom line up front - Scherr explains that reserve building suppresses reported profitability during growth phases. Sustainability financing target: $750 billion - Mentioned as one of David Solomon’s major new initiatives.

Pivotal Quotes: "the firm rendered itself more investable on the back of the investor day" — Investor feedback relayed by Stephen Scherr: Scherr cites this as the most profound feedback he received after the event. "we literally opened the firm" — Stephen Scherr: He describes the first-ever Investor Day as a symbolic and practical opening of Goldman to outsiders. "the work begins now" — Stephen Scherr: Scherr emphasizes that execution, not celebration, is the real challenge after Investor Day.

Implications: Goldman is signaling a more transparent, growth-oriented era with clearer targets and a broader business mix. For investors, the key test is execution: delivering returns, scaling newer businesses, and proving the bank model can lift long-term profitability.