Goldman Sachs Group Inc (GS) — Q4 2024 Earnings Call Transcript

Thank you, operator, and good morning, everyone. Thank you all for joining us. Before I start my prepared remarks, I'd like to take a moment to touch on the devastating fires that have spread across Los Angeles. Our thoughts are with the people of LA, including our colleagues and clients. We join everyone else in thanking the brave firefighters and first responders working tirelessly to protect that community. Now let me turn to our results. I'm very pleased with our strong performance as we continue to serve our clients in a dynamic environment. In the fourth quarter, we generated revenues of $13.9 billion, earnings per share of $11.95, and a return on equity of 14.6% and a return on tangible equity of 15.5%. For the full year, we increased our revenues by 16% to $53.5 billion. We grew our EPS by 77% to $40.54 and improved our ROE by over 500 basis points to 12.7%, demonstrating strong operating leverage. Before we review our financials in detail, I will start today's presentation with a strategic update. Beginning on Page 1, we have a clear purpose at Goldman Sachs. We aspire to be the world's most exceptional financial institution, united by our shared values of client service, partnership, integrity, and excellence. These values are the foundation of our strategy and enable us to deliver for our clients and our shareholders. As shown on Page 2, our interconnected client franchises are at the core of our growth strategy. Our Global Banking and Markets business is distinguished by its scale, profitability, and leadership positions. In Investment banking, we once again ended the year as the number one M&A advisor. In markets, we have the number one equities business and a leading fixed income franchise. These leadership positions have been built over decades of investment, and they reflect the confidence and trust that our clients have in us. Our Asset and Wealth Management business is comprised of a leading global active asset manager, a top five alternatives franchise, and a premier ultra-high net worth wealth management business. This scaled business has over $3.1 trillion in assets under supervision with global breadth and depth across products and solutions. Importantly, our One Goldman Sachs operating philosophy drives the interconnectedness between these two world-class businesses, enabling us to seamlessly deliver a variety of unique solutions and execution capabilities to our clients. Turning to Page 3. Delivering excellence to our clients is only possible because of our greatest asset, our people. Their exceptional focus and dedication, supported by our culture of collaboration and excellence, is critical in solving our clients' most consequential problems. Our people, history, and culture have made Goldman Sachs an aspirational brand around the globe, which allows us to attract quality talent across the organization from our summer interns all the way to our partners, and we invest heavily in our people. Many of them have long careers at the firm, exemplified by the fact that over 40% of our partners started as campus hires. Of course, not all of our people stay at Goldman Sachs for their entire careers. Many leave for opportunities to lead other companies and investment firms. And these firms, in turn, often become important clients of Goldman Sachs. Today, more than 275 of our alumni are in C-suite roles at companies with either a market cap greater than $1 billion or assets under management of over $5 billion, and hundreds of other alumni end up coming back to the firm as boomerang hires, including roughly 25 partners and managing directors last year alone, a testament to our enduring brand and culture. All in all, we have an exceptional client franchise supported by our best-in-class talent and culture, which enables us to drive our strategy forward, and it is critical that we continue to invest in our people. Now turning to Page 4. At our first Investor Day in 2020, we laid out a comprehensive strategy to strengthen and grow the firm. We also laid out a number of targets that we could be held accountable for our progress. Today, the evidence is clear, we have met or exceeded almost all of these targets. We have grown our revenues from $37 billion to $54 billion, nearly 50%, while improving the durability of those revenue streams. In Global Banking and Markets, we've maintained our position as the leading M&A adviser in Investment banking and have improved our standing with the top 150 clients and thickened equities over the past five years. At the same time, we've significantly increased our more durable fixed income, currencies, and commodities and equity financing revenues, which together have grown at a 15% compound annual growth rate to a new record of $9.1 billion this year. In Asset & Wealth Management, we've consistently grown our more durable management and other fees in private banking and lending revenues, both of which were record in 2024. Notably, management and other fees surpassed $10 billion, exceeding our 2024 target. In addition, alternative fundraising surpassed $70 billion. The success is a direct result of our continued innovation in developing new strategies and our long-standing track record of investment performance. Additionally, we further narrowed our strategic focus. We closed on the sale of GreenSky, entered into an agreement with General Motors to transition their credit card program, and sold our portfolio of seller financing loans. Turning to Page 5. Global Banking & Markets, our leading franchise, has produced average revenues of $33 billion and an average ROE of 16% over the last five years across a variety of market environments, demonstrating the diversity and strength of this business. While no one has a crystal ball, there are a number of catalysts that we believe will continue to drive activity. There has been a meaningful shift in CEO confidence, particularly following the results of the U.S. election. Additionally, there is a significant backlog from sponsors and an overall increased appetite for dealmaking, supported by an improving regulatory backdrop. The combination of these conditions should spur further activity in 2025. One large strategic opportunity we are particularly focused on relates to financing. Goldman Sachs operates at the fulcrum of one of the most important structural trends currently taking place in finance: the emergence and growth of our private credit and other asset classes that can be privately deployed. Our unique origination capabilities position us to connect companies with dependable capital and connect investors to assets that can produce superior returns. Earlier this week, we announced the formation of our Capital Solutions Group, which will harness the power of One Goldman Sachs to provide our clients with a comprehensive suite of financing, origination, structuring and risk management offerings across both public and private markets. We are taking the current capabilities of our financing group, adding coverage of financial sponsors and alternative asset management firms to better innovate and accelerate the delivery of services to clients. We are also creating an alternative origination group focused on sourcing to provide seamless coverage to our private credit and private equity clients. We are excited about providing our clients with access to differentiated sourcing and investment capabilities, which will in turn help us accelerate growth across the franchise. Now let me turn to Asset & Wealth Management on Page 6. Our assets under supervision reached another record, reflecting our 28th consecutive quarter of long-term fee-based net inflows. In Wealth Management, our total client assets rose to $1.6 trillion. We also bolstered our more durable revenue streams. Management and other fees and private banking and lending revenues together have grown at a compound annual growth rate of 12% since 2019, and we continue to expect to drive high-single digit annual growth in the coming years. Turning to Page 7. We meaningfully improved our AWM pretax margin in 2024, achieving our medium-term target. In our journey to further improve the return profile of the firm, we are committed to driving this business towards mid-teens returns. We see significant growth opportunities across wealth management, alternatives, and solutions. In Wealth Management, we are growing this business by increasing the number of advisers in the field and surrounding them with content specialists. We are expanding our loan product offerings, and we're elevating our overall client experience with further investment in our digital capabilities. In alternatives, we are scaling our flagship fund program and developing new strategies. We remain focused on penetrating the institutional client base and expanding our wealth channel. Additionally, we are investing in tailored solutions for institutional and third-party wealth clients, who continue to see customization across separately managed accounts, direct indexing, and exchange-traded funds in a structured form. On Page 8, we demonstrate the durability of the revenues across the firm. This is not the first time we've laid out this information, but it serves as a good reminder. Baseline revenues are shown in gray, which represent the sum of the trailing 10-year lows for each of the businesses that are considered to be more cyclical: advisory, underwriting, and intermediation. As I said last year, we believe this is a very conservative measurement because it's unlikely that every one of these businesses would hit a low point all at the same time. In the 25 years since we became a public company, it hasn't happened once. The dark blue represents more durable revenues from financing, management fees, and other fees as well as private banking and lending, which grew 13% versus 2023. Taken together, these two components made up approximately 70% of total revenues in 2024. In addition, given our diversified franchise, we have consistently demonstrated our ability to generate upside across different market environments, which further highlights the revenue generating power of our firm. Moving to Page 9. Operating efficiency remains one of our key strategic objectives. And while we have made progress, we believe there are significant opportunities to drive further efficiencies across our business. We've established a three-year program as part of our business planning process that will help us dynamically manage our expense base, harness technology and automation, and reinvest in our businesses. First, we are optimizing our organizational footprint by expanding our presence in strategic locations and calibrating our pyramid structure. Second, on spend management, we are optimizing transaction-based expenses and looking to more efficiently manage our vendor and consultant relationships. We will also continue to reduce operating expenses associated with our consolidated investment entities as we further sell down those assets. Lastly, we are leveraging AI solutions to scale and transform our engineering capabilities, simplifying and modernizing our technology stack, and driving productivity. These efficiencies will allow us to further invest for growth and improve client experience. Moving to Page 10. We believe the path to our return targets is straightforward. First, we have demonstrated our ability to deliver mid-teens returns on our leading global banking and markets franchise. Second, we are making strong progress against our plan to drive asset wealth management to mid-teens and beyond. And lastly, we are driving platform solutions to pretax breakeven in 2025. Taken together, we have a clear path to producing our target returns, which will further unlock shareholder value. Before turning it over to Denis, I want to spend a moment on regulation. Last month, trade groups representing the major U.S. banks, including Goldman Sachs, filed suit against the Federal Reserve. We have long been concerned that the lack of transparency in the Fed's current stress testing creates uncertainty and at times produces results we cannot understand, which can lead to higher industry-wide borrowing costs, reduced market liquidity, and inefficient capital allocations. For the industry, the bar to take this step was incredibly high. And while the Fed has announced that it seeks to improve the stress test, the suit was filed to protect our rights. We believe it is our responsibility to continue to press for a more transparent regulatory process to foster a more efficient financial system that supports the growth and competitiveness of the U.S. economy. In closing, I'm very confident about the trajectory of Goldman Sachs. We are incredibly well positioned to serve our clients and continue to drive strong returns for shareholders as we execute with a relentless emphasis on client service, partnership, integrity, and excellence. Let me now turn it over to Denis to cover our financial results in more detail.

Thank you, David, and good morning. Let's start with our results on Page 11 of the presentation. In the fourth quarter, we generated net revenues of $13.9 billion, EPS of $11.95, and return on equity of 14.6% and return on tangible equity of 15.5%, resulting in full year EPS of $40.54 and an ROE of 12.7%. As David highlighted, we made significant progress this year on executing our strategic priorities. In aggregate, these select items had a de minimis impact on the firm's full-year results. Turning to results by segment. Starting on Page 14. Global Banking & Markets produced revenues of $35 billion for the year, up 16% amid broad-based strength versus last year. In the fourth quarter, investment banking fees of $2.1 billion rose 24% year-over-year. Advisory revenues came in at $960 million and equity underwriting revenues increased substantially year-over-year to $499 million, as strong equity markets supported robust issuance activity. Net underwriting revenues rose 51% to $595 million amid higher leveraged finance activity, given the strengthening financing conditions post-election. For 2024, we maintained our number one position in the league tables for announced and completed M&A, ranked third in equity underwriting, and second in leverage lending. Despite strong accruals in the fourth quarter, our investment banking backlog rose sequentially and remains robust, particularly in advisory. The intensity of our client dialogues has been increasing, and we're seeing renewed CEO confidence and desire from sponsors to transact. While there remains some policy uncertainty, there is an expectation that the regulatory burden will be reduced, which should serve as a tailwind to risk assets and capital deployment. We are optimistic on the outlook for 2025 and expect a further pickup in M&A and IPO activity. FICC net revenues were $2.7 billion in the quarter, up 35% year-over-year. In intermediation, we saw strength in currencies and mortgages. Record FICC financing revenues rose 34% versus last year, primarily on better results within mortgages and structured lending. Equities net revenues were $3.5 billion in the quarter. Equities intermediation revenues were $2 billion, up 30% year-over-year, primarily driven by strong performance in cash products. Record equities financing revenues of $1.5 billion rose 36% versus the prior year amid higher average balances in prime and stronger performance in portfolio financing. For the full year, total equities net revenues were a record $13.4 billion amidst strong levels of client engagement and higher client balances. Across FICC and Equities, financing revenues rose 17% in 2024 to a record $9.1 billion. Moving to Asset & Wealth Management on Page 15. For 2024, revenues of $16.1 billion rose 16% year-over-year as our more durable revenues grew to new records. In the quarter, management and other fees were a record $2.8 billion, up 8% sequentially and 15% year-over-year. Private banking and lending revenues rose 11% year-over-year to $736 million. Incentive fees for the quarter were $174 million, bringing our full-year incentive fees to $393 million. We expect to make further progress in 2025 towards our annual target of $1 billion. Equity and debt investment revenues totaled $993 million for the quarter, reflecting markups across our private and public portfolios and net interest income in our debt portfolio. For the full year, these combined revenues totaled $2.4 billion. Now moving to Page 16. Total assets under supervision ended the quarter at a record $3.1 trillion, driven by $70 billion of liquidity products net inflows and $22 billion of long-term fee-based net inflows across asset classes. Turning to Page 17 on alternatives. Alternative assets under supervision totaled $336 billion at the end of the fourth quarter, driving $621 million in management and other fees. Gross third-party fundraising was $20 billion in the fourth quarter and $72 billion for the year. For 2025, we expect fundraising to be consistent with levels achieved in recent years. On Page 19, our total loan portfolio at quarter end was $196 billion, up year-over-year, reflecting an increase in other collateralized lending. Our provision for credit losses was $351 million in the quarter, primarily driven by net charge-offs in our credit card portfolio and balance growth, partially offset by reserve releases in the wholesale portfolio. Let's turn to expenses on Page 20. Total operating expenses for the year were $33.8 billion. Our 2024 compensation ratio net of provisions was 32%. Quarterly non-compensation expenses were $4.5 billion, down 8% year-over-year. As David mentioned, we're driving efficiencies across our organizational structure, spend management and automation efforts, which will enable us to further invest across the client franchise. These efforts are designed to enhance productivity and help drive operating leverage, as we work towards achieving our through-the-cycle targets. Our effective tax rate for 2024 was 22.4%. For 2025, we expect a tax rate of approximately 20%. Next, capital on Slide 21. Our common equity Tier 1 ratio was 15% at the end of the fourth quarter under the standardized approach, a 130 basis points above our current capital requirement of 13.7%. In the fourth quarter, we returned approximately $3 billion to common shareholders, including common stock repurchases of $2 billion and dividends of $965 million. In conclusion, our strong performance this year reflects the strength of our client franchise, our intense focus on execution, and an improving operating environment. We continue to maintain our leadership positions across Global Banking & Markets and are leaning into secular growth opportunities across Asset & Wealth Management. As we enter 2025, we remain confident in our ability to deliver for clients and drive strong returns for shareholders. With that, we'll now open up the line for questions.

Good morning. I guess maybe just David following up on the comments you made around regulations. Like, when you talk to investors, I mean, we saw what happened with the SCB last year. And I think there's been a laser focus on being more punitive on capital markets post-GFC for many justifiable reasons. But just talk to us when you think about the regulatory outlook and I appreciate significant uncertainty we're waiting for policymakers to kind of take new feed, but how do you think that plays out? And in particular, in terms of the operating backdrop for your capital markets business, investment banking business, like, how should we think about how could it be different over the next two to three years relative to the last five or even 10 years?

Well, it's hard for me to speculate given where we are, and I appreciate the question. It's something, obviously, we're spending a lot of time thinking about, but I think there are obviously – when you talk about capital, there are obviously three avenues. First, there is CCAR, and you'd note the industry took action because the industry doesn't think that the way CCAR operates and the lack of transparency is appropriate or candidly legal. And so that's why we took the action that we did. The Fed has commented that it plans to make changes and adjustments. But obviously, there are changes going on with the administration shift. There are changes going on at the Fed. And it's hard for me to speculate how that will all play forward other than to say that the industry believes, as an industry, we believe strongly, and we believe this for years, this is not working appropriately at a system with more transparent and consistent capital that you can plan around makes a more efficient and productive system. And so we're hopeful that we'll make some progress with that. The second, obviously, is Basel III. And given the change in administration and the change of leadership inside the Fed, our expectation would be that there'll be a different approach than what have been put forward. But again, we'll have to watch, and we'll have to wait. And then last, there's G-SIB and the calibration of G-SIB. G-SIB was always supposed to be calibrated to growth in market cap economies, it hasn't been. And so that's another avenue of dialogue. Net-net, unpredictable. I don't want to predict. I don't want to speculate. But certainly, it feels like we're in an environment where there could be constructive discussions about improving the transparency, clarity, and consistency around this. And I think that would be very, very good, both for the system and capital markets broadly.

That's fair. Following up on Slide 5, you mentioned the forward catalyst and increased sponsor activity. We've been anticipating this, and there are some signs of a pickup. You've indicated that M&A activity is below the 10-year averages. Can you give us an idea of how quickly we might see a significant increase in deals and IPOs? Is this likely to happen in the second half, or could it occur in the next couple of months?

I think you're going to see it throughout 2025. I don't want to speculate on where it will land versus 10-year averages, but it's certainly setting up to be much more constructive and robust. And the data set that we would have that allows us to articulate that is, we can obviously track our backlog, but we can also track increased activities, and dialogues inside the firm. And I’d say there’s been a meaningful pickup in large-cap M&A dialogue and inquiry. There’s been a meaningful pickup in sponsor inquiry and dialogue, and we continue to see strong positive backlog trends as Denis highlighted to you.

Good morning, David and Denis. Maybe just follow-up, maybe take a question here. But if I'm reading the slides correctly, footnotes 11 and 12, which help bridge your ROE gap to 15%. Are you assuming sort of roughly $9 billion of capital return from the HPI platform solutions to shareholders? Because if you are, maybe talk through how that puts against things like SLR constraints at that level of capital return? And then just more broadly on capital, just given the improving opportunity set here, how are you balancing returning capital to shareholders versus investing in the business?

Sure. So I'll start, and Denis will add particularly on capital return. But our path to mid-teens is a simple analysis than what you laid forward. The firm is driving toward having two fundamental business platforms, and we've been very clear on this as we've narrowed our focus, Global Banking & Markets and Asset & Wealth Management. We still have the legacy platforms, but we continue to make progress around that. Global Banking & Markets, I think, has shown over the course of the last five years that this business should be mid-teens throughout the cycle. On Asset & Wealth Management, we've commented to you that we've met our medium-term margin, target margin, but we have not yet improved the returns in that business to the levels that we believe that we can return them. We believe over the next couple of years, continued scaling and profitability in our alternative platform, combined with our ability to continue to grow management fees and at the same time, also free up capital from legacy principal investments will allow us to bring the returns in Asset & Wealth Management to the mid-teens or higher. In addition, Platform Solutions, where we still have the Apple Card platform, this year, depending on how you look at it, and I'll give you rough numbers, was a 75 basis point to 100 basis point drag on the firm's overall ROE, and that will improve in 2025 and 2026. And so it's just math. If you have a mid-teens Global Banking & Markets business, if we get Asset & Wealth Management to the mid-teens plus and we removed the drag from the platform, that gets you to a mid-teens business. We have a high level of confidence in our ability to execute against that. Denis will give you a comment. We're obviously generating a lot of capital. We do see opportunities to deploy. So Denis will give you some comments on how we're thinking about capital deployment and also returns.

Sure. Thanks, David. And Christian, I think you're making references to some capital release numbers. Within the overall remaining portfolio of HPI, we do note that there's about $4 billion of remaining attributable equity. And then, obviously, over time, we both have to narrow the pretax drag in Platform Solutions and ultimately, someday may be able to release all of the equity associated with that business as well. So those are obviously contributors to our longer-term return target achievement. I think as it relates to capital return, as we head into 2025, we have 130 basis points of cushion versus Reg Min. As David has commented, as the firm believes there should be a significant uptick in client opportunity. As always, we would look to fill that demand as best we possibly can as a matter of priority. We remain committed to sustainably growing our dividend and then obviously, seek to return excess capital. You all will have noted last year was a record year for capital return by Goldman Sachs. So we were able to grow the franchise, grow the firm as well as return record levels of capital to shareholders. As we head into '25, we'll support clients, invest in sustainably grow our dividend, and then to the extent we have excess capital return it to shareholders, all the while managing an appropriate buffer given some of the ongoing regulatory uncertainty.

Okay. Got you. Maybe David, look, kudos to you on the firm. You're clearly taking share across your businesses, whether it's markets or alternatives and in private wealth doing a great job. But just given to your point, the improved opportunity set here and perhaps a more friendly regulatory environment. Any thoughts on doing a strategic deal to accelerate your growth prospects within alternatives or private wealth?

Yeah. I appreciate the question, Christian. And look, we always think about, particularly around our Asset & Wealth platform, are there things that could accelerate our growth and journey and the overall mix of the firm. As I've said before, the bar for doing something is high. I'd also say these businesses are sold, they're not bought. And at the moment, the market is valuing these businesses with an extraordinary amount of forward growth. But we obviously watch the space. And over time, could there be opportunities? Yes. But at the moment, we’re very focused on execution. I think one of the things we’re so excited about for the firm is we have an ability to continue to execute organically on what we’ve laid out in front of you and continue to improve the returns of the firm. Plus, I think as you point out, we have tailwinds from both the environment and improving environment for the kinds of activities that flow into our ecosystem and also the overall business and regulatory environment. So I think execution right now continues to be our primary focus.

Hi. Good morning.

Good morning, Betsy.

Hi. I wanted to follow up on your comments about Platform Solutions. Currently, it's having a negative impact of 75 to 100 basis points on ROE, but we expect that to improve in 2025 and 2026. Could you explain what developments are anticipated in those years that will help reduce this drag compared to this year and next?

At a high level, Betsy, the key focus in Platform Solutions is the Apple partnership. We have a contract with Apple to maintain this partnership until 2030, although there is a chance it may not extend that long. The most significant development is that the card's performance is improving and is on track for profitability. This enhancement in profitability is influencing the short-term drag. However, in the medium term or throughout the contract's duration, this won't be a long-term business for us, which will ultimately enable us to exit and return capital. I can't provide more specific details, but I wanted to share the general direction we're heading in.

Okay. Great. And then separately on the changes that were discussed with regard to how you're structuring the financing team that's within investment banking, if I got it right. Could you just help us understand how does this management structuring change the revenue growth outlook that you're looking for? Like, why did this deliver better growth?

Sure, first of all, it's in Global Banking & Markets. The way to think about Global Banking & Markets is that we have been focusing on efficiencies between traditional investment banking, financing or capital markets, and global markets or trading businesses, which we have integrated. Consider this $35 billion business as having three main platforms: traditional investment banking, capital solutions, and global markets or trading. Our organizational structure is designed to leverage Goldman Sachs' unique position at the intersection of public and private markets, helping to connect issuers with capital while also providing various types of investors. We have strong relationships with 12,000 companies globally, excellent public market financing capabilities, and the ability to use our balance sheet, distribution channels to institutional clients, and asset management products to present a range of alternatives to issuers, ensuring they receive the best possible product and service. This integration allows us to coordinate efforts across the firm in a unified manner. We have consolidated our traditional financing and capital markets businesses, along with our coverage of financial sponsors and alternative firms within our trading operations, bringing together talent that understands our balance sheet and capital deployment to enhance our capabilities. We believe this will drive growth in the capital markets and improve our performance relative to competitors.

And Betsy, one thing I'd add just in terms of overall financials, obviously, our segments are not changing. The subsegments that we report into are not changing. This sort of streamlined synthesized origination capability, we think will enable us to accelerate revenue growth by serving our clients more efficiently, but the suite of activities that are undertaken by these originators and instructors will continue to populate the same financial line items that we have today. We just think this is a better way of organizing our people against the client opportunity set and doing everything else that David just enumerated.

And look, if you go back in history, Betsy, just to expand on it. I mean years ago, the capital markets business is 25 years ago, the Capital Markets business sat in the trading businesses. And 20 years ago, it was a dramatic thing to put them in investment banking so they were closer to clients. And so our mindset is always how do we organize our people and our resources, create a OneGS ethos, and be connected to our clients to make the experience for our clients as seamless and simplified as possible.

Hi. Good morning. Thanks for taking my question. You spoke earlier to the capital unlock within the improving ROEs in AWM. But some of the more business-oriented components would be driving lending solutions within wealth and scaling the flagship products and all, which I thought was interesting. I was hoping you could speak to lending penetration and where that sits versus your target within the wealth business and whether there's been an uptick in demand more recently, given some of the market developments and what contribution you're expecting from ranking the flagships and maybe highlighting some of those franchises? Thanks.

Sure, Brennan. Thanks a lot for the question. I appreciate it. So obviously, the strategy to grow wealth is three-part in terms of primary focus: Wealth Management, Alts, and Solutions. Within Wealth Management, you enumerate one particularly attractive opportunity set for us, which is lending. And we've noted previously that we believe that we are relatively under-penetrated relative to some of our competitors across our wealth platform. And we've been making investments in our human capital expertise, educating our client-facing professionals that we have capabilities and ambitions to support clients through lending activities. We did grow our private wealth lending balance to about $5 billion on the year. We are committed to a multi-year journey of increased penetration. I think relatively, we are still very low. So we are making progress. We are optimistic, but I think we have a lot of room to improve that. In terms of the Alts business, there are a number of ways that we continue to grow and make progress in our Alts franchise. It continues to be an attractive and appropriate component of our wealth clients' portfolio. We have very good manufacturing capabilities as a firm and also a robust third-party wealth channel as well that clients can take advantage of within the portfolio of alternative offerings that we make available to clients. We have certain of our flagship funds, and those are raised from time to time, and those are attractive opportunities for us to secure client deployment, and they also position the firm well as a known and credible deployer of capital. So we'll continue to raise those funds over time. And as we have more assets under management per strategy, if you will, better depth that will enable us to improve the overall operating leverage of that component of the Asset & Wealth Management business.

Great. Thank you for that insight. David discussed some of the operational efficiencies during the strategic update. It's interesting to consider how we should address the balance between expenses and efficiencies as we approach 2025, especially with the strong expectations and indications for an improvement in capital markets activity. Alternatively, what would be the best way to assess incremental margins associated with revenue growth moving forward?

Sure, Brennan. I appreciate that. We're actually trying to do a number of things at the same time, which is what gives rise to your question. So first and foremost, we continue to see good opportunities to grow the firm, and we expect that as we continue to grow the firm, we should be able to continue to deliver incremental operating leverage. You saw in the course of the last year that our efficiency ratio improved by 1,200 basis points. Now it's on the order of 63%, moving closer to our target of 60%. So scaling the business, driving incremental operating leverage continues to be a huge focus for this management team. It's also the case that we see very attractive opportunities to make investments to scale the firm, to improve client experience, to improve our employees' productivity, and we want to be able to finance some of that incremental investment spend, a lot of which takes place in the engineering space, by driving incremental efficiencies across the firm. And thinking about, as David ran through the ways we organize ourselves, the way we locate our professionals, the way we manage our spend processes, accountability to this program that David made reference to has accountability up to the management committee of the firm. It's an important piece of how we focus on running the firm efficiently, and we think it's something that's designed to give us capacity to fund some of the investments that we think are the best ways to continue to scale the firm, make it more resilient, and improve overall client and employee experience.

Hi, David. Another Wall Street CEO mentioned he’s feeling more positive than he has in 25 years. How optimistic are you about the situation? You mentioned improvements in the regulatory and economic environments, as well as increased backlogs. If I were modeling for the industry based on the highs from the pandemic in 2021, what do you envision? Additionally, as shown in Slide 9, you are all focused on managing expenses. If interest rates rise significantly, at what level of a 10-year yield do you think it would disrupt your optimistic outlook? Would a 10-year yield of 5%, 6%, or 7% be a concern? What do you think could potentially undermine your high expectations?

Look, Mike, I appreciate the question, and I'd say at a high level, there's no question that I highlighted in my remarks. There's been a sentiment shift broadly as I talk to CEOs since the election. But that doesn't stop us from at Goldman Sachs constantly thinking by nature of risk managers about how the environment can change, how that can evolve. I think at the moment, for our business and our business mix, particularly around capital markets activity, etc., it feels like we have a tailwind going into 2025. And I do think that levels that have been below historical averages are going to, at a minimum, normalize, maybe do better. I certainly wouldn't say I have any expectation of capital markets activity going back to 2021, anomalies anytime soon, but it is a more constructive environment. And so that, of course, is something that we think about as we think about deployment of resources and investment in the business. Now all that said, we can't predict the environment. The environment changes, and we're running the firm for the medium and the long term. And so we are very, very focused on our growth and returns over the medium-term, our growth of the firm over the medium term, and our ability to serve our clients and execute well. And I am very confident, very, very confident that no matter what the world throws at us, Goldman Sachs over time will continue on that journey of doing really well and growing the returns of the firm and serving our clients with excellence and distinction. I think the environment feels good, but I'm not at all confused that I could wake up in three months, and there could be things going on in the world that would change that perspective. And we're always thinking about that, always trying to look around corners, and are always going to manage the firm for the medium and the long term.

And then specifically, I guess why is Platform Solutions still around? I mean you're number one in dealmaking, and you haven't been able to work that out. And on the other hand, the financing organic growth, how big is that today, and how big do you expect that to be in five years, and what about credit risk that's related to that? Thanks.

On the first question, I don't have any new insights to share about our progress with consumer platforms, but I appreciate the inquiry. Regarding the second point, we still see potential for growth in our financing business. This area grows in parallel with global expansion. Naturally, we are highly focused on risk and credit management as it relates to our equity and balance sheet. However, we believe that as the global market expands, we can continue to develop and increase the scale of that business, and I think our track record supports that. Denis, do you have anything to add?

Yeah. Just I draw a connection back, Mike, to some of the comments that David made earlier, which is if really the secret sauce in driving some of these activities for clients is origination, distinction, and differentiation. The establishment of the Capital Solutions Group enables us to have all of that origination centralized, and we can, from that origination, continue to grow the FICC financing balance sheet in an appropriate risk-adjusted fashion. We can underwrite and distribute some of that product to other investors across our franchise, and we can also help Asset & Wealth Management source investments that provide attractive risk-adjusted returns to the clients at Asset & Wealth Management. So there's an opportunity to continue to invest in growing the financing capabilities that we've been reporting on, but we also have incremental outlets for the origination excellence given the demand that we see across various types of investors around the market.

Thanks so much. Good morning, David and Denis. First question just on the banking and markets, market share, wallet share, obviously, incredibly impressive over the last handful of years. And I think just a testament to the execution. When we look at this kind of new capital solutions organization, it would seemingly better positioned with sponsor clients and just, I think, gives that indication of where you guys are going there. How do you think about your market share today with sponsors and not sure if you can give any framework or numbers there? And then, how you think about the ability to take share in that group and how important that will be to driving further kind of wallet share gains from here like you've done in the past? Thanks.

We've made significant investments in our relationships and coverage with the sponsor community over the last 20 years. We have a leading share with the sponsors, though we don't quantify it specifically. It's fair to say we are well positioned to capture our fair share and sometimes even more of their activity, especially as they become more active. However, it's been a period where sponsors have been quite quiet in terms of deployment and monetization, which isn't typical. Sponsors generally make money by buying new assets and selling old ones, and the current lull in those activities is expected to normalize over time. This period of inactivity is partly due to a reset in valuation expectations and also due to sponsors growing into valuations that have outpaced reality. I believe strongly that the next 24 months will foster a more constructive environment for sponsor activity, and our position with them is strong. I think the organizational changes we are making will only enhance that position.

Thank you. In terms of fundraising for alternative asset management, it has been excellent. How should we view the pace of deploying this record fundraising and the expected increase in performance fees? It seems there could be a significant rise in performance fees, but capital needs to be deployed first. What is the timeline we should consider for this process? Thank you.

We are focused on deploying the funds we successfully raised, having exceeded our targets. However, the subdued deal-making environment and lower transaction volumes have affected our ability to deploy these funds. As the market improves, we anticipate better opportunities to invest the capital we've raised and increase our assets under supervision. Additionally, the limited transaction activity has resulted in decreased monetization opportunities, but we expect conditions to become more favorable, leading to better chances for monetizing investments across our fund structures. As we complete investment cycles and are prepared to return capital to our investors, we will begin to see incentive fees reflected in our financials. Although our incentive fees have increased noticeably year-over-year, they still fall short of our $1 billion annual goal. We believe we can make ongoing progress toward this target throughout 2025, with the pace of that progress influenced by market conditions.

Thanks. Good morning. I wanted to follow up on the alternatives. You talked about consistent levels of fundraising as we look at '25. Could you maybe talk to the asset classes or the funds that you think will drive that growth going forward and how the fees may be different or are they the same as kind of what's in the ground of your existing book of alternatives today?

Sure. So given the breadth of our alternatives platform, the fundraising has come in from a number of different channels and I think that's one of the strengths of our platform is one of the ways it positions us as one of the top five alternative players in the market. So as we move forward, we would continue to expect to raise money across the various asset classes within our alternatives platform. We are not seeing significant fee compression, if you will. That's a question that we get on the Alts side. So we'd expect to be raising the same type of funds with roughly the same fee structure, there obviously can be variations in mix. And so different types of alts products sourced through different channels bring with them different fees. So that can change average effective fees in the Alts space. But in terms of our strategy, continue to raise a diversified suite of funds, expect a reasonably consistent volume and don't expect fees per type of origination activity to meaningfully change.

Understood. And then just as a follow-up, both Asset & Wealth Management revenues on the management fee side, we saw good growth year-over-year, both for the year and the fourth quarter. There was a little bit higher growth in wealth, both in the fourth quarter and the year. I guess, as you look at those businesses going forward, do you expect to see a divergence in either of those segments or do you think that consistently they will both grow at similar levels?

So look, there are obviously different idiosyncratic factors within both the asset management and the wealth management sectors. We obviously like the optionality to continue to raise and grow our management fees across both of those subsegments. And we re-underwrite our expectation that we will continue to grow AWM management and other fees, high single digits over the next several years. We've obviously outpaced that recently, but we sort of would re-underwrite our forward growth expectations to be high single digits.

Hi, David. Hi, Denis. Can you share with us the outlook, which seems very positive for the capital markets businesses and the economy, aside from the obvious geopolitical risks? What are two or three risks that could derail this shared optimism we have for the business outlook?

I appreciate the question. The world is complex, and there are many factors influencing it. Market sentiments can shift rapidly, especially with the change in administration. There are various topics generating excitement in the business environment, such as a reduced regulatory burden. However, there are also numerous policy initiatives that could affect market sentiment and the overall direction. Currently, there is some uncertainty regarding immigration, trade, tax, and energy policies. While we will gain more clarity in time, different outcomes are possible. Sentiment can change, and there are many significant risks we consider, including cyber risk, which we haven't mentioned in some time. We recognize the complexity of the world. As risk managers, our goal is to ensure the firm is resilient and well-prepared to handle these challenges. At present, the environment appears quite favorable, and the U.S. economy remains strong. Nevertheless, we need to stay alert and be ready for unexpected events because every year, the consensus in January typically differs from how the year actually unfolds. I anticipate there will be both positive and negative surprises this year, as there always are.

Yeah. No, I agree with that. That's for sure. Thank you, David. And then coming back to, obviously, you guys have been investing heavily in technology for years in driving those operating efficiencies. In Slide 9, you talk about them, particularly in automation. And then you talk about leveraging the AI solutions. As outsiders, when do you think we'll be able to see the success that you're having with AI. I know there's probably early successes already, but will there become a time when we'll be able to say, wow, earnings were actually favorably impacted by X percent because of the success in the AI implementation that you've done?

We are experiencing initial success. The firm is highly focused on managing its expenses and creating efficiencies that enable us to invest in our business and expand our client base. I don’t believe we should quantify the impact in specific percentages. Our goal is to utilize technology to enhance productivity. We plan to continue scaling and automating platforms that help us allocate resources more effectively to better serve our clients and grow our business. This will remain a strong operational priority. We have made notable progress and, as Denis mentioned, we see many opportunities to continue this initiative in the years ahead. Investors should understand that this focus and the capacity it creates enable us to scale investments that will further strengthen our business. That’s how we approach it and how we aim to operate.