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Goldman to buy S&P's portfolio unit to boost ETF sales

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Goldman Sachs agreed to buy a new distribution channel for its expanding roster of ETFs.

The acquisition of S&P’s Investment Advisory Services gives the New York-based bank another vehicle to bring its funds to investors through the creation of model portfolios — ready-made packages of ETFs that its asset management arm will oversee. Goldman currently offers 18 ETFs, which together manage about $11.6 billion or less than 1% of the $3.8 trillion market.

“We see it as a big opportunity for our ETF platform,” said Michael Crinieri, Goldman Sachs Asset Management’s head of ETF strategy. “Our goal is to build ETFs that would be effective building blocks in these model asset allocation portfolios, so we see it as a driver of growth in the future.”

The deal is expected to close in the first half of 2019, GSAM said in a statement Monday, without disclosing the terms of the agreement. S&P’s Investment Advisory Services oversees about $33 billion in assets.

While model portfolios have existed for years, the ETF industry has been approaching the packages with a newfound urgency lately. The portfolios offer issuers a way to get their products into more hands and stand out in a marketplace of more than 2,000 funds. The pitch to advisors is that they can focus more on the personal side of their jobs — spending time with clients and focusing on their wider financial health — rather than on making asset allocation choices with ETFs or single securities.

Home to more than $249 billion, these funds have expense ratios more than 20 basis points higher than the industry average.
March 13

“Our goal is to really provide cost-effective ETF model portfolios that will meet the needs of our adviser clients,’’ Crinieri said.

Advisors will be able to choose from GSAM’s model portfolios of ETFs — offered for free — as well as open architecture model portfolios of third-party ETFs charging a fee. While the Goldman models won’t charge an additional fee, costs from the underlying ETFs will generate revenue for the firm.

Vanguard, State Street and BlackRock all offer packages to advisers either directly or through various intermediary channels. While these fund providers typically charge nothing or very little for their models, the fees from the embedded ETFs are baked into the costs. And the packages give the issuers more control over how many products advisers buy.

Bloomberg News