Goldman Sachs lending activity to RIA clients to reach $ 10 billion



  • Goldman Sachs launched GS Select four years ago to reach the wealthiest borrowers.
  • His book doubled in 2020 and is expected to reach $ 10 billion by the end of the year.
  • GS Select’s Whit Magruder told Insider why the rich will continue to take loans they don’t need.

Wall Street’s lending business is booming thanks to rich American borrowing to avoid dipping into their portfolios. Goldman Sachs benefits from this borrowing, even when it is not made by its own clients.

GS Select, a division of the company’s private banking, provides secure lines of credit to clients of registered investment advisers and independent brokers. His book has doubled to $ 5 billion in 2020 and currently exceeds $ 8 billion, according to Whit Magruder, co-director of GS Select. He expects it to hit $ 10 billion by the end of the year. That’s the icing on the cake for Goldman, which according to its latest results got a $ 12 billion year-over-year increase in loans to wealth management clients in the second quarter.

GS Select, launched four years ago, is part of the bank’s broader ambitions to reach affluent and high net worth borrowers with less than $ 10 million in assets to invest. Loans range from $ 75,000 to $ 25 million and can be used for just about anything, like paying taxes, except buying stocks on margin.

Real estate accounts for half of the loans, with many customers borrowing in order to make cash offers without selling assets and scavenging homes in the hot-water housing market. Loans can be approved and processed in just one day, and clients have 90 days after closing to take out a mortgage.

“This product can be used to create money to be an all-cash buyer,” Magruder told Insider.

The interest rate is 1 month LIBOR plus a spread determined by the loan amount which generally ranges from 1.75% to 3%. This is cheap money compared to the capital gains taxes that would be incurred by selling stocks. For high incomes, long-term capital gains are taxed at around 29%, including state and federal taxes.

GS Select has benefited from the low interest rates of the pandemic as well as the growth of the independent advisor sector, whose assets under management tripled to $ 5.7 trillion from 2009 to 2019. It started its pilot phase with 4,000 financial advisers from Fidelity Investments and now works with over 250 RIAs and brokers representing 55,000 financial advisers. The number of customer advisers is also up 40% over the year.

Before the pandemic, Magruder assumed these loans would be the most popular during a

bull market
because investors would not want to miss out on gains. He was initially surprised by the surge in borrowing during last year’s stock market crash.

“At the start of the pandemic, in March and April of last year, we had a 35% sale in the market, and that generated a lot of interest in this type of product,” he said. . “It makes sense when you think about it because they saw the market crash, but I think most people thought it was going to come back at some point. They didn’t want to lock in their losses.”

The rich are likely to continue to take these loans even when interest rates rise. If the Biden administration succeeds in doubling the capital gains tax, this borrowing will be all the more attractive.


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