There's a lot of hand-wringing going on over Goldman, Sachs & Co.'s smaller-then-usual partnership class. Well, what did you think: With the stock price way down, the markets in collapse, dealflow at a trickle, that Goldman would load up with a big class and split the shrinking profit pie by even more? Undoubtedly not, particularly since the firm -- oops, the bank -- is sailing into deep uncertainty, not only in terms of the economy but in terms of its own business model.
Continue reading below
Moreover, for all the talk, we've yet to see the political reaction when news of Goldman's compensation to its partners gets out. In particular, it will be very interesting to see how Goldman pays its prop traders, some of whom had a very big year and will expect the kind of recompense that will drive pols crazy. Generally, this new class may be entering an era when the goodies of the past -- the goodies that fuel the Goldman culture -- simply aren't as abundant. On the other hand, it never pays to underestimate Goldman.
Beyond that, the real question at Goldman is not the size of the class, it's the makeup, which will offer hints at what the top dogs at Goldman are thinking. Deal Journal did a nice job Wednesday in sussing out that 40% of the class is overseas. That tells you a lot about where Goldman believes future opportunities lie. Even more relevant, but harder to ferret out, is exactly how the balance between investment banking and trading (or relationships versus transactions) work out. Deal Journal mentions several new Goldman partners who made killings on subprime trades -- Philip Berlinski and Michael Swenson -- but what you really need are comparative numbers. The percentage, for instance, of bankers has been down over the last few classes. The expectation would be that despite Lloyd Blankfein's own trading background, Goldman would be bringing up folks with the kind of skills that can thrive in a deleveraged firm, well, bank. That, on the face of it, would suggest more advisory, more private equity, more credit and less prop trading, prime brokerage, general trading activities.
And keep one thing in mind: The selection of these partnership classes is extremely political, in that they will determine who runs the firm in the future. Goldman leadership has swung from trading to banking to trading, as the fortunes of various businesses waxed and waned. A few years back, the requiem on investment banking as a driver of Goldman's profits and as the key element in its culture and leadership was sounded. Like so many other things these days, that conclusion now looks premature. - Robert Teitelman
See the list of new partners from Dealscape
See related story from Deal Journal
See related story about bonuses from Dealscape
Robert Teitelman is the editor in chief of The Deal.
