Goldman Sachs expands its active ETF business with Innovator Capital deal

Goldman Sachs said on Thursday it has completed the acquisition of active exchange-traded fund provider Innovator Capital Management, expanding the Wall Street bank’s presence in the fast-growing active ETF segment.

Active ETFs are among the fastest-growing areas of asset management, attracting investors with lower costs and flexible strategies at a time when returns from some passive index products have lagged.

The bank said in December that it would acquire Innovator Capital, which managed 171 ETFs with about $31 billion in assets, in a deal worth about $2 billion.

“With this acquisition, we have taken a transformative step in our commitment to provide sophisticated investment solutions that are designed to deliver specific outcomes for investors through market cycles,” Goldman Sachs Chief Executive Officer David Solomon said.

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Following the deal, Innovator’s co-founders Bruce Bond and John Southard will join Goldman Sachs as advisory directors, the firm said, while Chief Investment Officer Graham Day and Head of Distribution Trevor Terrell will join as partners.

More than 70 Innovator employees will join the firm, Goldman Sachs said.

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Goldman Sachs Asset Management now oversees about 240 ETFs globally, with total ETF assets under supervision of $90 billion, the firm said.

Innovator uses a so-called defined outcome strategy, employing exchange-traded options to protect investors from market downside while capping upside to help pay for the protection.

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“What we found is a lot of advisors have clients that are in pre-retirement or in retirement. They are prioritizing capital preservation over capital appreciation,” Graham Day told Reuters.

The current size of the defined outcome market is between $70 billion and $80 billion and is growing faster than the traditional ETF space, he said.

“The traditional correlations are breaking down. So more and more investors are looking for different ways to get exposure to markets,” said Bryon Lake, Chief Transformation Officer, Goldman Sachs Asset Management.