Goldman Sachs Group Inc. has long stood as the epitome of the financial sector, representing both scorn and envy for the manner in which they generate profits as well as the amount they are capable of generating year after year. The firm has been responsible for creating markets between counterparties, financing the development of skyscrapers and providing investment banking services; but most recently Goldman has been winning in the credit market on the backs of consumer credit scores.
In 2012, Goldman Sachs bought TransUnion, the smallest of the three main credit-reporting firms, which provided a platform for Goldman to expand their data-mining capabilities, by gathering billions of seemingly insignificant data about ordinary Americans that they could then auction off to commercial lenders, insurers and financiers who care to know as to the financial stability of their debtors and whether they are capable of repaying the debt owed. As it stands, Goldman gained $600 million in profit and is expected to garner about five times its initial $550 million investment.
These realized earnings validate Goldman’s decision to continue with private-equity investing after the financial crisis, despite increased regulatory burdens and a trend in banks to deviate from private investment. Yet in spite of the minor setback, Goldman has been able to navigate the tumultuous financial landscape and emerge profitable as private-equity investing as resurfaced as a moneymaker in recent years. As such, Goldman has invested in a Japanese theme park, a U.S. network of home contractors and a Danish outsourcing company.
In addition, Goldman has successfully been able to navigate the regulatory landscape embedding their profitability. The Volcker rule, a provision under Dodd-Frank which prohibited banks from contributing more than 3% of the money raised by PE funds, was averted by Goldman’s reappropriation of fund from the balance sheet rather than from a fund which pooled money from investors. In doing so, Goldman was able to finagle the financial restrictions that impeded their investment choices in order to ascertain minority stakes in companies.
In addition, Goldman raised new credit and real-estate funds,.as the Trump administration considers rolling back parts of Dodd-Frank and the Volcker rule. This, in turn, has lead Goldman to create a new fund, which has already raised $4.5 billion with an expected $8 billion cap. It isn’t a surprise that Goldman is often critiqued as acting like a traditional asset management firm, investing the money of other individuals to generate returns and collect fees.
Goldman over the past months has sold 20% of their stake in the credit-reporting agency leaving them with a notional value of $1.7 billion as TransUnion shares have reached records, climbing 24% this year alone. The firm has also raked in approximately $50 million in fees for underwriting TransUnion’s IPO. However, Goldman’s significant credit transaction stemmed from their consumer lending platform, Marcus, which had been developed inside its PE arm by many of those spearheading the TransUnion investment.
The experience with the TransUnion, helped build the bank’s familiarity with consumer credit, utilizing data dreams to better find customers and manage accounts. TransUnion had heavily invested in technology and acquisitions, replacing old mainframes with nimbler systems that allow information splicing. All three major credit-reporting firms—Equifax, Experian And TransUnion—compile alternative data on consumers that exceed traditional loan payments found in credit reports, opting instead to observe consumer spending patterns and behavioral tendencies by demographic and regional preference. By its IPO in 2015, TransUnion had 30 million gigabytes of data, growing at 25% a year and ranging from voter registration in India to drivers’ accident records in the U.S.
In this current wave of big data and the emergence of high frequency servers churning out data to providers at fractions of the second, these measures taken by Goldman not only ensure that they remain profitable in the future but allow them to garner massive amounts of information to stay ahead of the curve amidst the rise of technology within the financial markets.