The office, which will be located in the Abu Dhabi Global Market (ADGM), is awaiting final regulatory approval.

The Abu Dhabi office will be Goldman Sachs’ first in the capital and the second in UAE after the Dubai International Financial Centre (DIFC).

Newspaper The National reported on an internal memo, which said: “The new office will complement the firm’s growing regional presence alongside our offices in Dubai, Doha and Riyadh, allowing us to deepen relationships with clients and meet them where they are.

“We continue to see tremendous opportunities in the Middle East and remain committed to enhancing our presence and capabilities to serve the increasingly sophisticated and diverse client base in the region.”

The report comes after the ADGM announced plans to increase its jurisdiction as a financial free zone to Al Reem Island, adjacent to its current home of Al Maryah Island, following increased demand from companies.

In early February, Fed chair Jerome Powell said there would be ‘a couple more’ rate hikes in the US. Not long after, Andrew Bailey followed suit by hinting the Bank of England would ‘soon’ reach an endpoint. Even some members of the ECB’s governing council, which began its hiking cycle later, have suggested further rate rises are not a given beyond March. While recent inflation data from the US and Europe suggest these hiking cycles are yet to finish, the end is now at least in sight.

The good news is inflation is falling, though we believe it may take some time before we see inflation return to the 2% level which is ostensibly the target in advanced economies. There are firm reasons to believe higher inflation is neither transitory nor persistent, but rather structural. With ageing demographics, deglobalisation and decarbonisation in play, these forces are driving higher inflation that may stick around for some time. As a result, policymakers may need to revisit the appropriateness of their 2% targets.

What if 3% became the new 2%?

There is nothing sacrosanct about the current 2% goal. Given the profound economic and financial changes over the 25 years since 2% targets were popularised, these structural inflationary impulses may lead to different conclusions as to what is the appropriate nominal anchor for the economy. Perhaps we might see an increase to a 3% target at some point in future.

Encouragingly for investors, an increase in the inflation target to 3% would be a pro-cyclical move, supporting an environment of both higher inflation and stronger economic growth. This could be a boon for risk assets.

To assess the likely impact of a higher inflation target on portfolios, it’s helpful to recall the last 40 years have been characterised by falling inflation and interest rates, resulting in a multi-decade bull market for bonds.

This long period of moderation benefitted portfolios skewed toward fixed-income assets with strong risk-adjusted performance. A conservative portfolio with 40% equities and 60% fixed income delivered about the same return as a more aggressive 60/40 equity-fixed income portfolio, while offering lower volatility.

However, the new cycle is likely to be very different – with higher inflation and interest rates. Our forward-looking assumptions suggest a 60/40 portfolio may deliver a 6.2% return versus 5.2% for a 40/60. That single percentage point difference becomes more substantial when converted into real terms; the real expected return would stand at 3.2% versus 2.2%, based on a 3% inflation rate.

What can investors do amid higher for longer inflation?

In a higher-inflation environment, it makes sense to reallocate capital from traditional developed market equities and fixed income to assets whose characteristics could perform better. Equities would and should remain core as part of a multi-asset portfolio, but small-cap equities and energy stocks would likely see higher returns relative to larger companies and other sectors.

In credit, as ever selective exposure is key. High yield bonds would likely outperform traditional fixed income exposure, though this needs to be balanced with a careful approach to choosing companies to limit default risk. And a higher inflation target in the developed world could enhance the relative attractiveness of some emerging economies’ bonds, particularly those of commodity exporters or countries with a relatively higher debt burden.

Real assets, both public and private, may also perform well in an environment where inflation is higher due to their hedging attributes. If accompanied by strong economic growth, this would likely boost demand for real estate and infrastructure. Leases and revenue streams are often linked to inflation and accompanied by some form of cost pass-through.

While inflation sensitivity varies across the segment, one type of real asset we believe would benefit from higher central bank inflation targets is commodities – given ‘greenflation’ is one of the reasons central banks would consider changing their inflation target in the first place.

Private assets, such as private equity and credit, also have the potential to offer compounding higher returns over time while tapping into differentiated return drivers.

We cannot know if or when major central banks may change their inflation targets, but in any case, economic indicators and structural shifts suggest investors would be wise to prepare for higher for longer inflation.

This article was written for International Adviser by James Ashley, head of international market strategy at Goldman Sachs Asset Management.

The product, known as the Shengxin Junzhi Private Bank Exclusive Quantitative Equity Wealth Management Product Series 1, invests in equities and adopts quantitative strategies.

The US bank is the fourth foreign institution to set up an asset management joint venture to sell wealth products in China after Amundi, BlackRock and Schroders.

Its fundraising was smaller than BlackRock’s China wealth management joint venture, which raised CNY2.4bn for its first product in September last year.

Beijing relaxed the rules in 2019, allowing global asset managers to acquire majority stakes in their wealth management joint ventures.

For more insight on asset and wealth management in Asia, please click on www.fundselectorasia.com

The combined unit will be run by Marc Nachmann, the current global co-head of the global markets division, according to Bloomberg.

A Goldman Sachs spokesperson told our sister publication Fund Selector Asia that the bank had no comment.

This is the third major reorganisation since Solomon took office four years ago as the chief executive, including splitting the two arms in 2020.

Most recently, Luke Sarsfield and Julian Salisbury served as co-heads of the asset management division, while Tucker York and Stephanie Cohen led the wealth management arm.

Bloomberg reported that after the merger, Sarsfield will return to a sales-focused role, while Salisbury will become the chief investment officer. York will return to running the private wealth business.

As a part of this round of reforms, a part of the consumer banking business that deals with corporate partners will become a standalone entity run by Cohen.

Moreover, the bank will also merge its investment banking and trading operations under one group and break up its consumer unit, according to Bloomberg. The newly-merged unit will be run by Dan Dees, Jim Esposito and Ashok Varadhan.

Goldman Sachs laid off staff globally in late September, including at least 25 bankers in Asia, according to a separate Bloomberg report.

The company spokesperson has also not replied to an enquiry from FSA regarding the cuts, but the Hong Kong Securities and Futures Commission’s database shows that licences of junior analysts from the equity capital markets, health care, and telecommunication, media and technology teams ceased in late September.

For more insight on asset and wealth management in Asia, please click on www.fundselectorasia.com

Reports state that the probe focuses on the mutual funds business in Goldman Sachs’ asset management arm and whether claims around ESG on specific funds live up to how they are marketed.

Goldman Sachs was contacted for a comment by our sister publication ESG Clarity, however, it did not reply in time for publication.

In further steps to clamp down on greenwashing, the SEC recently proposed two major rule changes — one for investment product names and another for ESG disclosures made by advisers and investment companies.

The SEC also fined BNY Mellon Investment Adviser $1.5m (£1.2m, €1.4m) for “mis-statements and omissions” regarding ESG investment processes in a number of funds.

Recent activity

The reports follow news earlier this month of the chief executive of German asset manager DWS resigning after the firm’s offices in Frankfurt were raided amid an investigation into greenwashing.

Federal police and officers from German financial regulator BaFin raided the premises and held meetings with staff in the wake of an investigation launched by the regulator last summer into allegations of breaches of ESG requirements.

For more insight on the ESG sector, please click on https://esgclarity.com/