Menu Our services in the selected location:
  • No services available for your region.
Select Location:
Remember my selection
Your browser is out of date.

Investment Ideas 2022: Explore three key themes dominating markets where investors might uncover potential opportunities. Read More

   

LEADING THROUGH COMPLEXITY: AN INTERVIEW WITH JOHN WALDRON

December 15, 2022  |  8 Minute Read


We recently sat down with John Waldron, President and Chief Operating Officer of Goldman Sachs, to discuss a wide range of topics, including the global economy, interest rates, and the lingering effects of the pandemic on companies. He also shared top concerns among clients, how the current market cycle compares to history, and details around Goldman Sachs’ sustainability efforts.

 

 

In your role as President and COO, you meet with clients all over the world. What concerns do they have, and what are you watching?

John Waldron: When the pandemic started, the CEO and CFO community was shocked at the immediate demand destruction. No one had planned for demand destruction of 80-100% to happen almost overnight. The market-based community, however, was kind of assuming and expecting that there'd be some central bank response and we would end up getting through this with more liquidity. The CEOs were much more pessimistic at that point, and the market participants, to me, were more optimistic. That dynamic has since shifted—today, I would say market participants are more pessimistic while CEOs and CFOs are more balanced, believing that some demand destruction and margin compression will occur, but it will be a soft landing or a short recession as opposed to something that's more dramatic.

 

One thing we’re watching carefully is the consumer. The US economy is still consumer-driven, and consumer behavior gives you a lens into the demand across income strata. I'm getting incrementally concerned about the lower levels of the distribution and how they're behaving—stretching out payments, substituting in the context of their basket, feeling much more of a pinch on inflation. We're also watching the advertising market, where I think you're starting to see the beginning signs of weakness—I used to work quite a bit with media businesses, and I've always thought that was a pretty good early indicator of how the corporate world resets their budgets.

 

 

How are companies addressing uncertainty in today’s market? Any lessons learned from the pandemic?

Waldron: Larger companies have become nimbler, including multinationals. They have more engineering capabilities, and they’re investing more in technology, software, and automation. Financial planning is better. People are using data more effectively. And I think the pandemic showed that companies can change the paradigm—they realized that they could have people at home and still run the company, but it also showed that they can make decisions more quickly and deal with complexity faster.

 

I think most companies realized that they got caught flat-footed in the pandemic. And they're under pressure from their boards to be more thoughtful about having more resiliency in supply. I think it’s moving from efficiency—like just-in-time production—to more resiliency and durability. Put another way, it’s about having an insurance policy.

 

 

How are companies positioning heading into 2023?

Waldron: There's a countervailing dynamic here: while I believe companies will want to reduce capital spend in 2023, many companies are trying to figure out how to build more resiliency in their supply chain—and that is fundamentally inflationary and requires more spend. Shifting the supply chain from China to Vietnam or Mexico represents incremental spend because they’re not going to pull out of China; they are just going to build more resiliency on top of China. So, the incremental dollar may not go to China, but they're not likely reducing their China spend. They're just putting their incremental dollar somewhere else. Or they're going to spend a little more in China and a little more in Mexico, and they are going to grow the whole pie. That's the decision making that's going on right now.

 

In my view, the adjustment in headcount will be the big thing to watch, more so than capital spend. I think there was this massive growth in headcount in many companies, and a lot of that was in engineering. Now I think the big debate will be where does hiring go in the early part of 2023? We’ve already started to see some layoffs. The Federal Reserve (Fed) will be watching that employment picture and how it plays out in the first couple quarters of 2023, because that's going to help them gauge how much room they have to try to bring inflation down without unduly damaging the employment picture.

 

 

How are you thinking about the geopolitics and their impact on markets?

Waldron: I think there will be a trend towards less globalization, driven by geopolitics. The pandemic fostered many things, one of which is a rise in nationalist behavior and mindset as each country had their own healthcare response. It didn’t feel like a globally coordinated response, and perhaps the mindset is less desiring of the coordination. However, technology and the interconnectedness of supply chains make it difficult for globalization to be completely reversed. So, I think it's a gradual disconnection of points where you feel more exposed, but it's not like you're disconnecting all the way back to your home country.

 

 

You've been through different market cycles. Does this cycle remind you of any other times in your experience or in history?

Waldron: The pandemic is unlike anything else we've faced in our lifetimes. We had a significant demand shock and then saw the central banks try to resuscitate demand by putting enormous amounts of liquidity in the system. And because we had such a decline and then such an increase in liquidity, we must navigate through those imbalances, all while we have an economic contraction.

 

The UK’s recent liquidity issues stemming from liability-driven investing structures is concerning. It shows that when you have these imbalances and you have leverage, even with safe securities, things can go awry. And there was a little bleed through into the US markets because of what happened in the pension markets in the UK.

 

Government debt is also a destabilizing factor. The real economy was shocked with the pandemic, and the governments came to help. All that financing was essentially moved from the private market to the public market, resulting in extra leverage on public balance sheets. That's all fine when you have low interest rates, but now we have higher interest rates. The US has the global reserve currency, energy security, food security, and other advantages, but if you look at it through the lens of a large leveraged buyout, it went from financing at 2% to now financing at 5 or 6%. That's a big difference, and a very nonproductive cost in the US economy. For other countries that don't have the same advantages as the US, there is greater concern about those imbalances with that cost of capital shift and the currency mismatch.

 

 

Is there anything that Goldman Sachs did during this crisis that you think was really helpful in navigating those uncertain times?

Waldron: We're big believers that liquidity is ultimately what matters. Asset prices and other things are important, but you have to maintain liquidity above all else to provide ballast. We tend to focus on having more liquidity, being more careful in the ways we are funded, and talking to our clients about their funding.

 

It was easy for companies to fund themselves in a lower-for-longer environment where there was an abundance of liquidity. Today, the cost of that funding is increasingly expensive. We tend not to want to have longer-dated duration risk and make sure we can get ourselves closer to home more quickly with less disruption in the markets.

 

 

Shifting gears to the topic of sustainability, which is on many clients and firms’ minds. Can you expand on how it fits within Goldman Sachs’ strategy?

Waldron: We’re very focused on what we call “sustainable finance,” which includes both climate transition and inclusive growth efforts. In 2020 we put forward a target to deploy $750 billion across investing, financing and advisory activities by 2030 and bring our commercial expertise to help our clients accelerate climate transition and advance inclusive growth.

 

On the climate transition side specifically, our role is to be a financier, an investor, and an advisor—usually all three at the same time. For a renewable energy project in Latin America that has some interesting new technology to create more climate transition capability, we will advise, we will finance, and we will typically invest so that we can find a way to be the most holistic provider of that capability. And we will likely do that with a development bank or some other governmental institution in a “blended finance” manner where it's a public-private partnership. The public sector might allow for the project to be financed more intelligently, and then Goldman Sachs can find ways to marshal the capital.

 

Beyond that, as it relates to the climate transition, the way I think about it is simple: what's the EBITDA of transition? How do you create the metrics that the market can rally behind? How do you think about decarbonization technology? How do you think about the way we're going to get capital to work? I’m optimistic about the work we’re doing in this space—the rest of the market might start to look and say, “I'd like to rally a bit more behind those ideas.”

 

 

Is there anything clients should be asking you right now?

Waldron: I’d flip that question around. I think the thing that I'm wrestling with as the COO of our firm is digital transformation, increased automation, and the critical importance of human capital. Increasingly, we need leaders that understand operations and engineering as much as they understand markets. When I meet with clients, I would like to know from them how they are navigating this transition.

 

If you're running the global markets business of the future, you probably need an engineering background, or at least one of those people running a chunk of it needs an engineering background. That probably wasn't the case ten years ago. But it’s complicated to figure out where to put those dollars, how fast this transformation is happening, and what we’re missing that we're not investing in. You don’t want to get to a place where you're all about engineering and you're not about people.

 

When I go home at night and think about my biggest challenge, it's actually not risk managing the firm because we've got an enormous number of talented people focused on that. It's really more this question of how to optimally execute the digital transformation and people aspect of things, and how to get that right.

 

 

 

 

Related Insights

Start the Conversation

Committed to providing you with the insights you need to build your practice.

 

Glossary

Duration risk is the risk that changes in interest rates will either increase or decrease the market value of a fixed-income investment.

EBITDA is earnings before interest, taxes, depreciation, and amortization.

General Disclosures

Views and opinions expressed are for informational purposes only and do not constitute a recommendation by Goldman Sachs Asset Management to buy, sell, or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change, they should not be construed as investment advice.

This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice. This material has been prepared by Goldman Sachs Asset Management and is not financial research nor a product of Goldman Sachs Global Investment Research (GIR). It was not prepared in compliance with applicable provisions of law designed to promote the independence of financial analysis and is not subject to a prohibition on trading following the distribution of financial research. The views and opinions expressed may differ from those of Goldman Sachs Global Investment Research or other departments or divisions of Goldman Sachs and its affiliates. Investors are urged to consult with their financial advisors before buying or selling any securities. This information may not be current and Goldman Sachs Asset Management has no obligation to provide any updates or changes.

THIS MATERIAL DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION WHERE OR TO ANY PERSON TO WHOM IT WOULD BE UNAUTHORIZED OR UNLAWFUL TO DO SO.

Prospective investors should inform themselves as to any applicable legal requirements and taxation and exchange control regulations in the countries of their citizenship, residence or domicile which might be relevant.

United Kingdom: In the United Kingdom, this material is a financial promotion and has been approved by Goldman Sachs Asset Management International, which is authorized and regulated in the United Kingdom by the Financial Conduct Authority.

European Economic Area (EEA):This material is a financial promotion disseminated by Goldman Sachs Bank Europe SE, including through its authorised branches ("GSBE"). GSBE is a credit institution incorporated in Germany and, within the Single Supervisory Mechanism established between those Member States of the European Union whose official currency is the Euro, subject to direct prudential supervision by the European Central Bank and in other respects supervised by German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufischt, BaFin) and Deutsche Bundesbank.

Switzerland: For Qualified Investor use only – Not for distribution to general public. This is marketing material. This document is provided to you by Goldman Sachs Bank AG, Zürich. Any future contractual relationships will be entered into with affiliates of Goldman Sachs Bank AG, which are domiciled outside of Switzerland. We would like to remind you that foreign (Non-Swiss) legal and regulatory systems may not provide the same level of protection in relation to client confidentiality and data protection as offered to you by Swiss law.

Asia excluding Japan: Please note that neither Goldman Sachs Asset Management (Hong Kong) Limited (“GSAMHK”) or Goldman Sachs Asset Management (Singapore) Pte. Ltd. (Company Number: 201329851H ) (“GSAMS”) nor any other entities involved in the Goldman Sachs Asset Management business that provide this material and information maintain any licenses, authorizations or registrations in Asia (other than Japan), except that it conducts businesses (subject to applicable local regulations) in and from the following jurisdictions: Hong Kong, Singapore, Malaysia, India and China. This material has been issued for use in or from Hong Kong by Goldman Sachs Asset Management (Hong Kong) Limited, in or from Singapore by Goldman Sachs Asset Management (Singapore) Pte. Ltd. (Company Number: 201329851H) and in or from Malaysia by Goldman Sachs (Malaysia) Sdn Berhad (880767W).

Australia: This material is distributed by Goldman Sachs Asset Management Australia Pty Ltd ABN 41 006 099 681, AFSL 228948 (‘GSAMA’) and is intended for viewing only by wholesale clients for the purposes of section 761G of the Corporations Act 2001 (Cth). This document may not be distributed to retail clients in Australia (as that term is defined in the Corporations Act 2001 (Cth)) or to the general public. This document may not be reproduced or distributed to any person without the prior consent of GSAMA. To the extent that this document contains any statement which may be considered to be financial product advice in Australia under the Corporations Act 2001 (Cth), that advice is intended to be given to the intended recipient of this document only, being a wholesale client for the purposes of the Corporations Act 2001 (Cth). Any advice provided in this document is provided by either of the following entities. They are exempt from the requirement to hold an Australian financial services licence under the Corporations Act of Australia and therefore do not hold any Australian Financial Services Licences, and are regulated under their respective laws applicable to their jurisdictions, which differ from Australian laws. Any financial services given to any person by these entities by distributing this document in Australia are provided to such persons pursuant to the respective ASIC Class Orders and ASIC Instrument mentioned below.

  • Goldman Sachs Asset Management, LP (GSAMLP), Goldman Sachs & Co. LLC (GSCo), pursuant ASIC Class Order 03/1100; regulated by the US Securities and Exchange Commission under US laws.
  • Goldman Sachs Asset Management International (GSAMI), Goldman Sachs International (GSI), pursuant to ASIC Class Order 03/1099; regulated by the Financial Conduct Authority; GSI is also authorized by the Prudential Regulation Authority, and both entities are under UK laws.
  • Goldman Sachs Asset Management (Singapore) Pte. Ltd. (GSAMS), pursuant to ASIC Class Order 03/1102; regulated by the Monetary Authority of Singapore under Singaporean laws
  • Goldman Sachs Asset Management (Hong Kong) Limited (GSAMHK), pursuant to ASIC Class Order 03/1103 and Goldman Sachs (Asia) LLC (GSALLC), pursuant to ASIC Instrument 04/0250; regulated by the Securities and Futures Commission of Hong Kong under Hong Kong laws

 

No offer to acquire any interest in a fund or a financial product is being made to you in this document. If the interests or financial products do become available in the future, the offer may be arranged by GSAMA in accordance with section 911A(2)(b) of the Corporations Act. GSAMA holds Australian Financial Services Licence No. 228948. Any offer will only be made in circumstances where disclosure is not required under Part 6D.2 of the Corporations Act or a product disclosure statement is not required to be given under Part 7.9 of the Corporations Act (as relevant).

Canada: This presentation has been communicated in Canada by GSAM LP, which is registered as a portfolio manager under securities legislation in all provinces of Canada and as a commodity trading manager under the commodity futures legislation of Ontario and as a derivatives adviser under the derivatives legislation of Quebec. GSAM LP is not registered to provide investment advisory or portfolio management services in respect of exchange-traded futures or options contracts in Manitoba and is not offering to provide such investment advisory or portfolio management services in Manitoba by delivery of this material.

Japan: This material has been issued or approved in Japan for the use of professional investors defined in Article 2 paragraph (31) of the Financial Instruments and Exchange Law by Goldman Sachs Asset Management Co., Ltd.

South Africa: Goldman Sachs Asset Management International is authorised by the Financial Services Board of South Africa as a financial services provider.

Malaysia: This material is issued in or from Malaysia by Goldman Sachs (Malaysia) Sdn Bhd (880767W)

Hong Kong: This material has been issued or approved for use in or from Hong Kong by Goldman Sachs Asset Management (Hong Kong) Limited.

Singapore: This material has been issued or approved for use in or from Singapore by Goldman Sachs Asset Management (Singapore) Pte. Ltd. (Company Number: 201329851H).

Bahrain: This material has not been reviewed by the Central Bank of Bahrain (CBB) and the CBB takes no responsibility for the accuracy of the statements or the information contained herein, or for the performance of the securities or related investment, nor shall the CBB have any liability to any person for damage or loss resulting from reliance on any statement or information contained herein. This material will not be issued, passed to, or made available to the public generally.

Kuwait: This material has not been approved for distribution in the State of Kuwait by the Ministry of Commerce and Industry or the Central Bank of Kuwait or any other relevant Kuwaiti government agency. The distribution of this material is, therefore, restricted in accordance with law no. 31 of 1990 and law no. 7 of 2010, as amended. No private or public offering of securities is being made in the State of Kuwait, and no agreement relating to the sale of any securities will be concluded in the State of Kuwait. No marketing, solicitation or inducement activities are being used to offer or market securities in the State of Kuwait.

Oman: The Capital Market Authority of the Sultanate of Oman (the "CMA") is not liable for the correctness or adequacy of information provided in this document or for identifying whether or not the services contemplated within this document are appropriate investment for a potential investor. The CMA shall also not be liable for any damage or loss resulting from reliance placed on the document.

Qatar This document has not been, and will not be, registered with or reviewed or approved by the Qatar Financial Markets Authority, the Qatar Financial Centre Regulatory Authority or Qatar Central Bank and may not be publicly distributed. It is not for general circulation in the State of Qatar and may not be reproduced or used for any other purpose.

Saudi Arabia: The Capital Market Authority does not make any representation as to the accuracy or completeness of this document, and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this document. If you do not understand the contents of this document you should consult an authorised financial adviser.

The CMA does not make any representation as to the accuracy or completeness of these materials, and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of these materials. If you do not understand the contents of these materials, you should consult an authorised financial adviser.

United Arab Emirates: This document has not been approved by, or filed with the Central Bank of the United Arab Emirates or the Securities and Commodities Authority. If you do not understand the contents of this document, you should consult with a financial advisor.

Israel: This document has not been, and will not be, registered with or reviewed or approved by the Israel Securities Authority (ISA”). It is not for general circulation in Israel and may not be reproduced or used for any other purpose. Goldman Sachs Asset Management International is not licensed to provide investment advisory or management services in Israel.

Jordan: The document has not been presented to, or approved by, the Jordanian Securities Commission or the Board for Regulating Transactions in Foreign Exchanges.

Colombia: Esta presentación no tiene el propósito o el efecto de iniciar, directa o indirectamente, la adquisición de un producto a prestación de un servicio por parte de Goldman Sachs Asset Management a residentes colombianos. Los productos y/o servicios de Goldman Sachs Asset Management no podrán ser ofrecidos ni promocionados en Colombia o a residentes Colombianos a menos que dicha oferta y promoción se lleve a cabo en cumplimiento del Decreto 2555 de 2010 y las otras reglas y regulaciones aplicables en materia de promoción de productos y/o servicios financieros y /o del mercado de valores en Colombia o a residentes colombianos. Al recibir esta presentación, y en caso que se decida contactar a Goldman Sachs Asset Management, cada destinatario residente en Colombia reconoce y acepta que ha contactado a Goldman Sachs Asset Management por su propia iniciativa y no como resultado de cualquier promoción o publicidad por parte de Goldman Sachs Asset Management o cualquiera de sus agentes o representantes. Los residentes colombianos reconocen que (1) la recepción de esta presentación no constituye una solicitud de los productos y/o servicios de Goldman Sachs Asset Management, y (2) que no están recibiendo ninguna oferta o promoción directa o indirecta de productos y/o servicios financieros y/o del mercado de valores por parte de Goldman Sachs Asset Management.

Esta presentación es estrictamente privada y confidencial, y no podrá ser reproducida o utilizada para cualquier propósito diferente a la evaluación de una inversión potencial en los productos de Goldman Sachs Asset Management o la contratación de sus servicios por parte del destinatario de esta presentación, no podrá ser proporcionada a una persona diferente del destinatario de esta presentación.

Date of First Use: December 15, 2022 299516-OTU-1707458

Please enter your email address to continue reading.

Confirm Your Access


An email has been sent to you to verify ownership of your email address.

Please verify the link in the email by clicking the confirmation button. Once completed, you will gain instant access to our insights.

If you did not receive the email from us please check your spam folder or try again.