A slice of the fund market Wall Street calls "boomer candy" is now large enough to draw acquisitions from the biggest banks. Goldman Sachs said Wednesday it agreed to buy Neos Investments, an exchange-traded fund manager, adding the firm to its asset-management business. An exchange-traded fund, or ETF, pools a basket of assets into a single security that trades on an exchange throughout the day, the same way an individual stock does.
The acquisition
Goldman Sachs is buying Neos Investments and folding it into an asset-management operation it has publicly described as fast-growing. Financial terms were not disclosed in Wednesday's announcement.
Neos Investments builds and runs ETFs. The business model works on scale: package assets into funds, charge a management fee on every dollar sitting inside, and grow that revenue as assets grow. Goldman acquires both the firm and the fee stream that comes with it.
Why banks are paying attention
"Boomer candy" is a colloquial term for a class of ETFs that has drawn strong demand from older retail investors, particularly those in or approaching retirement. The phrase signals the audience: investors more focused on income than on outright capital growth.
Goldman described the Neos deal as its "latest," which implies it has been building in this space for some time. When a deal is called the "latest," the word is doing work. It points to a strategy that is repeating itself. Asset management is a fee business, and fees compound with scale. Each acquisition adds assets under management, and more assets mean more revenue.
Large institutions do not typically buy ETF managers early. They wait until a category has proven large enough that owning a piece of the fee structure pays off.
The exact assets Neos manages were not reported Wednesday. That figure will ultimately answer whether this category is as large as the dealmaking suggests.