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| Talks at GS With Dell Technologies Chairman and CEO Michael Dell |
 | | Above (L to R): David Solomon of Goldman Sachs and Michael Dell of Dell Technologies | Michael Dell has long believed that “technology is about enabling human potential,” and the recent acceleration of the digital transformation has only deepened that view. “The impact continues to amaze me and it continues to grow,” Dell told Goldman Sachs chairman and CEO David Solomon during a recent episode of Talks at GS. “I think we're seeing this rapid emergence of a connected and intelligent world, where all the physical objects are becoming instrumented and connected and digitized. 5G is about connecting things; 4G was about connecting people. And if you think you have lots of data now, you'll have a thousand times more in a few years. And so the combination of 5G, AI, IoT all reinforce each other and I think are going to enable us to do more than we've ever imagined.” Dell called the rollout of 5G a “generational opportunity” to help level the playing field on everything from healthcare to education. “In this digitally transformed world, the greatest opportunity is: how do we put all this data to work, to help the most people?” |
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| | The Daily Check-In With Goldman Sachs |
 | The US equity market is up 45 percent since its trough in March, but rising COVID-19 infections, slowing economic growth and election uncertainties have prompted many investors to question the sustainability of the rally. “Clients are asking how it is possible that the markets have done so well when there are so many uncertainties,” Sharmin Mossavar-Rahmani, head of Goldman Sachs’ Investment Strategy Group, explained in a recent episode of The Daily Check-In with Goldman Sachs. As laid out in ISG's recent report, Climbing the Wall of Worry, the path forward for equities may be a bumpy one, but it's one they consider worth leaning into given the near-negligible returns offered by bonds and cash. “As long-term investors, when the market is somewhat overvalued—as it is now—but not excessively overvalued, and the general direction of the economy, of monetary policy and fiscal policy is favorable, clients should stay invested,” Mossavar-Rahmani said.
In other episodes of The Daily Check-In, Philip Berlinski, co-chief operating officer of Global Equities, shared his view on trends shaping the global equity markets, including the rise of retail investors. From Goldman Sachs Research, Allison Nathan discussed her latest Top of Mind report on the drivers of racial economic equality in the United States, while Sharmini Chetwode, head of ESG Research for Asia, explored carbon offsets as a critical, but imperfect, tool in the transition to a low-carbon economy.
For more Daily Check-In videos, subscribe to our channel on YouTube. |
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| | Podcast: Where Insurance CIOs Are Allocating Capital |
Rather than shifting capital in a new direction, the pandemic has accelerated a trend already underway in the insurance industry: a move toward private equity and credit. Insurance companies are turning to these markets to generate outsized returns in a low-interest rate environment, according to Mike Siegel, who joined the Exchanges at Goldman Sachs podcast to discuss findings from Goldman Sachs Asset Management’s annual insurance report and survey of chief investment officers across the global insurance industry. "Insurance companies have very patient liabilities," explained Siegel, who heads GSAM’s Insurance Asset Management and Liquidity Solutions businesses. "They're not subject to run. They're not subject to a flight to quality. So they're able to invest in the long term in private or illiquid assets...[which] typically have higher yields or they have higher expected returns to compensate for the lack of liquidity."
Listen to the podcast on Apple Podcasts or YouTube. |
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| | Marcus by Goldman Sachs® Quarterly Consumer Sentiment Study |
While US consumers are feeling financially strained, many expect to return to pre-COVID activities, such as shopping and dining, in less than a year, according to a recent survey by Marcus by Goldman Sachs®, the firm’s digital consumer business. The Consumer Sentiment Survey was conducted among a nationally representative sample (using U.S. Census data) of 1,501 respondents. Key findings of the survey, which was conducted June 22 to 25, include:
Financially Strained—For Now. More than three-quarters of respondents (77%) feel they are the same or worse off financially than they were six months ago. Also, one in four respondents (25%) think that it will take the US economy six to 12 months to make a full recovery and return to pre-COVID-19 levels of activity. Looking ahead, almost a third of respondents (32%) expect that in six months from now they will be better off financially than they are now.
Returning to Pre-COVID Behaviors. Survey respondents said it will take less than a year before they feel comfortable returning to certain activities such as shopping at brick-and-mortar store locations (77%); followed by dining out at restaurants (74%); and going to a live sporting event or concert with a large crowd. (51%).
Spending at Pre-COVID Levels. Compared to their pre-COVID behaviors, respondents said they expected to spend the same or more in areas such as shopping for clothes, shoes, jewelry, or other similar items (64%), followed by dining out at restaurants (53%) and domestic travel (52%). |
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| | Briefly…on the Rise of Takeover Activity in Japan |
 | Last year saw a new trend in M&A involving Japanese companies—a sharp increase in large tender offers, including rarely seen hostile bids. The trend has continued in 2020, and may accelerate as a result of the pandemic. Goldman Sachs Research’s Hiromi Suzuki explains the changing times.
Can you explain the backdrop for M&A activity in Japan? How do current levels compare with the historical trend?
Hiromi Suzuki: We’re seeing a noticeable rise in tender offer activity, which is simply an offer to the shareholders of a publicly traded firm to purchase a portion or the entirety of their shareholdings. While this year is only just half over, the planned value of such offers to date in 2020 has risen to 3.0 trillion yen, with the country’s second- and third-largest ever offers announced during the first half. This already exceeds the previous record of 2.5 trillion yen for the full year of 2007. The pickup is being driven by an increase in large deals, with both the average and median values of planned tender offers at record highs in 2020.
What is driving the surge?
Hiromi Suzuki: Broadly speaking, corporate governance reforms and business restructuring are the key contributing factors. One long-standing bugbear among investors has been the prevalence of listed subsidiaries in Japan; there are still 281 such companies as of the end of June. These so-called parent-child listings have often been criticized for harboring potential conflicts of interest between the parent and minority shareholders of the listed subsidiaries, and make it more complicated to assess corporate value. In February, Japan Exchange Group, which operates the Tokyo Stock Exchange, announced revisions to listing regulations aimed at enhancing the governance of listed subsidiaries by tightening the criteria for independent directors and corporate auditors. Also from this year, proxy advisory firm Institutional Shareholder Services has begun calling for at least one-third of directors in companies with a controlling shareholder to be independent.
Parent companies can use tender offers to take full control of a listed subsidiary by making it a wholly owned entity. And with the screws tightening, some Japanese firms are taking action to review their corporate structures and either buy out or sell off listed subsidiaries. These transactions accounted for the lion’s share of tender offers in 2019.
COVID-19 is likely to be an additional spur for companies to review their capital structures. With the business environment likely to deteriorate further due to the pandemic, we expect more announcements of large-scale tender offers as parents look to shore up subsidiaries and improve their earnings by making them wholly owned or consolidated entities. As the total market capitalization of listed subsidiaries has fallen 8% this year through July 8, it is also cheaper for parents to execute these offers.
What about hostile takeovers? Haven’t they traditionally been taboo in Japan?
Hiromi Suzuki: It is true that unsolicited tender offers have been rare in Japan—and that successful bids are even more unusual. But the situation is changing dramatically. On the corporate side, the renewed focus on shareholder value means that companies themselves may be more willing to at least consider bids—unsolicited or otherwise—if a subsidiary’s sale would increase their capital efficiency. As a first step we are already seeing companies begin reviewing their capital ties with listed subsidiaries with an urgency unimaginable in previous years.
In line with the government’s corporate governance reforms, domestic institutional investors have also become more keenly aware of their fiduciary duties to use their voting rights to encourage enterprise value growth. In other words, they are less likely to resist unsolicited tender offers if they deem the transaction value-accretive. This awareness has also made it more difficult for companies to maintain takeover defense strategies—or so-called “poison pills.” Popular in Japan, these mechanisms allow companies to issue new shares, often at a discount, to existing and “loyal” shareholders, diluting the stake of a potential acquirer. However, 2019 marked the first year where the number of companies abandoning takeover defense measures exceeded the number with them. This year, more than 40 companies have said that they will give up such measures, reflecting the growing risk that they will not receive shareholder approval at annual general meetings. As a result, the potential for unsolicited bids to succeed has increased.
What’s the bottom line for investors?
Hiromi Suzuki: The progress of corporate governance in Japan, coupled with increasing numbers of activist investors operating in the market, is driving a wider discourse around the independence of Japanese companies and their accountability to shareholders. Given an ongoing focus on corporate reorganization to increase capital efficiency, and the fading resistance to hostile takeovers, we expect to see more tender offers, which could create interesting opportunities for investors going forward. |
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| | Goldman Sachs Media Highlights |
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