Strats: The future of investment banking

Goldman Sachs is the most venerated investment bank on Wall Street. If you’ve ever attended an investment banking strategy meeting where the future direction of your company was discussed, you likely heard, “Well, what are Goldman doing?”

There is an awe surrounding the black box of Goldman Sachs activity. For any strategic decision, it’s usually assumed that Goldman has not only already thought about and answered the question, but have also already implemented the solution. Even if you work for a competitor to Goldman, you likely still hold its decisions in high regards and are impacted by the firm's direction.

The propensity to emulate Goldman Sachs is something you’ll encounter from most firms across the Street, with the exception of one critical area—one I believe will be major for the future of the industry—the Strats division.

At Goldman, the Strats division has been around for more than a decade and is ingrained in every nook and cranny of the business. But more than this, the Strats division has become one for the most influential and powerful groups within the bank with its alumni often rising to strategic leadership roles.

So what is it about Strats? Largely they are considered quants with ninja-like skills across the following areas:

I believe this to be short-sighted and lacking the addition of change management and strategic advisory. In my view, Strats skills are better represented like this:

Why change management and strategic advisory? It is usually the Strats who have to design and implement what the future of the investment bank looks like—it’s their vision that ultimately shapes the industry. This really isn’t that surprising when you consider the outsized influence technologists have on how we interact with each other and the world at large today. What is surprising is that other banks haven’t adopted something similar. Is it considered too late? Too expensive? I have asked this question myself in many management meetings.

Consider some of Goldman’s Strats alumni and the positions they now hold at the firm:

• Marty Chavez - Deputy Chief Financial Officer (more recently CIO)
• Elisha Wiesel - Chief Information Officer
• John Madsen - co-head, Technology Division
• Umesh Subramanian - co-head, Technology Division

You may say, “That’s finance and tech, not banking.” But even Lloyd Blankfein, the firm’s, CEO says the company is a technology firm wrapped in a bank.

So:

• Effectively, Goldman Sachs is a technology company.
• The tech team, under the control of former-Strats, is its largest division, comprising about a third of the bank.
• There are more engineers and programmers at Goldman Sachs than Facebook, Twitter, or LinkedIn.

Should you go back to school and get your masters in computer science? No. But the world has changed, and investment banking is no exception. Take a look at the combination of skills the Strats have and think about what that may mean for the industry and your career.

Let me know your thoughts on the future of the industry at adrian.s.crockett@gmail.com.