"Lollipops for boomers": Goldman has bet on the booming market for defensive ETFs

Goldman Sachs announced the acquisition of Innovator Capital Management, an exchange-traded fund (ETF) manager. The amount of the transaction will be approximately $2 bln.

Innovator had about $28 billion under management in 159 ETFs as of Sept. 30, Goldman said. The purchase will be paid for in cash and securities, with a portion of the payout contingent on achieving specified benchmarks.

Innovator Capital Management specializes in so-called defined-outcome funds, or "buffer" funds, which use options to partially protect investors from market declines while allowing them to make money on the upside - but only up to a predetermined limit. These products have become particularly popular among the baby boomer generation, earning them the nickname "boomer candy," The Wall Street Journal explained.

The deal will significantly expand the list of ETFs offered by the bank, Barron's noted. According to Goldman itself, the deal will elevate its asset management division into a top-10 provider of active ETFs in the United States.

In addition, the purchase of Innovator Capital Management is a bet on the booming segment of the exchange-traded fund market, WSJ said. The acquisition is aimed at expanding the bank's product line beyond traditional investing, and fits into CEO David Solomon's strategy of developing asset management as a key business line, the publication noted.

Buffer ETFs are a form of active funds. Unlike traditional passive ETFs that simply follow an index (such as the S&P 500), active funds are managed by a person who manually builds the portfolio and aims to outperform the market, the WSJ explained. The popularity of buffer ETFs has grown dramatically in recent years amid investor concerns about market volatility and the risks of a prolonged correction. Innovator was one of the early players in this segment, launching its first fund in 2018.

Goldman Sachs has made several other deals in recent months aimed at expanding its portfolio. In October, for example, it announced the acquisition of venture capital firm Industry Ventures in a deal that could reach $965 million. In September, the bank said it would invest $1 billion in T. Rowe Price and to jointly develop products that would allow it to incorporate private equity elements into pension plans.

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