Goldman Sachs: Investment Management Career Prep

Investment management is a crucial aspect of the economic industry, facilitating the flow of capital and providing essential financial services to individuals, businesses, and governments. Goldman Sachs, a leading global investment bank, plays a pivotal role in this field, offering a diverse range of financial services such as asset management, investment banking, and securities trading. With a rich history dating back to 1869, Goldman Sachs has established itself as a significant player in the global economy, known for its skill in underwriting securities and mergers and acquisitions.

To pursue a career in investment management at Goldman Sachs, individuals should possess a strong academic background in fields such as finance, economics, or business, with a deep understanding of financial markets, regulatory compliance, and risk management. Internship and graduate programs offered by the company provide valuable opportunities for students to gain exposure to the dynamic and challenging environment of investment management, allowing them to develop the necessary skills and network with professionals.

In this topic, we will delve into the qualifications, skills, and pathways for those aspiring to build a career in investment management at Goldman Sachs, exploring the company's history, culture, and the diverse range of financial services it offers.

Investment banking interview questions

Technical Questions

• How do the three financial statements connect to each other?
• What is a DCF valuation?
• Walk me through a DCF. What does a DCF do?
• What factors can lead to the dilution of EPS in an acquisition?
• If you are in a business that wants to preserve cash, what type of inventory accounting method would you use (LIFO or FIFO) in a time of rising prices, and why?
• You're using multiples to value a company but those multiples are skewed. What do you do?
• What is Minority Interest and why do we add it to the Enterprise Value formula?
• Why is cash subtracted from Enterprise Value (EV)?
• Briefly walk me through a discounted cash flow analysis (including WACC).
• How do you get to free cash flow (FCF) from EBITDA?
• If a company raises debt, what happens to its WACC? What might make your answer wrong?
• A client in the aerospace industry wants to know about related markets that are impacting his stock price. Which industries and markets do you look at?
• Why can’t you use EV/Earnings or Price/EBITDA as valuation metrics?
• Discuss a deal you have read about recently.
• How do the three financial statements fit together?
• Which is the best method of valuing a company and why?
• What does shareholders' equity consist of? How does net income affect it?
• What will you actually do as an analyst or associate in an investment bank? What attracts you to this?
• How does depreciation move throughout the financial statements?
• What's the NPV of $1 with a 10% discount rate over 10 years?
• You have two companies with the same P/E ratio. What makes their EV/EBITDA different?
• How do you choose between a company with a P/E ratio of 8 and another of 10?
• You receive a dollar for the rest of your life. What's the value of those dollars today?
• Why IBD instead of consulting?
• How would you value a company that was very successful until recently but lost market share due to a single event?
• How do you define depreciation and how would you show it on financial statements?
• Is there an economic slowdown? How did it start?
• Where do you see markets trading in three months, six months, nine months?
• Which structured equity product would you issue in the current market conditions?
• Explain the options Greeks.
• Explain what a put option is.
• Explain the assumptions behind Black Scholes.
• Are equities overpriced?
• What's moving the markets now?
• What's your top stock pick?
• What's the beta of a slot machine?
• General Motors or Facebook? Why?
• How would you hedge against the risk of an Apple bond defaulting?
• Why are you better than other candidates on picking stocks?
• How should a bank evaluate the creditworthiness of a counterparty?
• Pitch a long stock. Pitch a short stock.
• How would you invest $1k?
• If you had $1bn to invest in global equities, how would you position your portfolio?
• You're given information about a company's stock price over a period of 12 months. How do you determine how risky it is?
• What's the Monte Carlo method for pricing options? How does it work?
• Talk to me about an asset class you're interested in.
• What's the first question you would ask a potential client?
• Describe a time when you used data to forecast trends.
• What are today's 10-year treasury bond returns?
• Name a political event you're tracking. How do you expect this to impact the markets?
• You have a zero-coupon bond and a par bond. Which has higher duration?
• What do you think of Bitcoin?

Behavioral Questions

• Why Goldman Sachs and why the division you are applying to?
• Describe a current event or recent transaction that you find interesting.
• Why have you applied for IBD Classics (coverage groups)?
• Why have you applied for IBD Financing (product groups)?
• How does your experience make you a strong candidate for the job?
• Where do you see yourself in 5 years?
• Tell me about a time you didn't get along with a coworker.
• Tell me about a time when you were part of a failed project.
• Give us an understanding of the job you applied for.
• What do you like to do outside of school or work?
• What is a weakness that you have and how are you working to improve it?
• Can you walk me through a recent financial event or market development that caught your attention and explain its implications?
• What is a recent IB deal you've seen and what fascinates you about it?
• Walk me through your resume, why you wanted to switch jobs, what made you interested in GS and this group, etc.

Fit Questions

• A team member isn't contributing. You confront them. They still don't contribute. What next?
• How do you handle a client who goes against the company policy?
• Walk me through your CV.
• Which was your preferred class at university?
• Your professor accidentally sends you confidential information intended for another student. What do you do?
• You are working on a secret project. Your previous manager asks about it. He says he wants information on the project to help with an important decision. What do you do?
• What are your strengths?
• What are your weaknesses?
• Which of your skills and experiences make you appropriate for this job?
• What motivates you in life?
• What would make you satisfied?
• What makes Goldman Sachs different from its competitors?
• Why do you want to work for this division of Goldman Sachs?
• Why do you want this job at Goldman Sachs?
• How do you know you want this job at Goldman Sachs?

Financial modelling and forecasting

Financial modelling is a critical skill for investment bankers, as it involves creating a quantitative model that maps out a company's financial statements, including the income statement, balance sheet, and cash flow statement. This model helps analyse a company's financial performance and make informed decisions about investments and credit risk.

To excel in financial modelling, one should have a strong understanding of accounting principles, financial statement analysis, and corporate finance. Proficiency in spreadsheet software, such as Excel, is also essential for building and manipulating financial models.

Forecasting, on the other hand, involves predicting future financial outcomes based on historical data and trends. Investment bankers use forecasting techniques to assess companies' creditworthiness, project future cash flows, and make investment decisions.

To be proficient in forecasting, investment bankers need to be adept at financial analysis, industry research, and understanding macroeconomic factors that can impact a company's financial health. They also need strong critical thinking and problem-solving skills to interpret data and make accurate predictions.

Goldman Sachs, as a leading investment bank, places a strong emphasis on financial modelling and forecasting skills. Their interns and professionals work closely with clients to help them raise funds, buy and sell financial instruments, and manage investment risk. Therefore, a solid foundation in these areas is essential for anyone aspiring to a career in investment management at Goldman Sachs.

Wealth management strategies

Wealth management is a critical component of the financial industry, facilitating the flow of capital and providing essential financial services to individuals, businesses, and governments. Goldman Sachs's wealth management division helps clients of all sizes and individual consumers meet their financial goals. Here are some strategies that Goldman Sachs employs in its wealth management practices:

Comprehensive Wealth Management Plans

Goldman Sachs Private Wealth Management (PWM) creates tailored wealth management plans for ultra-high net worth individuals, families, and select institutions. PWM teams work closely with clients to understand their needs and provide customized strategies leveraging the firm's investment experience, diverse capabilities, and global reach. This includes offering tax and estate planning, philanthropic planning, and private banking and lending services.

Advisor-Led Approach

Goldman Sachs's wealth management businesses are advisor-led, providing financial planning, investment management, banking, and comprehensive advice to a wide range of clients. This includes ultra-high net worth and high net worth individuals, family offices, foundations, endowments, and corporations and their employees. The firm's Private Wealth Advisors (PWAs) offer an extensive investment platform, including the full product and service offerings of Goldman Sachs and beyond.

Focus on People, Clients, and Technology

Goldman Sachs's growth in wealth management is driven by a relentless focus on its people, clients, and technology. The firm emphasizes an apprenticeship culture, where junior team members learn from seasoned professionals, fostering the development of the next generation of leaders. Additionally, Goldman Sachs University helps employees grow professionally through ongoing feedback, talent programs, and continuous development.

Innovative Financial Products

Goldman Sachs develops and offers innovative financial products to meet the diverse needs of its clients. These products may include structured derivatives or other advanced tools designed to address complex financial challenges. The firm optimizes its comprehensive resources and network to provide clients with access to exclusive investment opportunities, enhancing overall performance.

Strategic Mergers and Acquisitions Advisory

Goldman Sachs provides strategic advice on mergers and acquisitions (M&A) to corporate clients, helping them navigate complex financial deals and position themselves for long-term success. The firm's robust presence in capital markets enables clients to raise capital effectively through initial public offerings (IPOs) and other fundraising activities, contributing to financial stability.

Risk Management and Ethical Standards

Goldman Sachs places a strong emphasis on risk management, assisting clients in navigating the complexities of financial markets. The firm adheres to strict ethical standards and compliance, building trust with clients. This includes safeguarding and leveraging clients' financial positions through active portfolio management and risk-adjusted returns.

These strategies enable Goldman Sachs to empower its clients and help them achieve their financial goals while maintaining a strong focus on people, innovation, and ethical practices.

Risk management techniques

Risk management is a critical function of investment banking, and Goldman Sachs has a dedicated risk team that evaluates and manages the firm's financial and non-financial risks. The risk team leads risk analysis projects and works closely with technology and executive management groups to ensure the firm understands and mitigates potential risks.

Diversified Investment

Goldman Sachs typically advises clients to hold a diversified portfolio to mitigate risks. This strategy involves spreading investments across various asset classes to reduce the impact of poor performance in any single area. By diversifying investments, clients can lower the overall risk of their portfolio and protect themselves from significant losses.

Active Portfolio Management

The firm employs an active portfolio management strategy, which involves continuously monitoring and adjusting investments based on market conditions. This approach allows for flexibility and responsiveness to changing financial environments, helping to optimise returns while managing potential risks.

Risk-Adjusted Returns

Goldman Sachs emphasises the importance of considering the level of risk associated with each investment when making investment decisions. By taking into account the risk-adjusted returns, they aim to balance return expectations with potential pitfalls, thus managing their clients' risk exposure.

Hedging and Risk Mitigation

Hedging is a common risk management technique used by Goldman Sachs. They employ confined techniques to protect against potential losses by offsetting them with profits in other investments. This strategy reduces the overall risk of a portfolio and helps safeguard clients' capital.

Client-Centric Solutions

Goldman Sachs tailors its risk management strategies to the specific needs and goals of each client. They understand that each client has unique circumstances and financial challenges, so they customise their solutions accordingly. This client-centric approach ensures that risk management strategies are aligned with the client's risk tolerance and financial objectives.

Regulatory Compliance

As a leading global investment bank, Goldman Sachs is subject to stringent regulatory compliance requirements. They have a strong focus on regulatory compliance and work closely with policymakers and regulators to shape industry standards and guidelines. By staying ahead of regulatory changes and ensuring compliance, they can better manage risks and maintain their reputation.

Ethical Standards and Compliance

Goldman Sachs adheres to strict ethical standards and compliance regulations to build trust with their clients. This commitment to transparency and ethical behaviour is essential for maintaining positive client relationships and managing risks effectively.

In summary, Goldman Sachs' risk management techniques involve diversifying investments, actively managing portfolios, considering risk-adjusted returns, hedging, and customising solutions for each client while maintaining strong regulatory compliance and ethical standards. These techniques help the firm manage risks effectively and provide valuable insights to their clients.

Regulatory compliance and changes

The global compliance division at Goldman Sachs plays a vital role in risk management and reputational awareness. This team actively monitors changes and trends in laws, rules, and regulations across the firm's diverse business areas. Interns in the global compliance division gain exposure to overseeing audits and communicating rules and regulations to employees. The division includes subdivisions such as financial crime compliance, regional regulatory compliance, regulatory reporting, and engineering efforts that support the firm's global compliance goals.

To succeed in regulatory compliance and keep up with changes, Goldman Sachs professionals need to possess strong analytical skills, attention to detail, and a deep understanding of financial regulations and security laws. They must also be able to collaborate effectively and communicate complex regulatory information to various stakeholders within the organization.

In addition to its regulatory compliance efforts, Goldman Sachs has also faced regulatory challenges and legal controversies, particularly in connection with the 2008 financial crisis. The firm's involvement in the subprime mortgage market and the sale of collateralized debt obligations (CDOs) led to regulatory investigations and allegations of selling securities despite knowing the associated risks. This incident highlighted the importance of regulatory compliance and the potential impact on the firm's reputation and investor confidence.

Overall, regulatory compliance and the ability to adapt to changing regulations are critical aspects of investment management at Goldman Sachs. The firm's global presence and influence in financial markets underscore the significance of its commitment to compliance and risk management. By staying abreast of regulatory changes and fostering a strong compliance culture, Goldman Sachs maintains its reputation and ensures the protection of its clients' interests.

Frequently asked questions