Why Goldman stands out as a Trump-era winner on Wall Street

Goldman is the top-performer among global banks in the S&P 500 so far in November, up nearly 15%. That is well above S&P 500 banks, which are up around 9%, and on par with private investment firm Apollo Global Management’s gain this month.

That may be no coincidence. Like other Wall Street banks, Goldman would benefit from an uptick in merger-and-acquisition or initial-public-offering activity, as well as any regulatory rollback. And generally when things are good on Wall Street, they are very good at Goldman: During the surge of activity in 2021, its return on equity for the year was 23%, versus 12% for S&P 500 banks overall.

But Goldman could also be a potential big winner among banks from big growth in private credit and alternative assets—the same hope propelling Apollo’s shares in recent quarters.

A pillar of Goldman’s recent strategy has been to shift its asset-management arm from betting the firm’s own money to more investing for clients through funds. The latter is less capital-intensive and leads to a stream of steady management fees.

One major aim is to grow Goldman’s alternative asset-management business, which refers to assets beyond public stocks, bonds and cash. Goldman was managing about $140 billion in private-credit assets as of the third quarter. And it is continuing to push into fast-growing realms of that market like asset-backed securities, which are investment-grade-type products aimed at insurers. Goldman has also been expanding its business providing financing for nonbank lenders.

Why could private credit be set to benefit in a Trump administration? One reason might be political. New securities or systemic risk regulators might be less inclined to limit the availability of relatively illiquid private-credit investments to everyday investors, or to view it suspiciously as a source of financial risk.

“We are not expecting restrictions on private credit with Trump in charge," TD Cowen’s Washington Research Group analyst Jaret Seiberg wrote in a recent note, adding: “It is why we see private credit as continuing to grow over the next four years."

Another is that rising Treasury yields could be a benefit to private credit, especially in some of the big growth areas such as asset-backed finance. “The rates charged on those longer-term assets are going to be reflective of rising Treasury yields," says Mark Wasden, senior vice president of private credit at Moody’s Ratings—though higher long-term rates can also raise funding costs.

Of course, other big Wall Street banks are also in the private-credit business, as fund managers and through their dealmaking and financing units. But Goldman’s continuing strategic shift means it could see bigger relative benefits.

Goldman can further expand its pretax margin in its asset and wealth-management unit by generating more fees, as the same bankers it has paid to work on its own deals can work more on deploying funds for fee-generating client investments. Goldman is also working to release capital by selling down on-balance-sheet positions, which must be backed by a sizable amount of the firm’s equity. If Goldman can release more of that capital to shareholders more quickly, it could boost its underlying return on allocated equity in that business.

There is also a haul of potential revenue in the unit in the form of unrecognized incentive fees for deals done for clients. These are typically fees that the bank expects to get when an investment is sold but can’t yet be certain about them. They could be booked as revenue faster as more deals happen. Goldman reported some $4 billion of unrecognized performance fees, versus just $85 million reported in revenue on that line in the third quarter. Goldman has targeted $1 billion in annual revenue for these fees.

Of course, there is a lot that could happen to damp the market’s evident hopes for Wall Street. If tariffs weighed on big global companies, it could widen credit spreads or work to slow client activity. Too much market volatility from policy uncertainty or unexpected presidential pronouncements, combined with fast-rising interest rates, could make it more difficult to finance deals. And the regulatory pendulum sometimes doesn’t swing as much as people might think it could.

So nothing is written in stone. But if the market’s hopes are to be realized, Goldman Sachs might be the way to play them.

Write to Telis Demos at Telis.Demos@wsj.com