How Direct Indexing Helps Clients Cope With Market Volatility, Taxes

A lot of our clients transition portfolios from brokerage or active managers. They want to diversify with a basket of stocks, but they want to be thoughtful about the tax consequences.

For example, if you own a highly concentrated basket of stocks that's very appreciated and have very large unrealized gains and want to diversify and get market exposure, you'll have to sell them, [resulting in] capital gains.

Then you'd [likely] buy an ETF or a mutual fund, but that's not always aligned with what you want.

How can direct indexing improve that picture?

We can create custom transitions for investors. We customize and diversify around the stocks they give us. They provide us with capital gains budgets or risk targets, and we manage the customized portfolios.

Direct indexing seems like a new thing, but you say that Goldman Sachs has been offering it since 1999. Why is direct indexing so appealing now?

The demand was always a use case, and the benefits were always there. Now the technology is making it easier — more accessible — to invest in these strategies.

How much has direct indexing changed since you started working in the space in 2000?

Five years ago, we saw a lot more interest and engagement from investors to align portfolios with individual values. 

So we put a lot of work into making sure we'd offer a wide menu because every investor is going to want their own customization.

To have that agency is really powerful for the investor.

Why is customized indexing better than investing in individual equities using a typical active strategy?

We hold a very diversified portfolio in which we may have hundreds of positions in individual stocks, but the outcome of [each] investment is aligned with the individual goals and values of the investor.

We're investing in individual equities, but we're not an active manager in the sense that we say, "The 30 stocks that we hold are going to outperform the market."

If a client wants to construct a portfolio that aligns with their values, we offer the ability for them to pick and choose different levels of customization.

What's another approach to direct indexing that GSAM offers?

We've created digital software that an advisor can access on the web and with which they can run analyses and capabilities, then present different opportunities to a client that they can invest in.

[That way], the advisor can upload securities and run different optimizations using our back end. 

Please tell me a bit about your background.

My parents emigrated from India. I was born in Canada and grew up in Toronto. My dad was a math professor in India. In Canada, he became a computer programmer, and he's now retired. My mom is a retired social worker.

When you were in university majoring in math, what were your career aspirations?

I had no idea. I was a quant in high school. I was in a quant program in college. I just liked math, and I liked finance. 

My university had a co-op [paid work experience] program, and I worked in consulting, finance, business development. I liked finance the most.

How did the job offer from Goldman Sachs come about?

I was an intern in the Goldman Toronto office. It's a small office, and there were no full-time positions. So I applied to Goldman in New York — and this was the job that I got. It was a great match!

In the male-dominated quant area, have you ever encountered any challenges because you're a woman? Or have you met with any obstacles in the industry generally simply because you're female?

For any group that's underrepresented, there are always challenges. In financial services, women are historically underrepresented. But the industry has made a lot of progress. It still has more to do, though. 

Our custom equity business is quant, but we are 50%/50% male/female on my team, and we come from all parts of the world. We're ethnically diverse and from different socioeconomic backgrounds.

At Goldman, we believe that diversity is the driver of [better] performance, and that's also my lived experience.

In what way did your responsibilities increase when you were named partner last year?

Becoming a partner really validates the business [you're working in] and the growth of that business historically.

As a partner, you focus on the culture of the firm, bringing up the next generation, in addition to growing the business and developing new capabilities and new solutions for investors.

You won a ThinkAdvisor 2021 LUMINARIES Award for executive leadership. What's the value of industry recognition awards?

Recognition of the contributions of individuals. So, for me, it validates what I've accomplished — and it validates me. 

It also validates the team. When we think about our success as a business, it's really the team and everything we're doing together.