With investors getting increasingly anxious about the nosebleed valuations of public stocks, Goldman Sachs announced Monday morning that it’s spending $2 billion to buy Innovator Capital Management, a firm that will cushion its clients from a crash.
Wheaton, Illinois-based Innovator manages $28 billion in assets, mostly in defined-outcome ETFs which use options contracts to shield investors from the stock market’s losses up to a defined buffer, in exchange for a cap that limits the funds’ upside. Given the market’s increased volatility, these relatively expensive “safety-first” ETFs are especially popular among retirees and investors approaching retirement. Despite criticism from billionaire hedge fund manager Cliff Asness and other investing pros that investors sacrifice too much in this trade, Innovator has grown rapidly since it launched its first buffer fund in 2018. Inflows to its 159 ETFs this year have totaled more than $4 billion.
The sale was the second big payday for Innovator’s CEO Bruce Bond and his cofounder John Southard, after the duo sold their first ETF business, PowerShares Capital Management, to Invesco in 2006 for $260 million.
“It was the right time for us because the firm had gone through its early entrepreneurial days and grown rapidly, and was getting up to a scale where we thought it was an ideal size to move into another platform,” says Bond. “We’re at the next stage where the concept of the product has been proven, and what we’re looking to do now is to talk about the bigger picture of how you incorporate these into portfolios. Goldman can be a huge catalyst for us there.”
Innovator’s success has inspired imitators, and buffer funds now claim more than $75 billion in assets. First Trust, another Wheaton-based asset manager, has emerged as Innovator’s chief competitor, and Allianz and AllianceBernstein have launched similar funds. The entry of Goldman Sachs, one of America’s largest financial services firms, marks the biggest vote of confidence yet for the market niche’s mainstream adoption.
The acquisition will instantly make defined-outcome funds a significant piece of Goldman Sachs Asset Management’s ETF lineup. Goldman and Innovator together have $80 billion in assets in ETFs, and the merger will lift Goldman Sachs Asset Management from the 45th-largest active ETF manager by assets into the top 10.
“If you want to be big in asset management, you’ve got to be big in ETFs, and we want to be big in active ETFs,” says Bryon Lake, Goldman Sachs Asset Management’s chief transformation officer and co-head of third party wealth. Lake has known Innovator’s founders for decades since he was hired at PowerShares early in his career in 2005, and they stayed in touch as Bond and Southard built Innovator.
The $2 billion acquisition price will be paid in a combination of cash and stock and will be subject to achieving certain performance targets, according to Monday’s press release, with the deal expected to close in the second quarter of 2026. The price at 7% of assets is relatively rich when one considers that asset managers like BlackRock and T. Rowe Price are selling for about 1.2% of their assets in the market. As Innovator’s majority owner, Bond will get the largest share of the proceeds, which could make him a billionaire if Innovator hits unspecified performance targets that would trigger the full $2 billion sticker price, but he says a large amount of the cash will go into his Bond Family Foundation. He has given more than $15 million to the foundation to date, primarily supporting Christian schools and organizations in Wheaton, Chicago and throughout the Midwest.
Innovator’s more than 60 employees will remain in their Wheaton office under Goldman Sachs’ oversight, and its investment management is expected to remain the same. Bond plans on staying on to lead the business for “as long as they’ll have me,” he says, though he is also in a reflective mood.
“Whenever you start something like this, especially something that hadn’t really been done before, it’s a big risk,” says Bond. “It was a daunting task, and there were no assurances that it would be successful.”
For the avid fisherman who came out of retirement to start Innovator, Monday’s milestone represents his biggest catch.
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