How Goldman Sachs is navigating a more turbulent world

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Geopolitics and AI are at the top of most investors’ minds right now as they worry about growing tension between the US and China, wars in Europe and the Middle East and other disruptive forces to the global economy.

Goldman Sachs is betting that those worries won’t go away anytime soon. The bank launched its own geopolitical advisory unit last month, The Goldman Sachs Global Institute, to capitalize on its clients’ hunger for information and opinions about what’s happening around the world and how that will impact their businesses and portfolios.

Before the Bell sat down with Jared Cohen, head of the institute, to find out how the bank is thinking about rising tensions globally.

Before joining Goldman Sachs as co-head of the Office of Applied Innovation and president of Global Affairs in 2022, Cohen, 41, ran Jigsaw, a research unit within Google-parent Alphabet and was a member of the US secretary of state’s policy planning staff.

This interview has been edited for length and clarity.

Before the Bell: Why is the Goldman Sachs Global Institute launching now? What about the current geopolitical environment made it necessary?

Jared Cohen: If you reflect back on most of the last 20 years, the geopolitical center of gravity has been in the Middle East. The geopolitical framework that everybody’s been operating under has been largely a framework that was anchored around this idea of the war on terror.

But there’s a paradigmatic shift where the geopolitical center of gravity has moved from the Middle East to Washington and Beijing. What was once a niche nexus between business and geopolitics has all of a sudden created a context where every business and every sector is caught in the crossfire of these rising tensions.

There’s a lot of unpredictability in geopolitics. It’s an area where businesses have less agency, because they’re not governments. But it’s an area where our wide angle lens puts us in a position to at least offer an opinion on where we think this is going.

Do you think large financial institutions and businesses need to speak out politically?

A big part of what we’re doing is asking the question, ‘where does it make sense for Goldman Sachs to have an opinion?’ We want to illuminate a shared set of facts that brings clarity to otherwise ambiguous situations. Take supply chains. A lot of the oxygen is taken up by looming tensions in the Taiwan Strait or the South China Sea. I think the more immediate concern that is going to have economic implications is the geopolitical aspirations to diversify some of these supply chains and the US has called out what a number of these are: critical minerals and rare earth elements, pharmaceuticals, semiconductors, microelectronics, energetics, etc.

We put out a white paper looking at the geopolitics of critical minerals and how they relate to supply chains. All we did was articulate what we knew about the supply chain, but the undeniable conclusion from the piece, just by illuminating that shared set of facts, is we break down why it’s particularly difficult to diversify different elements of this supply chain, no matter how voracious the geopolitical appetite is. So what is our opinion there? We want to prevent a situation where the geopolitical aspirations of one country outpace the economic realities of what’s possible. That’s when you end up having miscalculations and unpredictability and chaos.

What questions are your clients most frequently asking you?

One of the things businesses ask me most frequently is about the next inflection point. The questions are always: ‘how do you forecast the next inflection points?’ ‘How do you evaluate inflection points when they happen?’ And ‘how do you measure how significant or sustained they are?’

If you look at all the players in the international system, from major superpowers to middle powers and geopolitical swing states, their power and influence over world affairs is a function of their economic position, their military might, their diplomatic capabilities, along with a mixture of context, history and reputation. All of those things come with a set of expectations about what countries will do, what they won’t do, and what red lines they’ll draw. So when a country goes off script because they underperform against the expectations other countries have for them or they overreach geopolitically, that’s what creates unpredictability, miscalculations and chaos.

And so we have this concept of the credibility gap, it’s about taking stock of underperformance and overreaching against the expectations that countries have. All of the countries in the world make decisions based on what they think superpowers like the US and China will do or not do. They’ve got an algorithm that they work with based on what they know, so when something happens that goes further than they expect, or misses what they expect, it throws the entire script off. That’s how you can predict where there’s some degree of chaos ensuing.

You also focus on AI, how does that connect with geopolitics?

The geopolitical environment right now is probably more unstable than it’s been in the last two decades, that’s largely because of the growing tensions between the US and China, which I fully assume are going to get more tense for longer. That’s before you get into other factors like the war in Europe, now, the war in the Middle East and a variety of other things. But it’s really because of the tensions between the US and China, everything else is a tributary to that.

And then coincidentally, you also have the most significant technology created since the internet: generative AI. The stakes and competition are higher than they’ve ever been. These two megatrends of geopolitics and generative AI are having a profound impact on markets.

Do you think that the Israel-Hamas war will disrupt the global economy?

The question I’m getting most about this is whether or not this is going to bring the geopolitical center of gravity back to the Middle East. I don’t think that’s the case. That’s my personal view.

Leaders in the Middle East have a big vision of their role in the world. All that these countries have wanted for the last 20 years is to have economic interests drive geopolitics and not the other way around. They’re gonna keep charging forward, and they have a vested interest in avoiding regional contagion. I think they have the influence and the wherewithal to prevent that in their country. So I don’t think that this is going to spread across other countries the way it did during the Arab Spring, even though it’s a different context.

This is the first geopolitical test for the region in the post-war on terror context, and I think the region is going to prove much more resilient because of these economic powerhouses that are able to operate more independently and continue charging forward.

Bill Ackman says Harvard could face funding consequences if it fails to tackle antisemitism

Billionaire hedge fund CEO Bill Ackman has called on Harvard University to take steps to tackle a rise in “blatant antisemitism” and “anti-Israel attacks” on campus, in what he described as a “dire” situation.

Ackman, who received his undergraduate degree and MBA from Harvard, added that the failure to take action would put “important sources of Harvard’s revenues” at risk.

Ackman said in an open letter to the university’s president, Claudine Gay, posted to X, formerly known as Twitter, on Saturday that Jewish and pro-Israel students have felt unsafe on campus since the October 7 surprise attacks on Israel and subsequent Israel-Hamas war.

Ackman, who met with a group of more than 200 Harvard students and faculty last week, said the university’s administration is not doing enough to protect them.

Ackman, who founded Pershing Square Capital Management in 2003, wrote in his letter: “Harvard has failed in recent weeks to meet its Title VI obligations which threatens a major source of the University’s funding.”

“Title VI of the Civil Rights Act requires universities to provide all students, including students who are or are perceived to be Jewish, a school environment free from discrimination. The consequences for a university’s failure to meet the requirements of Title VI include the cancellation of federal funding,” he said.

“When coupled with numerous Jewish and non-Jewish alumni that have publicly and privately shared these same concerns, important sources of Harvard’s revenues are at risk,” he added.

Lawrence Summers, a former president of Harvard and treasury secretary in the Clinton administration, has denounced the strategy of donors withholding financial contributions as a means to influence universities’ stances on issues.

“I believe the adjustments from universities should come from their conscience and conversations within their communities, not in response to financial pressure,” Summers told CNN last month.

The UAW is already looking ahead to its next auto strike

Members of the United Auto Workers union are back on the job at General Motors, Ford and Stellantis. But the union’s leadership is already planning for the next strike against the nation’s unionized automakers, reports my colleague Chris Isidore. And it wants the strike to be even larger next time.

UAW President Shawn Fain said the union picked its April 30, 2028, expiration date for these tentative contracts in the expectation that there could be a coordinated strike starting on May 1, not just by UAW members but also members of other unions.

“We invite unions around the country to align your contract expirations with our own, so that together we can begin to flex our collective muscles,” he said in a recent message to members. “If we’re going to truly take on the billionaire class and rebuild the economy so that it starts to work for the benefit of the many, it’s important not only that we strike, but that we strike together.”

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