Goldman Sachs is doubling down on options-based ETFs. The bank said Wednesday it has agreed to acquire NEOS Investments, a fast-growing specialist in options-income ETFs, in a deal worth up to $2.25 billion in cash and equity.
NEOS manages $32.4 billion across 19 US-listed ETFs, but the business is really a story of two funds. The NEOS Nasdaq-100 High Income ETF (QQQI) holds $13.9 billion and the NEOS S&P 500 High Income ETF (SPYI) holds $11.4 billion, so the pair accounts for more than three-quarters of the firm's assets.
Both are a part of the options-income category, where funds use options to generate high monthly payouts. NEOS's funds compete with the giants of the space, the JPMorgan Equity Premium Income ETF (JEPI) and the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ).
NEOS has differentiated its ETFs by using index options, which qualify for Section 1256 treatment and are taxed at a blended 60% long-term and 40% short-term rate.
JEPI and JEPQ generate much of their income through equity-linked notes, which are taxed as ordinary income.
Based on assets and expense ratios, the NEOS lineup throws off an estimated $220 million in annual revenue. At up to $2.25 billion, Goldman is paying roughly 10 times revenue for the business, a rich multiple that reflects how quickly both the category and NEOS have grown. The firm only launched its flagship suite in 2022.
The deal is the second time in under a year that Goldman has bought its way deeper into options-based ETFs. In December, it agreed to acquire Innovator Capital Management, the pioneer of defined-outcome, or buffer, ETFs, for about $2 billion.
At the time, Innovator managed roughly $30 billion across 161 ETFs. Where Innovator brought downside-buffer strategies, NEOS brings the income side of the options-ETF world, and together they hand Goldman a broad footprint across derivative-based products.
The addition of NEOS moves the needle for Goldman's ETF business. The firm currently manages about $103 billion across 227 US-listed ETFs, so NEOS would lift its US ETF assets by roughly a third.
Goldman would move up to number 14 on the list of largest U.S. ETF issuers after the acquisition.