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Is Goldman Preparing To Spin Off Its $82 Billion Private Equity Division?
According to Charlie Gasparino, Goldman Sachs may soon begin discussions on spinning off parts or the whole of its massive Private Equity arm. From Fox Business: "One of the first casualties of financial reform and its restrictions on
banks’ ownership of private equity and hedge funds may soon take place
at Goldman Sachs as senior executives there begin serious discussions about spinning off
at least a piece of the firm’s massive private equity arm, FOX Business
has learned." Intuitively this makes sense: while BHC investments in hedge fund are far more liquid, due to the very nature of the business, when it comes to the 3-7 year investment horizons for private equity, the regulatory uncertainty may be too much for PE LPs to handle, as a result reducing a firm like Goldman's competitiveness when submitting a go-private bid over competing offers (even when accounting for discount window access and zero cost of capital). "Senior executives at Goldman are worried that the mandates of financial
reform, namely the so-called Volcker Rule, which severely limits how
much a bank can invest in such funds, will create enormous uncertainty
and prod investors to flee their investments, or prevent the firm from
raising money in the future, this person said."
More From Fox Business:
Goldman does not publicly release the market value of its private
equity division, but according to securities filings the firm has
raised $82 billion in private equity funds, including $11.5 billion
from its executives from the firm itself, or 14% of the money raised.
That internal money presents a problem for Goldman; under the Volcker
Rule, named after president Obama’ economic adviser Paul Volcker, firms
cannot have more that 3% of their own money in such funds. Goldman’s
total investment, according to people with knowledge of the matter, is
much closer to 30% when market appreciation is counted.
Goldman is not the first bank to spin off an asset management part of its business:"Bank of America announced today a spin out of one small fund, and Morgan Stanley is considering a similar move.
Unless the rules change Goldman knows it
will have to have a declining investment in its private equity
business,” said one analyst.
Next up on the spin-off cycle: Goldman prop.
»
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Spin-off bitchez!
(trav7777 is on a smoke break)
Goldman has some real DOGS in its portfolio business. We do a lot of business with some of them. They pay crappy and their balance sheets (which are next to impossible to obtain) are garbage. This move, for the first time I hate to say, would be something that would even make me consider buying them.
Maxing out terms (so long as you don't fuck up your dnb) and not providing financials is the way a closely held business is supposed to be run.
Ya know, ZH, you guys just trash your credibility little by little, day after day. To suggest that Goldman Sachs would fund private equity investments, the equity tranche, "at the discount window" is either a.) the height of ignorance and stupidity, or b.) cynicism.
One does not fund a seven-year private equity asset with an overnight short term liability; that is the most basic premise of corporate finance theory 101.
If you guys do not understand this, i.e. "a.)", then reading ZH is a waste of time and dangerous to one's financial health
If you guys do understand this, i.e. "b.)", and you simply spread misinformation to satisfy your narrative and your ratings, then that would tell us what little regard you have for your readers.
Hey, thanks for popping in.
Check the Bloomie DDIS function for Goldman.
Then maybe you would like to explain the asset / liability duration mismatch at every financial institution on the planet?
Chemba: we know your a squid...we really don't give a foch what you think about ZH...so pplease STFU already...
@ chemba
why doesn't goldman just spin off that annoying investment banking division?
LMAO!!!
Actually, Astute has a valid point.
Goldman borrows short to lend long (the duration mismatch) just like Lehman, Bear, Merrill and maybe Morgan (although I don't believe they are quite as bad as others).
Should they? No.
Do I understand? Oh, hell yes.
That short term bonus bogey is a hell of a target.
Wow. you guys are delusional, and so wed to your narrative that you can't see straight.
GS manages private equity funds. they capitalize the managing partnership entity with equity capital from the firm's balance sheet. the PE funds raise equity capital from outside investors. goldman sachs usually participates in the equity tranche of the limited class with equity, as do its employees. the funds buy companies, with equity from the fund and high yield debt raised at the time of the acquisition. the high yield debt sits at the acquired companies, which are owned by the PE fund. The "discount window" is not a funding source.
If you want to believe otherwise, that's fine with me. For some, ignorance is bliss.
yeah whatever. GS is a manifestation of evil. If you can't see that after all that's gone down, there's no getting through.
Your comments are very easy to prove. Have Goldman release the data on all borrowing from the Fed and where this money was invested. I'll bet you find Goldman was allowed to do the same scams other banks did. Borrow at .75% from the Fed and loan the money to Treasury at 3-4%. What a scam. Zero risk for Goldman at the expense of the US taxpayer.
I don't see Goldman trying to go back to the way things are. Being a bank is a license to steal. This country sucks....
The "discount window" is not a funding source.
However, the discount window is an indirect funding source - one of many sources GS uses / can use to finance it's $880 billion balance sheet which includes investments in private equity. This is not about supporting a narrative or ignorance. The discount window criticism in this post is really about GS' bank holding company charade (among many others) that provides it with access to the discount window. ZIRP comes with a real economic cost and the benefit goes to GS et al (think wealth transfer from savers to borrowers).
Unfortunately, you have been suffering from too much exhaust intake, Speed Racer.
I don't like ZIRP any more than you. Bernanke is a criminal, as is Bubbles Greenspan. Goldman Sachs does not borrow funds from the discount window to fund earning asset activity. The discount window is there for liquidity in "emergency". GS has tested access to the window to confirm the process, but that is all. What other banks do with their access to the window I can not say. I would imagine that ShitiBank has a folding chair set up right next to the window; but again, I do not know.
I recognize that this information on GS does not comport with the narrative, and therefore will be summarily dismissed.
I think you are the one obsessed about supporting a narrative.
If you read the article closely, you would notice there is no mention of "borrowing" at the discount window by Tyler - only about ACCESS to the discount window and zero cost of capital (through ZIRP). This statement is 100% accurate given Goldman's bank holding company structure. No one else has made the claim that GS is directly funding it's private equity positions through the discount window. The complaint has to with a low-cost funding subsidy that GS has enjoyed at the expense of savers and taxpayers. GS can invest in private equity or any other risk asset it so chooses, but it should not benefit from the explicit and implicit benefits of being a BHC. If a spin-off is a consequence of financial reform, so be it.
A very "astute" example of how logically valid reasoning rout fallacy every time...
over and out
Chemba- Thanks for insulting the intelligence of this board with your PE 101. As to you concluding that the discount window is not a funding source, how in the hell can you tell if Squid profits bilked thru the window haven't been used in the firm's equity participation? Fu@k, with the insiders contribution of equity, that bonus money is dirty, dirty, dirty with discount window profits... and maybe TARP bailout money too... but what the hell, it's all the little people's money anyway so who gives a crap about how we label it right?
Because you only see and believe what they show you for an employee of your level at the firm, please don't assume that your senior squidsmen aren't leveraging the information throughout the firm to figure out the next means of survival. For you to assume otherwise shows your lack of experience.
It's like that argument... all the Goldman people can't be bad. If you knowingly work for a firm the F-ed the crap out of the government and the middle class, continues to leech productivity from society, plants its people in all places of power and has the f-ing BALLZ to claim they are doing "God's work", you are just as guilty as the corporation...even worse perhaps.
LOL "an employee of your level at the firm" "your lack of experience"
Accreddited, if you only knew.
As I said in my earlier post, ignorance is bliss for some, and obviously that would include you.
1. Learn to spell Accredited (as in investor. Working for the Squid, you should know this)
2. If that is what you need to say to make yourself feel better, whatever.
anyone who rushes to the defense of GS is a piece of shit as far as I'm concerned
for starters, recall ex-gs ceo stephen f's trades in GS on eve of fed bailout while chairman of board at nyfed
and see that NOTHING has been done about that
I am shocked...just down right shocked. There are people that actually pay attention to Fox Business News?!?
Goldman should NEVER have been allowed to become a bank. Privatized Profits and Socialized Losses is the mantra of all criminal financial enterprises in the US.
F*ck Goldman
and Chemba...
I dunno, I think Chemba is probably mostly correct. For one thing there is the poor investor perception of a bank borrowing from the Discount Window and with the Fed audit coming, investors will see just who those banks are (I assume). I don't think GS would risk that. Also wasn't there just an article that Discount Window borrowing is down to $11 mil? Then again could be some big surprises when the audit is public so who knows...
Just making sure ZH "keeps it real" as I appreciate finding this site and the news and intelligent commentary that it has. Don't want personal biases to interfere with that and end up like Fox or CNN. This probably more important than ever as this site gets more visibility with the mainstream.
Jeffersonian Bone head..ZH gets any more visibility? What planet of the apes did you just fall from???
Chemba you lttle biatch!!!!
Of course no investment bank would use overnight funds to invest directly in private equity. That wouldn’t create the leverage they want. First you take the overnight funds and invest them in 90 day T-Bills. Then you use the 90 Day T-Bills as collateral to make a leveraged investment in 2 year T-Bills. Then you use the 2 year T-Bills as collateral to make a leveraged investment (less the standard tip to Moodys) in AAA corporate bonds. And so on until you’ve achieved your goal, a highly leveraged investment in highly illiquid junk mortgage bonds backed by the shortest term (and did I mention free) money in the markets.
Chemba is right about one thing, this violates about every principle of Finance 101 imaginable. Makes you wonder if these geniuses ever went to class at Harvard, Yale, and Columbia. Even if they did, they wouldn’t have been taught this crap there. You can only learn to commit this kind of financial crime on the street, Wall Street.
There are certainly a lot of details like that to take into consideration.I read and understand the entire article and I really enjoyed it to be honest.
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