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.