Goldman questions how quickly it can unload private equity holdings


The bank had said in a March securities filing that it “expects to be able to exit the majority of such interests in these funds in orderly transactions prior to July 2017,” the deadline set by regulators as part of the Volcker Rule.

The line, however, was removed from Goldman’s second-quarter financial statement, filed Thursday. A person familiar with the matter said Goldman isn’t sure it will be able to meet the 2017 deadline, but expects some flexibility with regulators.

The Volcker Rule, enacted in the wake of the financial crisis, is forcing banks to exit most of their proprietary investing activities, which includes private equity investments and stakes in hedge funds.

Regulators have extended the deadline through July 2017, and banks may be able to seek further extensions for individual investments that are particularly difficult to sell.

“If you go back to the genesis [of] Volcker, it wasn’t designed to force fire sales,” Chief financial officer Harvey Schwartz told analysts last month. “So the industry, again, has been working with the regulators through various bodies, and we’ll see how the regulators finally respond to that.”

Under the Volcker Rule, a bank’s total investments in such funds can’t exceed 3% of its high-quality capital.

Goldman has cut its total exposure on non-Volcker-compliant investments by 60% over the past five years, largely by selling companies it took private during the 2000s buyout boom.

What remains is about $ 4.8 billion in private equity investments, $ 1.2 billion in real estate and about $ 1.1 billion split between credit and hedge funds, according to Thursday’s filing. The bank hopes to unload the underlying assets or sell its stakes in the funds on the market.

Among other banks, Morgan Stanley has about $ 3.2 billion worth of non-Volcker-compliant investments, mostly in private equity and real estate funds, according to a filing this week.

The two banks’ ability to sell down assets will depend on merger activity staying hot and a more hospitable environment for initial public offerings.

Private equity exits have slowed since mid-2015 amid bouts of volatility. Carlyle Group sold $ 4 billion worth of assets in the second quarter, 11% less than a year earlier. Blackstone Group saw a 5% decline.

Still, Carlyle co-founder Bill Conway said last week that “there’s a time to sow and a time to reap and right now is a pretty good time to reap.”

Goldman isn’t abandoning private equity entirely. The Wall Street Journal reported last month that Goldman is raising a new buyout fund that complies with the Volcker Rule by consisting almost entirely of outside money. Goldman itself will contribute at most 3% of the fund’s capital.

Write to Liz Hoffman at

Matt Jarzemsky contributed to this article, which was was published by The Wall Street Journal

More from Private Equity

Let’s block ads! (Why?)

Alternatives – Financial News Online

You May Also Like