Blankfein: Goldman ‘actively harvesting’ PE funds to comply with Volcker rule

Speaking at the Bank of America Merrill Lynch Banking and Financial Services Conference, Blankfein confirmed reports from earlier this year that Goldman has turned to direct investments with clients instead of raising a new private equity fund, as it grapples with the changing regulatory environment following the 2008 financial crisis.

Running through Goldman’s numerous business lines, Blankfein said the firm’s equity investments include private equity funds, direct equity investments and hedge fund investments.

“Our current understanding is that the Volcker Rule will limit our ability to invest in hedge funds and private equity through a fund structure,” he said. “And we’ve been winding down our hedge fund investments to be compliant. And while we’ve been actively harvesting our private equity funds, solid asset price performance has kept balance sheet levels relatively flat.”

Looking ahead, Blankfein said the bank remains committed to these businesses and “we’ll adjust our participation and structure to be compliant with regulations as they evolve.”

Goldman Sachs has been underwriting equity deals, and then lining up clients interested in putting money into accounts set up to invest in them, according to reports earlier this year by sister news service Reuters.

Asked about the Volcker rule by an analyst at the conference, Blankfein said he expects the measure will be constructed to “allow us to conduct the important functions that our clients need us to perform, which includes liquidity, which includes co-investment, subject to the limitations that are imposed restricting how and what percentage you can have in funds that include clients,” according to a transcript of the event.

If the rules don’t allow Goldman to perform those functions, Blankfein said there would be “such a clamor from the user base that it would be modifying [how] the pendulum will swing.”

As one of the largest players in private equity, GS Capital Partners VI LP, the vintage 2007 buyout fund from Goldman Sachs, raised more than $20 billion, according to data from T-1 Banker. Deals from that fund include Alltel Corp, Trans Union and Benefitfocus.com Inc.