Goldman to steer clients toward ‘3 percent funds’ as it complies with Volcker rule on PE

  • Analysts say about $15 billion in funds at Goldman covered by Volcker
  • Volcker Rule allows up to 3 percent of Tier I capital to be invested
  • Goldman CFO: There are going to be 3 percent funds

The rule, which took effect in December, led Wall Street analysts to pose several questions to Goldman Sachs CFO Harvey Schwartz on the firm’s quarterly conference call on Jan. 16.

Roger Freeman, an analyst at Barclays Capital, wondered if the firm has enough clarity around all the rules to step up investing if it sees opportunities.

“The short answer is yes,” Schwartz said. “The opportunity set is going to be driven by what we see, working with our clients and being very disciplined about returns, as we have in the past. In terms of the rule set, [it] gives a road map for the various alternatives under which you can undertake the activities. You can invest…clients in 3 percent funds.”

Looking ahead, Schwartz said a top-level implementation team is in place to work through Volcker rule requirements.

One of the challenges for banking entities will be figuring how to deal with current, covered funds that they have sponsored, said Bill Stern, partner at Goodwin Procter.

“There is an exemption that allows banking entities to organize and offer a covered fund to customers as part of an asset management business, but it’s not entirely clear how that exemption can be applied to pre-existing funds,” Stern said in an email to Buyouts.

Goldman has been working on direct investments with investors and thus avoiding ownership restrictions covering private equity funds, according to reports published last year.

As one of the largest players in the private equity arena, Goldman Sachs raised nearly $25 billion for its principal investments in 2012-13, according to industry estimates.

That effort came prior to the implementation of the Volcker Rule, part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, aimed at separating private equity, investment banking and proprietary trading.