Need To Know

Fallout From Volcker Rule

Wall Street firms are looking hard at their alternative-investment businesses as they decide what to do to comply with the Dodd-Frank financial reform law.

The Volcker Rule, in particular, limits bank holding companies from investing more than 3 percent of their core, Tier 1, capital, or from owning more than 3 percent of private equity or hedge funds that they themselves sponsor. While the new rules might be forcing some banks to rethink their business, for others it comes as a welcome excuse to move ahead with plans to divorce themselves from unwanted hedge or private equity funds, experts told Reuters, the publisher of Buyouts.

“If you were leaning toward a strategic change anyway then now is a good time to re-evaluate the business because you have a regulator saying you shouldn’t be in this business anyway,” said Thomas Whelan, chief executive of Greenwich Alternative Investments.

Case in point may be Morgan Stanley’s expected decision to spin-off hedge fund FrontPoint Partners. While the discussions might be seen to have been driven by the Volcker Rule, Morgan Stanley has been disenchanted with its 2006 acquisition of the hedge fund for quite some time, industry experts said. A Morgan Stanley spokeswoman declined to comment on the matter.

Bank of America Corp., which recently spun off its private equity arm to form Ridgemont Equity Partners, has said the plan was in the works before financial reform, but the Volcker Rule will limit its future participation in the firm’s funds.

But JPMorgan Chase & Co. will not have to part with its private equity arm One Equity Partners, a source familiar with the situation told Reuters, despite a report in the New York Times (later corrected) that the firm would be winding down the business.

GTCR Golder Rauner Hits Market

GTCR Golder Rauner has begun marketing its $3 billion tenth fund, as Bruce Rauner, the firm’s chairman, scales back his involvement, according to Buyouts‘s sister Web site, peHub.

”He’s been in more of an advisory role for some time now and not as active sourcing deals, sitting on boards, etc.,” a source told peHub, adding that the transition becomes more “official” with the new fund.

Rauner, who was a co-founder of the Chicago-based private equity firm in 1980, mentioned the fundraising plans in June at the Buyouts Chicago conference, but he did not speak of its size, or his own plans, at that time.

GTCR Golder Rauner invests in financial services and technology, health care and information services businesses. Most recently, the firm paid $828 million to acquire electronic surveillance company Protection One. The firm did not respond by deadline to a request for comment.