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PE Receives New Home At Goldman

In a closely watched overhaul of its disclosure practices, Goldman Sachs Group Inc. proposed to more clearly delineate investments it makes independently from those it executes on behalf of institutional clients.

As part of the proposal, the investment bank would divide itself into four divisions, instead of the current three, providing investors and clients with more information on how the firm operates.

Investments the company makes in private equity, for example, which currently reside within Goldman’s Trading and Principal Investments group, would now fall under a newly created division called Investing and Lending. Activities and investments on behalf of the firm’s institutional clients would now fall within a division called Institutional Client Services. Merchant banking would fall under a third division, Investment Management. It remains to be seen which division will house the firm’s Fund of Funds and Secondary Funds groups.

The company said the changes, outlined in a 63-page report, would provide more openness. In the past, its own investment activities and those on behalf of its clients had been lumped together. The company said the proposed moves “demonstrate the importance of client franchise activities and client facilitation to our revenues.”

The report came as a result of an extended internal review, enacted after the firm was sued last May by the Securities and Exchange Commission for allegedly marketing collateralized mortgage securities to some clients, while simultaneously allowing another of its clients, the New York hedge fund Paulson & Co., to create securities fashioned specifically for it to bet against. Goldman settled the suit in July with a $550 million settlement.

In proposing more disclosure, the firm has taken a more humble tone in the wake of lawsuits with regulators.

In addition, the new structure has a quirk related to Goldman’s outsized stake in the Industrial and Commercial Bank of China, more commonly known as ICBC. Goldman, which owned $7.5 billion in ICBC as of September, is housing its stake in a separate subdivision that exists apart from other proprietary investments.

Goldman Sachs is scheduled to report its fourth quarter results on Jan. 19 under the framework of the new structure. The bank earned $13.4 billion in 2009.