Exclusive: Goldman finds a way past Volcker with new credit fund

Fri Jan 25, 2013 5:12pm EST
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By Matthew Goldstein and Emily Flitter

NEW YORK (Reuters) - Goldman Sachs Group is looking to raise up to $600 million from its wealthy customers for a publicly traded credit fund that will provide loans to mid-sized companies - believed to be the first fund of its kind for the Wall Street bank.

The new fund, in which Goldman could invest another $150 million of its own money, is being structured as a business development company, an investment vehicle that is specifically exempt from the so-called Volcker Rule that puts limits on some activities by Wall Street firms.

A January marketing brochure for the fund, reviewed by Reuters, said the fund will provide loans to "underserved middle market public and private companies" that commercial banks have largely refrained lending to since the financial crisis began.

The fund is a way for Goldman to keep a hand in the credit business despite new constraints on trading credit products that are expected to come with the finalization of the Volcker Rule. The rule that would ban proprietary trading carries exemptions in its current form for lending and small business development.

A spokesman for Goldman's asset management group, which is sponsoring the Goldman Sachs Liberty Harbor Capital fund, declined to comment.

The fund's portfolio, valued at around $50 million, already includes an average stake of about $8.5 million in six companies, with a weighted average yield of roughly 11 percent, according to the brochure. The investments are in both senior secured loans and unsecured high-yield debt.

The new fund comes at a time that Wall Street firms are looking to find new ways to entice their best brokerage customers into new products. While business development companies are not a new innovation, the Goldman fund could be a sign of things to comes from Wall Street firms as they adjust to prospect of lesser trading dollars because of the Volcker rule.

The Volcker rule is named after former Federal Reserve Chairman Paul Volcker.   Continued...

Traders work on the floor of the New York Stock Exchange near the Goldman Sachs stall July 16, 2010. REUTERS/Brendan McDermid