Exclusive: Goldman finds new way to do buyouts in face of Volcker

Mon Mar 4, 2013 6:05pm EST
 
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By Jessica Toonkel and Lauren Tara LaCapra

NEW YORK (Reuters) - Goldman Sachs Group Inc is trying to find ways to keep investing in the profitable, albeit risky, business of buying and selling companies without crossing a rule that will restrict private equity investing, three sources familiar with the new business said over the past week.

The Volcker rule - named for former Federal Reserve Chairman Paul Volcker and part of the Dodd-Frank financial reform law - is expected to limit bank investments in private equity funds, but not necessarily private equity-style investments outside of a formal fund structure. The rule's main goal is to prevent federally insured banks from gambling in the markets or taking on too much risk with hedge funds and private-equity funds.

In a bid to pool money for deals without raising a private equity fund, the Wall Street bank has been lining up clients who are willing to put money into accounts set up to invest in private equity-style deals, the sources said. Goldman would also set aside some of its own money and partner capital into separate accounts for the same purpose, they said.

Under the new plan, Goldman would then make investments in a syndicate fashion, contributing investor money, along with its own capital and partner dollars, the sources said.

That would be different from a traditional private equity fund, where money from various investors has already been pooled together in a formal fund structure.

"It is the same pitch as before, 'We are putting a lot of our own money in this,'" said a person familiar with Goldman's marketing of the new business. "They are saying, 'We are still in this business.'"

The details of the new structure, including whether Goldman would still get fees for managing client money and how profits would be taxed, could not be learned.

Goldman spokeswoman Andrea Raphael said on Monday that the firm is merely taking a strategy used in other investment businesses and applying it to private equity.   Continued...

 
Traders work at the Goldman Sachs stall on the floor of the New York Stock Exchange, October 16, 2012. REUTERS/Brendan McDermid