Exclusive: Goldman considering setting up new infrastructure fund

Fri Oct 3, 2014 5:07am EDT
 
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By Greg Roumeliotis

NEW YORK (Reuters) - Goldman Sachs Group Inc (GS.N: Quote) is considering raising a new infrastructure fund, according to three people familiar with the matter, even as U.S. regulations threaten to reduce its profits from such endeavors.

The bank's plans are tentative and in the early stages, and there is currently no fundraising process or target size for the fund, the sources cautioned. Goldman Sachs declined to comment.

When Goldman last raised an infrastructure fund in 2010, it met with lukewarm demand. Like that fund, the one being envisaged would have a global focus with a mandate to buy a variety of infrastructure assets, such as airports, power grids and toll roads.

In recent years investors such as pensions and insurers have grown increasingly keen on infrastructure funds, as they look for assets that are safer than stocks but offer better returns than low-yielding bonds.

Under a federal regulation known as the "Volcker Rule," part of the 2010 Dodd-Frank financial reform act, a bank cannot own more than 3 percent of an infrastructure fund or any other private equity-type fund. The regulation is meant to limit banks' bets on risky assets. 

Before the Volcker rule, Goldman would typically invest around 10 percent of the capital in an infrastructure fund it set up and 30 to 35 percent of its private equity funds.

There is a loophole in the rule, though. A bank can spend as much of its own money as it likes to buy infrastructure assets like roads and airports, or invest in the kinds of corporate assets owned by private equity firms, provided it doesn't use a fund that includes outside investors.

The bank is taking that route with private equity, as Reuters first reported last year. For example, it is currently leading a deal to acquire Neovia Logistics LLC, which helps companies with inventory management and warehousing, Reuters reported last week.   Continued...

 
A view of the Goldman Sachs stall on the floor of the New York Stock Exchange July 16, 2013.  REUTERS/Brendan McDermid