Goldman To Spin-Off Proprietary Business As Hedge Fund

Aug 5 2010 | 1:45pm ET

The next really big hedge fund launch is likely to be the regulator-required spin-off of Goldman Sachs’ proprietary trading business.

Goldman Sachs plans to close its Principal Strategies business and transform it into a hedge fund, Bloomberg News reports. An announcement could come as soon as tomorrow, with the spin-off coming by the end of the year.

It is still unclear how much the GSPS team, led by Morgan Sze, hopes to raise in outside capital, or what role, if any, Goldman will have in the new hedge fund. The newly-passed Dodd-Frank financial regulation reform bars banks from proprietary trading, but allows them to invest up to 3% of their capital in hedge funds.

Goldman appears to be trying to beat other firms to the punch: Under the provisions of the so-called Volcker rule, banks have up to four years to wind down their prop. desks. The move also comes as Morgan Stanley is reportedly finalizing plans to spin-off its FrontPoint Partners hedge fund.

Goldman does not disclose how much GSPS manages. But prop. trading accounts for about 10%, on average, of its annual revenue.

The bank, however, plans to hold on to its private equity businesses. The Wall Street Journal reports that Goldman has no plans to close, sell or spin-off its p.e. units.


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