Goldman, Morgan Stanley Will Liquidate Huge Alts. Portfolios

Aug 10 2010 | 1:14pm ET

U.S. banks have been scrambling to decide what to about their proprietary trading operations, which are barred under new financial services regulations. But those new rules also strictly limit how much banks can invest in alternative investments vehicles, and that could prove an even bigger headache for the biggest banks.

Two of them, Goldman Sachs and Morgan Stanley, have almost $20 billion combined invested in private equity, hedge funds, private debt and real-estate, they said in regulatory filings yesterday. They’ll have to cut those exposures by more than 60% over the next decade to come into compliance with the recently-passed Volcker rule, which bar bank holding companies from investing more than 3% of their Tier 1 capital in such funds.

Goldman had $15.4 billion in the newly-restricted investments as of June 30. The firm said it plans to liquidate “substantially all” of those funds within 10 years. The Wall Street giant has $7.32 billion invested in private equity, $3.02 billion in hedge funds, $4.18 billion in private debt funds and $910 million in real-estate funds. It’s Tier 1 capital was $68.5 billion, meaning that restricted investments will have to fall to about $2 billion.

Morgan Stanley, which had a more modest $4.22 billion in alternative investments, said it will liquidate 46% of its $1.59 billion in p.e. investments and 49% of its $887 million in real-estate funds over the same period. The firm also had $1.75 billion invested in hedge funds.

Morgan Stanley’s Tier 1 capital was $53.5 billion, which means it will have to cut its stakes to about $1.6 billion.

Both have already begun to reduce their hedge fund and private equity holdings. Goldman’s stakes have fallen by $500 million since the beginning of the year, while Morgan Stanley has reduced its holdings by $720 million.

In Depth

Financial Industry Blockchain Consortium R3 To Open-Source Platform Code

Oct 20 2016 | 9:03pm ET

Bitcoin's blockchain technology has spawned a flurry of activity among fintech startups...


U.S. Trust's Beard: The Rapid Growth of the Art Lending Industry

Oct 7 2016 | 10:55pm ET

Alternative investment managers have emerged as some of the most significant art...

Guest Contributor

Hedge Fund Marketing – Tips for Your Initial Sales Meeting

Sep 29 2016 | 5:46pm ET

There are two main goals a hedge fund should have for an initial in-person sales...