Thursday, 31 July 2014
Last updated 4 hours ago
Oct 10 2012 | 1:01pm ET
Anyone who thinks that the Volcker rule is a done deal doesn't work in the executive suite at Goldman Sachs.
The Wall Street giant is vigorously fighting to exempt at least one lucrative business from that rule's strict limits on hedge-fund investing. At issue are Goldman's direct-lending funds, run by its merchant-banking arm.
Goldman has spent more than $8 million lobbying on the Dodd-Frank financial regulation reform, which includes the Volcker rule, since its passage. And one of its chief arguments is that credit funds such as its $10.5 billion GS Loan Partners and $13 billion GS Mezzanine Partners should be exempted from the rule, which bars banks from accounting for more than 3% of a hedge fund's capital. Goldman accounts for about 20% to 30% of the funds' assets.
With regulators still hammering out the details of Dodd-Frank, Goldman is making its pitch that direct-lending funds are important to the economy, increasing the availability of credit. It also argues that direct-lending funds are less risky than other hedge funds.
According to The Wall Street Journal, regulators have been noncommittal about credit funds.
In case its blandishments fail to sway the powers that be, Goldman has struck upon a Plan B, the Journal reports. It would take advantage of loopholes in the 1940 Investment Company Act—Dodd-Frank defines hedge funds as pools exempt from registration requirements under that 72-year-old law—that exempt funds "making small loans, industrial banking, or similar businesses," such as real-estate, oil, gas and mining. The new funds would be smaller, and Goldman would invest less in them, than the current funds.
Goldman has already begun to unwind its investments in other hedge funds, pulling $500 million in the first half.
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…