New York-based Goldman Sachs Group has $15.4 billion invested in private equity and real estate funds and other alternative investments, according to a recent regulatory filing. The figure is down marginally from the $15.9 billion it reported as of December 2009.
Goldman’s $15.4 billion in alternatives holdings comprise $7.3 billion in private equity funds, $4.18 billion in private debt funds, $3.02 billion in hedge funds and $910 million in real estate funds.
The bank will liquidate a “substantial” portion of these investments over the following decade owing to the closed-ended nature of the funds, the filing said.
A spokesperson clarified that this was in keeping with normal business practices for bank holding companies that own private equity and real estate fund assets and was not related to the so-called Volcker rule. The rule, part of the recently signed “Dodd-Frank” bill, restricts banks from deploying more than 3 percent of their Tier 1 capital – essentially equity capital and disclosed reserves – and no more than 3 percent of a fund's capital commitments in private equity, real estate and hedge fund vehicles.
With Goldman’s Tier 1 capital at $68.5 billion, the bank would need to reduce its stakes in private equity and real estate funds and other alternative investments to roughly $2.1 billion – but could have up to 12 years to implement the changes.
The Volcker rule will take effect over the next two years after the act was signed into law on 21 July. Depending on the exact nature of future regulations, expected from various federal regulators, banks will then have two further years to comply, with the possibility of three one-year extensions following that.
After that time, the Federal Reserve also has the right to give banks operating “illiquid funds” – such as private equity and real estate – a further five years to comply with the new regulations, meaning the longest available transition period could be 12 years.