| NEW YORK
NEW YORK May 9 Goldman Sachs Group Inc
has slashed its capital pledges to investment funds by nearly
half since the Volcker rule was signed into law in 2010, as it
prepares its principal investment business for restrictions on
investing its own money, according to regulatory filings.
The Wall Street bank has reduced future commitments to hedge
funds and funds that invest in private equity, credit and real
estate, by $5.8 billion since June 2010, the last period before
the Volcker rule was included in the Dodd-Frank financial reform
act. That represents a reduction of 48 percent, according to
data in filings with the U.S. Securities and Exchange
The Volcker rule - which has not yet been finalized or
implemented - will prevent banks from investing more than 3
percent of Tier 1 capital in hedge funds or private equity
funds, or from contributing more than 3 percent of capital from
Goldman's existing hedge fund and private-equity fund
holdings represented 14 percent of its Tier 1 capital as of
March 31, according to its most recent filing on Thursday.
Including future private-equity fund commitments, that ratio
goes up to 17 percent.
It is not clear how the Volcker rule will treat credit funds
or real-estate funds, or how much time banks will get to come
into compliance with the law. Regulators are expected to release
a final rule by the end of this year, after reviewing hundreds
of letters from industry groups and the public about a proposal
they released in October 2011.
Goldman has been actively reducing some fund interests with
an eye toward Volcker compliance. For instance, the bank said it
has redeemed $1.32 billion worth of hedge fund interests since
March 2012, including $260 million in the first quarter. It has
also been structuring investments in different ways to avoid
breaching the rule. [ID:nL1N0BWJTO ID:nL1N0AUFOS]
While Goldman can reduce most hedge fund interest by up to
25 percent each quarter, its other funds have longer investment
horizons. Goldman expects all the assets in its existing funds
to be liquidated over the next seven years.
Overall, Goldman had $15.6 billion worth of investments in
hedge funds, and funds that invest in credit, private equity and
real estate as of March 31. The bank had pledged an additional
$6.2 billion in future commitments to those funds.
That compares with $15.4 billion worth of investments and
$12 billion in unfunded commitments as of June 30, 2010.
Goldman's existing fund assets have risen since the passage
of Dodd-Frank only because of big gains in the value of its
Those funds' investments have ranged from Seattle office
buildings to Caribbean hotels. Some suffered stinging losses
during the financial crisis as properties bought at the top of
the real estate bubble lost value. But since mid-2010, those
real-estate funds have more than doubled in value, booking $1.1
billion in gains. Goldman has reduced future commitments to
real-estate funds by $1.5 billion over that time.