Goldman reveals Volcker reprieve

The investment bank has been granted a five-year extension to divest private market holdings.

Goldman Sachs has secured an extension on its Volcker Rule divestment obligations, the bank’s chief financial officer Martin Chavez revealed on its first quarter earnings call.

The investment bank had until 21 July 2017 to offload its private fund stakes in accordance with the rule, unless the Federal Reserve approved its request for an extension. Chavez revealed that a five-year extension has been offered on all of Goldman’s covered funds, which totalled around $6 billion at the end of the first quarter.

“That extension that was granted applies to essentially all of the Volcker-covered funds, and as for redeploying, it’s always opportunity driven on behalf of the clients and just when we see attractive returns,” Chavez said.

The Volcker Rule, which comes under the 2010 Dodd-Frank Act, places severe restrictions on bank proprietary trading and forces them to limit their investments in private funds to no more than 3 percent of Tier 1 capital. As of December 2016, banks in possession of covered funds that were in place prior to December 2013 could apply for an extension of up to five years.

The extension is in line with expectations, given the terms laid out by the Federal Reserve in its 2016 Procedures for a Banking Entity to Request an Extended Transition Period for Illiquid Funds.

“The Board expects that the illiquid funds of banking entities will generally qualify for extensions, though extensions may not be granted in certain cases – for example, where the banking entity has not demonstrated meaningful progress to conform or divest its illiquid funds, has a deficient compliance program under the Volcker Rule, or where the Board has concerns about evasion.”

According to Goldman’s latest results, as of March the bank had $6.18 billion fair value of private investments. The figure is slightly lower than the $6.5 billion as of December 2016.

Fund covered by the five-year extension
Fair value of investments Unfunded commitments
As of March 2017
Private equity funds $4.5bn $1.4bn
Credit funds $418m $190m
Hedge funds $337m $0
Real estate funds $914m $270m
Total $6.2bn $1.8bn

Source: Goldman Sachs