Goldman Sachs’s PE fund interests drop to $5.29bn

The bank is letting the investments run through the end of their life and may tap the secondaries market only if interests remain by the Volcker Rule’s July 2017 deadline.

Goldman Sachs had $5.29 billion-worth of private equity fund interests on its balance sheet as of September, down more than 13 percent from $6.09 billion in June, according to a third-quarter earnings filing with the Securities and Exchange Commission.

The firm’s real estate fund interests were mostly unchanged at $1.32 billion in September, down from $1.34 billion in June. Meanwhile, its investments in credit funds were down to $667 million in September from $775 million in June.

Unlike other financial institutions that sold the bulk of their private equity exposure in anticipation of the implementation of the Dodd-Frank Act’s Volcker Rule, which limits the sponsorship of and investment in covered funds, Goldman Sachs elected to let its investments run through the end of their life.

Earlier this year, the Federal Reserve postponed the compliance period of the Volcker Rule until July 2017, making it less pressing for banks to sell fund stakes in the secondaries market. However, several sources at secondaries firms have recently noted that there is still a significant amount of PE assets on banks’ balance sheets that eventually will need to be dealt with.

“The firm currently expects to be able to exit substantially all such interests in these funds in orderly transactions prior to 2017, subject to market conditions,” Goldman Sachs wrote in the filing.

However, the firm doesn’t completely rule out selling fund interests on the secondaries market at some point if the underlying investments of some specific funds are not sold by July 2017.

“If that occurs, the firm may receive a value for its interests that is less than the then carrying value as there could be a limited secondary market for these investments and the firm may be unable to sell them in orderly transactions,” Goldman Sachs warned investors in the filing.