Goldman Sachs‘s latest revenue was driven by returns in private equity as the investment bank continues to maximise value in its portfolio in order to comply with the Volcker Rule.
Net revenues from equity securities, encompassing public and private equity investments, were 34 percent higher year-on-year at $1.07 billion, according to the bank’s quarterly results call on Tuesday.
This reflected a “significant increase” in net gains from private equities, which offset lower net gains from the public portfolio, the bank said in an accompanying statement. “Company-specific events and corporate performance” were the main drivers of this success, the statement noted.
“We clearly saw an excellent environment for harvesting and we’ve been actively harvesting to maximise value for investors and to comply with [Volcker Rule] regulations,” chief financial officer R. Martin Chavez said on the call.
Compliance with Volcker, a part of the Dodd-Frank Act that restricted banks’ private equity investments to 3 percent of tier one capital, has previously resulted in a sell-off of private equity assets by banks, including private markets fund stakes.
The diversification of Goldman’s private equity portfolio, by geography and sector, helped it generate higher returns than its peers this quarter, Chavez added.
Chavez also acknowledged the growing likelihood that a modified Volcker Rule will be proposed by the Federal Reserve.
“Various officials say it’s a rule with a relatively straightforward concept or intent but in its current form, the compliance, the number of data points one has to generate, it’s quite complicated,” he said. “Our thought would be that proposed rule-making [if it happens] is likely to considerably simplify the process of conformance.”
On the bank’s first-quarter 2017 earnings call, Chavez confirmed Goldman had secured a five-year extension on its Volcker Rule divestment obligations. The investment bank previously had until 21 July last year to reduce its private fund holdings.