Banks May Shed Private Equity Assets in Obama Plan
U.S. President Barack Obama's plan to limit financial
risk-taking could force banks, such as Goldman Sachs or JPMorgan , to shed parts of their private
equity operations.
Among the proposals, which require congressional
approval, is that banks or financial institutions that own banks would not be
able to own, invest in or sponsor private equity funds unrelated to serving
customers.
A number of banks have sizeable private equity
interests, for example, JPMorgan's One Equity Partners, manages $8 billion of
investments and commitments for the bank, while Goldman Sachs has a vast
private equity business, and invests its own capital in its funds.
JPM and Goldman declined comment.
Still, banks would likely argue that those businesses
are in customers' interests, observers say. For example, the bulk of Goldman's
private equity is invested for clients.
"It is a moderate impact on private equity,"
said Steven Kaplan, a professor of finance at the University of Chicago.
"Most of the money going in comes from clients rather than from the
capital of the bank, or the employees."
The proposal could also impact fundraising by private
equity firms, although banks only account for a small percentage of invested
capital in funds.
Banks and investment banks account for around 9 percent
of invested capital in private equity funds in the US, London-based research
firm Preqin estimates. Preqin counts 102 US banks and investment banks in its
database investing in private equity, although says it is doubtful that the
proposals would apply to all of those.
"Banks in both North America and Europe have been
exiting private equity for several years, and it will be much faster paced over
the next 2-3 years," said David de Weese, partner at specialist secondary
firm Paul Capital, although he said that it wouldn't be because of Obama's
proposals.
"Most big money-center banks got into private
equity as limited partners and/or co-investors alongside leveraged buyout funds
to support their highly profitable leveraged lending business," he said.
However, that need has declined as the number and size of LBO deals has shrunk.
There is also skepticism about whether the proposals
would become bank regulatory law.
"It's an opening salvo," said one private
equity executive who declined to be named. "It is not something that will
happen next week and (the details) are so vague."
Source: abcnews.go.com