Goldman Sachs Group Inc (GS) plans to shut down its principal strategies business, the unit that makes investments/bets with the company’s own capital, following JP Morgan Chase & Co’s decision to do the same.
“I would not be surprised if we’ll see a wave of fresh hedge funds arising as as the prop trade is being unwind.”
There has not been an official announcement from Goldman Sachs yet. One of the main reasons of the disbanding is to comply with new US regulations. The Dodd-Frank financial reform act prohibits banks from risking capital losses by betting with their own money.
The US banks have 4 years to comply, with a potential extension of a possible 3 more years.
However there’s stuff going on in the investment banking industry, as pointed out in earlier posts:
See: Flight to Mystery
Goldman Sachs wants to accommodate its employees in the unit to have them seek new jobs.
I’m pretty sure a few of them will set up a couple of hedge fund and take some of the trade with them – with or without Mr. Blankfein’s approval.
In fact, with all the major banks shutting down their so-called prop desks, there will be a lot of talent to distribute, and I would not be surprised if we’ll see a wave of fresh hedge funds arising as as the prop trade is being unwind.
At Goldman Sachs, the principal strategies business have generated 10% of the banks income.
See also: Stanley’s Angles
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