Friday, July 22, 2016

Its 2007 Deja Vu All Over Again: Goldman Is Raising $8 Billion LBO Fund

The last time Goldman raised an private-equity buyout fund was in 2007: at just over $20 billion, it was the second biggest private-equity fund ever. It also top-ticked the market.
Nine years later, the WSJ reports that Goldman is finally preparing a much anticipated sequel.
According to the paper, Goldman will begin marketing a new corporate-buyout fund of between $5 billion and $8 billion, its first such fund since the financial crisis. It is aiming for an initial close by the end of the year, the people said.
With blockbuster LBO deals largely missing from the landscape in recent years, perhaps as a result of record EBITDA multiples and an unwillingness on the side of PE firms to rush into what is clearly record overvalued assets,  the effort shows "Goldman’s commitment to a corner of Wall Street that many rivals have abandoned."
However, the upcoming fund looks different than Goldman’s past funds.
For one thing, the new buyout fund is smaller than prior ones, less than half the $20 billion Goldman raised in 2007 for GS Capital Partners VI. And Goldman will contribute just a tiny slice of its own capital this time, the people said, to comply with postcrisis rules meant to make banks safer.

It also won’t carry Goldman’s name. The new pool is named West Street Capital Partners, after the bank’s lower Manhattan address, in order to comply with a postcrisis rule thatprevents private-equity funds from bearing the parent bank’s name.
The primary reason for the changes are the aftereffects of the “Volcker rule” implemented as part of Dodd-Frank, which has changed how banks can allocate their own prop capital. Under Volcker banks can contribute no more than 3% of the money raised by private-equity or hedge funds, and those investments in total can’t exceed 3% of the bank’s overall capital. Before the crisis, Goldman itself contributed up to one-third of the PE funds’ capital.

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