Goldman Sachs Reorganization and Funds

How will Goldman Sachs funds be affected by structural changes? The changes in question arise from new rules still being hammered out by federal regulators as well as suggested by the company’s internal “Business Standards Committee Report”.

Then there is the public relations beating Goldman took in the past year, which will likely discourage activities that could lead to adverse media coverage. To avoid “reputational risk” portfolio managers may choose to miss out on certain opportunities.

Fund clients have been warned that new regulatory requirements or internal policies may restrict investment activities. Goldman may stay away from certain types of transactions that would have boosted returns— and that other fund managers will take advantage of.

The Facebook offering debacle was a vivid example of how regulatory concerns can curb what the bank does. For fund investors, the key issue is whether this will have a significant effect on returns.

It might not. Chief financial officer David Viniar says the main effect is that Dodd-Frank limits the share the bank can hold to 3% of a fund and that is less than Goldman used to have. But  the bank will still find opportunities for clients, he says. However, he does acknowledge that competition has become tougher in the past year.

Will the competitors eat some of Goldman’s lunch? In the past, the bank fought tooth and nail to retain large clients. It may be hampered now.

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