Profile: Goldman Sachs' Multi-Strategy Investing group
Most Wall Street banks will tell you that they've taken steps to comply with the still not-finalized Volcker Rule, which aims to curtail risky proprietary trading by banks.
So what constitutes prop trading for this purpose?
Bloomberg offers an interesting article about Goldman Sachs' Multi-Strategy Investing group, which makes proprietary bets and has no clients.
So is this activity banned Volcker Rule? Not yet, anyway.
Relying on a 2011 proposal for implementing the Volcker rule, the bank uses a 60-day cutoff to classify short-term trades. Long-term trades are allowed. The unit, housed in the Special Situations Group, "has bet against companies through short selling, or the sale of borrowed securities, and while investments are supposed to last for months, they sometimes end early."
One former employee said it was "very much like a hedge fund."
These words make executives wince, as they fought hard to combat the notion that the firm is a giant hedge fund.
"Goldman Sachs, the fifth-biggest U.S. bank by assets, doesn't report on the holdings or performance of MSI, or of the Special Situations Group in which it's housed. That parent group, which uses the firm's funds to profit from distressed and middle-market companies, has been a major profit center at the bank, sometimes the biggest."
It remains to be seen whether this will cause any controversy as the Volcker Rule is finalized. But if there were to be significant losses in the long-term investing units, it might erupt as a London Whale-like media issue.
- here's the article