Some cheeky theories on the future of Goldman Sachs come from DealBreaker.com, which builds on the thought-provoking question: “Will a hedge fund become the next Goldman Sachs?” posed by Jenny Anderson in Wednesday’s DealBook section of the New York Times.
There are all sorts of problems with this idea, says DealBreaker, not the least of which is that while the hedge fund in question — Citadel – is growing in all sorts of new and strange ways, it hardly seems to be growing into anything like a full-fledged investment bank. “Citadel has elements of an investment bank disguised as a hedge fund, minus the investment bankers,” Jenny admits.
So, yeah, but no. Not an investment bank. Not Goldman Sachs.
But could this work the other way around?, asks DealBreaker. With all the talk of hedge funds and private equity going public, one story that has been overlooked is the possibility that Goldman might spin off its hedge fund business.
Goldman broke new ground when it abandoned its traditional partnership structure and let the public buy pieces of its equity at the turn of the century. But that was then, and this is now. And the next step might be a spin-off of its profitable trading business.
That will come as a shock to some who have come to regard Goldman as a hedge fund disguised as an investment bank, but is it really so far-fetched? The proprietary trading business – basically, Goldman trading for Goldman – has been a strong profit and growth engine for the bank, so strong that some wonder whether this piece might be far more valuable as its own entity.
Surely there are some people inside Goldman Sachs prop trading business wondering just how much their little corners of the investment bank might be worth if it wasn’t dragged down by the fee-gobblers in investment banking and credit groups.
A free-standing GS Prop Trade would surely encounter some risk from facing the markets without security of Goldman’s other businesses behind it. But these guys are risk machines, after all.
The recent miserable performance of Goldman’s Global Alpha fund – down 2 per cent for the year when hedge funds have had an average gain of 1.9 per cent – probably isn’t exactly lighting a fire under the would-be Prop Trading Secessionists. But, you know, it’s in the air.
And, as DealBreaker says, we “can’t help but smile” at the ironic image of Prop Trading stealing away into the night with its own spin-off at the very time when Goldman’s investment bank is out pitching so many other hedge funds and private equity firms on their own IPOs.