Volcker Rule

  • 14 Jan 2014 at 5:15 PM

Small Utah Bank Has Many Powerful Friends

The Volcker rule is just over a month old, meaning the time has come to carve the first major loophole out of it. Read more »

It appears we mistyped when we wrote that Davis Polk could explain the Volcker rule to you in 27 pages. It will actually take 66. And while the firm’s Gabe Rosenberg warns that the funds portion of the regulation is “even more complicated” than the prop. trading part, it is not so complicated that it cannot be explicated in a series of flowcharts.

Final Volcker Rule Regulations: Flowcharts: Funds: Substantive Rules [Davis Polk]

  • 03 Jan 2014 at 4:23 PM

CliffsNotes On Volcker Rule Now Available

If you spent your Christmas break looking over at the pile of 1,000 pages of regulatory impenetrability you’ve got to master before turning back towards the television, you are in luck: An army of junior associates at Davis Polk spent their vacations digging into the regulatory Christmas present known as the Volcker rule, and can explain it to you in 27 PowerPoint slides. Read more »

In spite of Republican SEC Commissioner Daniel Gallagher’s complaints, the Volcker rule is here. Read more »

There’s that old line that “hedge funds are a compensation scheme masquerading as an asset class” but the masquerade is getting harder to keep up because you can pay 2 and 20 for just about anything these days. If you wanted to you could pay – well, 1.5 and 20, with a 7% hurdle – to invest in middle-market leveraged loans via Goldman Sachs Liberty Harbor Capital, LLC,1 which is coming to a stock exchange near you as a listed closed-end fund, regulated as a business development company under the Investment Company Act of 1940.

BDCs are I guess all the rage as a way for alternative asset managers to access non-institutional permanent capital; separately, sidling up next to the Volcker Rule and taunting it is kind of all the rage at Goldman Sachs, and this seems to do that too:

Goldman is likely to invest some of its own money in the company and said in the filing that it expects the unit won’t be covered by the Volcker Rule, a part of the Dodd-Frank financial regulatory overhaul that restricts banks from making bets with their own funds.

Not sure which motive dominates here – Goldman Sachs Asset Management offers plenty of retail products, and why not have 1.5-and-20 retail products in that mix? – but the Volcker angle is intriguing. Read more »

The saddest part of this job is discovering a beautiful thing that someone has created as a way around financial regulation, and then watching philistine regulators destroy it. But the happiest part is dreaming up a come-on-that-could-never-work ploy to get around some financial regulation, and then finding out that someone’s actually doing it. Extra points if the someone is Goldman Sachs.

Two weeks ago I thought I’d concocted a way around the Volcker Rule’s porous and silly restrictions on banks running private equity funds. My solution involved (1) having a merchant banking business that took no outside investors (which the Volcker Rule does not restrict), (2) having a private equity fund that took no bank money (since the Volcker Rule limits banks to owning 3% of such funds), and (3) having your merchant bank and your private equity arm co-invest in deals. Since that doesn’t quite work,1 I later modified it a bit to have the outside investors co-invest directly, rather than through a private equity fund, and give the bank its management fee in the form of better economics to the merchant bank in each investment.

Today Reuters has this: Read more »

Reuters has a delightful story today about Wells Fargo’s merchant banking business, Norwest Equity Partners, which owns among other things the quite horribly named rifle maker Savage Sports. I can’t get too worked up about the likelihood that a fifty-year-old, smallish ($3.7bn), carefully managed, moderately gun-toting, otherwise wholesome private equity business will bring down the global financial system, but then I’m not Sheila Bair:

“Is that really what you want institutions that have safety net support doing? Is that an appropriate use for a government backstop?” she told Reuters.

I dunno, Sheila. Who is “you”? What do you want institutions doing? Something, right?

The point of the Reuters story is mainly that the Volcker Rule is expected to limit banks’ ability to invest in private equity funds, but that Norwest’s business is likely to be exempt because it runs only Wells’ own money. If you put bank money in a separate PE fund with outside investors it’s caught up in the Volcker Rule, but if you just make private-equity-type investments on your own it is not. This is no way to run a railroad: Read more »

Oh, the wily and unscrupulous French: They spend years arguing with the ferocity of a cockfighter for tough, nay, draconian financial regulations. And then they elect a Socialist who promises to be even less interested in the concerns of the monied classes. And then, when Europe’s two biggest economies—the ones housing the financial centers the French hope to destroy—announce that they’ll impose the aforementioned tough, if not draconian, regulations, the French say, joke’s on les Huns et les rosbifs. Read more »