Goldman Sachs used to be in an almost unique position on Wall Street, running a full-fledged private equity business that competed with many of its clients for acquisitions. Conflicts were "managed" rather than avoided. (For those of you who don't know, conflicts are managed the same way romantic relationships are managed: you tell the other party involved that you understand, it will all be okay, there's no need to leave, but you aren't ready for a fully-committed, monogamous relationship yet.)
Most Wall Street banks weren't quite so bold. They would make equity investments when partnered with clients but concern over conflicts and alienating clients kept them from lighting out on their own. After years of watching Goldman Sachs slip the binds of the Gordian Knot of conflicts, it seems now that the knot has been permanently untied.
A major change has now quietly swept Wall Street. A some point, about the time when the Blackstone Group’s $15.6 billion fund became a $20.6 billion fund and Goldman neared a $20 billion fund, the script was rewritten. What was once an agonizing business decision — should we compete against our clients? — has become an accepted business practice.
The reason is simple. Wall Street banks cannot resist the lure of the private equity cash machine, so that the challenge, as the executive went on to say, is not to avoid conflicts but to manage them. Roughly translated that means: We refuse to leave money on the table or in someone’s pocket, even if that someone is a client.
We’ll admit, though, that our favorite part of the piece was the lede, where Times writer Jenny Anderson talks to a senior Wall Street executive “early one recent morning” about conflicts of interest while still in her “fuzzy slippers.” What else was Jenny wearing? She leaves that to our imaginations.
A Tilt in Wall Street’s Pursuit of Private Equity [New York Times]