In order to counter the Volcker Rule,
The Goldman Sachs Group, Inc.
) has registered Liberty Harbor Capital LLC as a publicly traded
business development company (BDC).
Volcker Rule, a specific section of the Dodd-Frank Wall Street
Reform and Consumer Protection Act, restricts banks to invest in
hedge funds and private equity funds. Proprietary trading is also
prohibited under this rule.
Implementation of Volcker Rule has been negatively impacting the
overall earnings of major U.S. banks like Goldman. Goldman still
earns management fees and incentive fees for providing investment
management services to private equity and hedge funds. Following
the implementation of the Volcker Rule, such earnings will be
substantially impacted. Therefore, Goldman has decided to
register Liberty Harbor as a BDC.
Liberty Harbor is a fund that invests in middle-market firms
having weak credit ratings. Usually, Liberty Harbor invests in
bonds and loans that are not considered as investment-grade, as
credit rating agencies do not rate them. Further, under the JOBS
act, Liberty Harbor qualifies as an emerging growth company.
Liberty Harbor will principally invest $5 million to $50 million
in firms across different sectors, having annual adjusted
earnings between $5 million and $75 million. The investments will
have duration of 3 to 10 years.
Earlier, in Nov, 2012, Goldman provided initial funding to
Liberty Harbor, which has invested roughly $73 million in 8
Apart from Goldman, many other U.S. banks, such as
Bank of America Corporation
JPMorgan Chase & Co.
Wells Fargo & Company
), are also taking steps to reduce their investments in hedge
funds and private equity to comply with the regulations.
Goldman currently carries a Zacks Rank #3 (Hold).
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