Goldman, Morgan Stanley need to cut stakes in real estate investments

August 10, 2010 01:30 PM

Goldman Sachs Group and Morgan Stanley have invested almost $20 billion of their own money in private equity, private debt, real estate and hedge funds, and they may each have to cut those stakes by more than 60 percent to comply with the Volcker rule, which limits a bank’s total investments to 3 percent of its capital, Businessweek reported. Goldman Sachs had $15.4 billion in such investments — including $910 million in real estate funds — as of June 30. They have to reduce their stakes to about $2.1 billion. Morgan Stanley had $4.22 billion in investments — including $887 million in real estate funds — as of June 30, and the financial services firm has to reduce their stakes to about $1.6 billion. Goldman said in its regulatory filing that “substantially all” of the underlying assets of the funds will be liquidated within 10 years. Morgan Stanley said 46 percent of the fair value of its private equity funds and 49 percent of its real estate funds are likely to be liquidated in the next 10 years. “The regulators are likely to give them several years in order to comply, so I think it will be a steady, slow process,” said Richard Staite, a London-based analyst at Atlantic Equities. “I think they’ll find it fairly easy to sell those size investments over a multi-year period.” [Businessweek]

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