Chillin' out till it needs to be funded
Goldman Sachs Group Inc., the securities firm that makes about 10 percent of its revenue from trades on its own behalf, is ceasing proprietary trading in one type of structured debt, according to a person close to the firm.
A group of traders who were focused on making bets on collateralized loan obligations with the New York-based firm’s own money are now handling trades for clients, the person said, speaking anonymously because the plans aren’t public. CLOs are bonds backed by pools of corporate loans. Andrea Rachman, a spokeswoman for Goldman Sachs, declined to comment.
Goldman Sachs, the most profitable Wall Street firm, merged the proprietary trading desk with the team that handles transactions for clients as it wound down the positions in the proprietary trading book, the person said. Both groups were run by Gerald Ouderkirk, who was promoted to managing director in October 2006.
Asset-Backed Alert, an industry newsletter, reported on the changes in Goldman Sachs’s CLO trading division in its May 14 issue.
CLOs are a type of collateralized debt obligation, debt instruments that repackage loans into securities of varying risk that pay investors different yields. The market boomed in the first half of the last decade, helping fuel a spree of leveraged buyouts by providing demand for loans that helped reduce the cost of funding. The market dried up in 2007 and 2008 as the mortgage market crisis caused investors to flee from structured credit into simpler and safer securities.
The fair value of Goldman Sachs’s retained interests in CDOs and CLOS dropped to $367 million at the end of November 2008 from $1.97 billion two years earlier, according to company filings.