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Goldman Can’t Vote On Its Own Strategy Shift

GS Capital Partners is making a plea to its LPs, and it doesn’t have the support of the largest one—itself.

GSCP, a private equity arm of Goldman Sachs, is seeking approval from 50% of its investors to use money from its buyout fund to purchase distressed debt. But a whopping $9 billion of the firm’s $20 billion sixth fund came from Goldman Sachs itself — including contributions from employees — and those stakeholders do not get to vote on matters such as strategy change, according to the LP agreement.

That little hiccup means that Goldman may have an uphill battle, as it seeks to re-allocate half of its remaining $9 billion in dry powder to stressed and distressed debt investments.

The move clearly reflects a dearth of mega-LBO opportunities; although GS Capital Partners’ stated strategy includes build-ups, take-privates, growth investments, restructurings, and even co-investments and mezzanine plays. The strategy is flexible as is, so a shift that involves an LP vote has to be a drastic departure. I have to wonder if this isn’t a step on the path to investing in The Fed’s public-to-private securities. More on that as I hear it …

See earlier: Goldman Sachs To Spend Part of PE Fund on Distressed Debt