Fed grants big US banks more time to offload PE fund stakes

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The US Federal Reserve has given US banks a five-year extension to meet the so-called Volcker Rule and sell off excess holdings in PE and hedge funds. 

The Fed announced in its statement earlier this week that US lenders will have to divest of any such stakes by July 2020.

Goldman Sachs and Morgan Stanley are among the banks with highest holdings in private equity and hedge funds.

Goldman Sachs’ exposure, mostly to PE, stands at around $6.9bn and Morgan Stanley owns about $2.2bn in PE funds, according to Bloomberg.

Despite the decision, the Fed has announced it will not approve extensions if it suspects the lenders are attempting to evade the Volcker Rule.

The central bank will work on a case-by-case basis and will require lenders to apply separately for each individual investment.

Named after former Fed chairman Pail Volcker, the Volcker Rule is part of the Dodd–Frank Wall Street Reform and Consumer Protection Act and limits the banks’ ownership of and relationship with hedge funds and private equity funds.

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