Barack Obama's bank split to hit private equity

Barack Obama's plan to limit banks' risk-taking could force the likes of Goldman Sachs and JPMorgan to lose parts of their private equity operations.

Under the President's proposals, which have to be approved by Congress, banks and financial institutions that own them would not be able to own, invest in or sponsor private equity funds not related to serving customers.

Among the banks that would be affected are JPMorgan, which manages $8 billion of investments and commitments through its One Equity Partners, and Goldman Sachs, which has a vast private equity business and invests its own capital in its funds. Both banks declined comment.

Analysts say banks will argue that the businesses are in customers' interests — the bulk of Goldman's private equity is invested for clients.

"It is a moderate impact on private equity. Most of the money going in comes from clients rather than from the capital of the bank, or the employees," said Steven Kaplan, a professor of finance at the University of Chicago.

The proposal could also hit fundraising by private equity firms, although banks only account for a small percentage of invested capital in funds. Banks and investment banks account for nine per cent of invested capital in private equity funds in the US, London research firm Preqin estimates.