Goldman Sachs restructures PIA in Asia

Ankur Sahu and Andrew Wolff will co-head the principal investment area of Goldman Sachs in Asia, in a restructuring that sees the bank cover Asia, including Japan, out of Hong Kong and Mumbai.

Goldman Sachs has reorganised its principal investing division in the region to encompass Asia, including India and Japan, and appointed Ankur Sahu and Andrew Wolff to head the business. The announcement was made in an internal memo which said the organisational changes are “aimed at increasing [Goldman Sachs’] commitment to the strategically important Asia region’. The reorganisation comes at a time when analysts are questioning what the implications of enhanced US legislation and increased capital requirements will be on principal businesses at Goldman Sachs.

Wolff and Sahu are both veterans in the principal investment area (PIA) of Goldman Sachs, which is charged with pursuing corporate investments worldwide. The capital it invests is proprietary, from employees and from outside investors.

PIA was started in Asia in the mid-1990s by Henry Cornell, who has been a partner of the US investment bank since 1994. Its first investment was in Ping An Insurance. Cornell was based in Asia initially and is now back in New York, although he still oversees the region. The unit was hitherto run on an Asia ex-Japan (AEJ) ex-India basis with both Japan and India being covered as separate units. The reorganisation announced earlier this week integrates the AEJ, Japan and India business units. The changed structure “is intended to increase collaboration among various offices and enhance cross-border business potential”, the memo said.

Wolff and Sahu have now been named to co-head PIA for Asia. Both continue to report to Cornell. Wolff, who is currently based in Hong Kong and will continue in the same location, joined Goldman Sachs in 1998 in PIA. Sahu also joined Goldman Sachs in 1998 but in the high technology investment banking group in San Francisco. He moved to PIA in 2000 and relocated to Tokyo in 2004. Both Wolff and Sahu were promoted to managing director in 2005 and to partner just one year later in 2006.

Sahu will move base to Mumbai later this year to lead the expansion of the India franchise. Goldman has already invested more than $2 billion in India since 2006 when it opted out of its joint venture with Kotak and set up shop alone. Sahu retains responsibility for corporate investing in Japan.

Sanjeev Mehra, who is based in New York, will continue to be involved with the India investing effort. Mehra joined Goldman in 1986 and transferred to PIA in 1990.

Observers suggest that relocating Sahu from Tokyo to Mumbai could signal that the bank is more bullish on opportunities in India than in Japan.

Since 1986 PIA has raised around $82 billion of capital through 15 investment vehicles and invested over $58 billion in over 700 companies globally. The division has around 145 professionals across offices in New York, London, Hong Kong, Tokyo, San Francisco and Mumbai.

Last year former US Federal Reserve chairman Paul Volcker submitted a proposal to the Congress to limit US banks from engaging in proprietary trading and from owning hedge funds or private equity funds. President Obama endorsed the Volcker Rule on January 21, coincidentally the same day that Goldman Sachs declared full-year results for calendar 2009.

During the course of the analyst call to discuss the results, which is posted on seekingalpha, David Viniar, Goldman Sachs chief financial officer, said “our private equity business is an important business for Goldman Sachs. It’s very integrated in the rest of our business. As you know our private equity business works, there are a lot of our very important clients invested in our private equity business. We invest alongside other clients of the firm and we invest in clients to help them grow”. Viniar declined to comment specifically on the implications of the Volcker Rule, even in response to pointed questions from CLSA’s bank analyst Mike Mayo, saying he needed to digest both the proposal and its implications.

However, even one year after the Volcker Rule was tabled, it remains unclear how the proposals  will be enforced and, further, how they will impact the businesses banks engage in. At this year’s earnings call on January 19 Viniar disclosed that the investing and lending businesses generated revenues of $7.5 billion in calendar 2010. “A significant increase in global equity markets and tighter credit spreads provided a favourable backdrop for our investing and lending businesses in 2010,” said Viniar in another transcript posted on seekingalpha, although he also said in his opening remarks that “throughout the year, global financial regulation continued to be a concern, specifically, the implications of the Dodd-Frank Act and Basel III”. A number of the questions posed by analysts related to which of the investing and lending businesses may have to be discontinued or wound down and how enhanced capital requirements may make some businesses uneconomic. However, Viniar said he was unable currently to provide complete clarity.

It is not only the overhang of legislation that is making banks question their investing businesses. It is also the fact that gearing levels are being forced down and, therefore, some of these businesses are no longer as profitable. However, Viniar denied that leverage was being maintained artificially low saying instead the bank had operated at a lower leverage level than in the past because it had “not seen the opportunities to do things that would increase the leverage”.

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