Banks, P.E. Invade Each Others’ Turf

Alternative investments have been a boon to investment banks in more ways than one. Not only do they earn huge fees as advisers and prime brokers to private equity firms and hedge funds, increasingly, they are setting themselves up as competitors. With record amounts going into private equity, The New York Times reports, banks are finding in-house p.e. funds an irresistible lure, in spite of the fact that angry p.e. clients and perceived conflicts of interest led several banks to do away with their private equity businesses over the past year. Just this week, Goldman Sachs CEO Henry Paulson – Goldman’s p.e. arm, Goldman Sachs Capital Partners, was the most active private equity firm in the world in the first quarter – warned his firm that hostile takeovers threaten its standing with corporate clients. But, according to Mark O’Hare, managing director of Private Equity Intelligence, for every bank that gets out, “someone else gets more closely involved.”

“Private equity is not happy,” London Business School professor Eli Talmor tells the Times. “But the industry is doing so well, the squeeze is not that bad.” One p.e. exec, referring to Goldman, told Reuters, “You have to be big boys and say, ‘Yes, you are an 800 pound gorilla, but there’s no point in us throwing our toys out of the pram; it’s just another competitor.” Or, they can fight fire with fire: The Times reports that p.e. firms have moved into traditional banking sectors like distressed debt and capital restructuring.