Goldman Sachs Group Inc is considering two options for its main proprietary trading group as it tries to comply with a new U.S. financial reform law, sources familiar with the process said.
Goldman executives have been meeting to decide what to do with the Goldman Principal Strategies Group, the sources said.
One option is to spin it off into a separate fund that would raise its own capital from investors, these people said on Thursday.
It also shift the group's employees into Goldman's asset management business, where they would become part of a $7 billion internal hedge fund that manages money for the firm's wealthy customers.
Bloomberg first reported the news of the possible spin-off. A Goldman spokesman declined to comment.
The restructuring would be the first big move by a large U.S. bank to deal with the new restriction on proprietary trading after the financial regulatory overhaul law passed.
Goldman would benefit by being one the first Wall Street banks to determine how it was going to deal with its proprietary trading operations, analysts said.
There's going to be a lot of firms that have to do this, and I think there is a first-mover advantage for them, said Walter Todd, co-chief investment officer at Greenwood Capital Associates.
If Goldman spins off the group, it is not clear how much money it would have to raise. Bloomberg reported that if the firm did the spin-off, it intends to complete the process by year's end.
Also on Thursday, CNBC reported the bank was discussing possibly spinning off its special situations fixed-income unit.
Under the new law, banks cannot engage in proprietary trading -- or trading with their own capital -- and hold more than 3 percent of their Tier 1 capital in private equity or hedge fund investments. Tier 1 capital is a measure of a company's financial strength.
Industry rivals Citigroup Inc, Morgan Stanley and Bank of America Corp have all begun shedding smaller private equity investments because of the new rules.
Some, like Bank of America, hover near their 3 percent cap, and will need to make only minor moves to comply.
Others, like Goldman, will need to be more aggressive.
Goldman had $15.5 billion invested in private equity or hedge funds as of March 31 and another $12.1 billion in funding commitments, according to a securities filing.
The new rules would cap such investments at $2.1 billion, or 3 percent of the bank's $68.5 billion in Tier 1 capital.
Goldman shares dipped 0.4 percent to $155.85 in afternoon trading on the New York Stock Exchange.
(Reporting by Joe Rauch, editing by Dave Zimmerman, Matthew Lewis and Robert MacMillan)