Alternative investment spin-offs coming

January 25, 2010 | By Jim Kim

Wall Street is still digesting the idea that the government seems bent on limiting their size and activity in a bid to make them less capable of sinking the system. One consequence may be that banks will be forced to ratchet down--perhaps even give up--their investments in hedge funds and private equity funds. This would be radical change for some banks.

It would not require JPMorgan (JPM), for example, to give up its Highbridge Capital Management unit; it might require the bank to pull out its proprietary funds, however. That would be a pain. Reuters suggests that the biggest banks--Goldman Sachs (GS), JPMorgan, and Morgan Stanley (MS) would be the hardest hit, perhaps due to their private equity operations. But some might argue that Goldman Sachs anyway could give up its commercial bank charter. There's still a lack of specificity regarding the whole issue. And that uncertainty is weighing on stocks.

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