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Vodafone Estimates Raised at Goldman After Broad-Based 2Q Beat
2014-11-11 07:45:55.844 GMT


By Sam Chambers
Nov. 11 (Bloomberg) -- Vodafone’s 2Q organic service rev.
improvement was broad, with Italy, Spain and Turkey seeing
greatest sequential improvements, Goldman says.
* 2Q results were boosted by lower competitive intensity in
Italy and early signs of monetizing 4G
* KPIs are solid in major mkts, with co. reporting positive
contract net adds in Spain for first time since 2011 and net
adds also rebounding in Germany
* Raises FY Ebitda est. 1% to GBP11.85b and FY16 est +2%
* Boosts PT by 4% to 240p; reiterates neutral rating due to
belief that sustainable growth in European mobile is only
achievable with broad sector consolidation
* NOTE: Shrs closed at a 4-year low on Oct. 16 and have since
risen 13%: Bloomberg data


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To contact the reporter on this story:
Sam Chambers in London at +44-20-7673-2021 or
schambers7@bloomberg.net
To contact the editors responsible for this story:
James Ludden at +44-20-7673-2645 or
jludden@bloomberg.net
Andrew Rummer

Goldman Partners Profit From Private Funds That Charge No Fees
2014-11-11 06:00:17.196 GMT


By Michael J. Moore
Nov. 11 (Bloomberg) -- Of all the perks bestowed on those
selected as Goldman Sachs Group Inc. partners this week, the
most uncommon may be access to a private fund named for a street
that stretches two blocks at the southern tip of Manhattan.
Goldman Sachs has brought back Bridge Street funds, which
allow senior employees to invest alongside the bank in closely
held companies without having to pay fees. First offered when
the firm was a true partnership before going public in 1999,
Bridge Street was restarted in 2011. This year’s fund raised
more than $120 million from about half of the 400 partners.
Employee private-equity funds are one of the extras that
make rewards at Goldman Sachs the envy of Wall Street. Chief
Executive Officer Lloyd C. Blankfein received $125.9 million
from the funds in the past five years, more than he was awarded
in salary and bonuses over the same period, filings show.
“It’s consistent with Goldman’s past DNA and the DNA they
want to have going forward,” said Alan Johnson, founder of New
York-based compensation-consulting firm Johnson Associates Inc.
“The big banks are no longer the pay leaders, no longer the
masters of the universe, so they’ve got to be more creative.”
Andrea Raphael, a spokeswoman for Goldman Sachs, declined
to comment on the funds.
Goldman Sachs offered Bridge Street funds until 2000,
before dropping that model in favor of allowing employees to
invest in specific private-equity and debt funds it raised for
clients, such as the $20 billion GS Capital Partners VI in 2007.
The opportunity, which in some years attracted more than $1
billion, encouraged employee retention and was a built-in
seeding method for new ventures.

Volcker Rule

The bank didn’t offer employees any funds in 2009 and 2010
in the wake of the financial crisis and amid criticism of Wall
Street compensation practices.
The Volcker Rule -- passed as part of the 2010 Dodd-Frank
Act -- limited the amount of money banks could put into their
private-equity funds. As Goldman Sachs replaced stakes in funds
with investments in companies made solely with its own money, it
went back to the standalone employee funds.
This year, the New York-based bank also reactivated Stone
Street, a fund offered to the firm’s more than 2,000 managing
directors, those employees one rung below the ceremonial title
of partner. That fund raised at least $57 million, bringing the
total contributed by employees to more than $178 million, about
three times as much as in 2011, according to filings.
Stone Street is one block north of Bridge Street in
Manhattan’s financial district. Both are near Goldman Sachs’s
former headquarters at 85 Broad St.

Override Fees

The Bridge Street and Stone Street funds are managed by
Goldman Sachs’s merchant-banking division, which is led by
Richard Friedman and also runs the firm’s client funds. The bank
typically doesn’t charge partners management fees or overrides,
the manager’s cut of gains, often called carried interest.
The employee funds raise questions about conflicts of
interest similar to those posed by the firm’s principal
investments. Goldman Sachs hasn’t disclosed the criteria it uses
to decide when to invest client funds in a company versus using
its own balance sheet or employee funds.
“The negative of things like this is clients always wonder
if you’re saving the best stuff for yourselves,” Johnson said.
“So you’ve got to be careful with that and let them know that
clients either come first or are beside us in the deals, but
we’re not ahead of the clients.”
Goldman Sachs also often serves as underwriter on IPOs for
companies in which it has invested, leading competitors to
question whether the firm will push for a higher price than the
market would dictate.

Stemming Defections

Banks including Morgan Stanley and Citigroup Inc. haven’t
made private-equity funds broadly available to employees since
2008. Those two firms offered funds before the financial crisis
in which it leveraged employee contributions by lending $2 to
the fund for every $1 committed, allowing bankers to benefit
from profits made beyond the cost of the loan.
Goldman Sachs’s employee funds are modeled on those of
hedge funds and asset-management firms, which often reinvest a
portion of annual bonuses in their funds, said Ilana Weinstein,
founder of New York-based recruiting firm IDW Group LLC.
The efforts might not be enough to stem defections of some
traders seeking higher pay and less regulation, Weinstein said.
The average amount Goldman Sachs set aside last year for
compensation per employee was $383,374, down from $661,490 in
2007. The firm’s partners typically receive a $900,000 salary
and often earn many times that in bonuses.

Bonus Amounts

“If the objective is to try to retain senior people from
leaving to go to the buy side, the structure is similar to what
goes on in asset-management land, but the absolute dollar
numbers are going to be smaller,” Weinstein said. “I don’t
know if you stay just because you can participate in those
funds.”
Goldman Sachs’s eligible workers are alerted to the funds
early in the year as they learn their bonus amounts, according
to current and former employees who asked not to be identified
talking about compensation policies. They can choose to set
aside a portion of their bonus to invest in the funds, and the
money is put to use over several years.
The newest partners will be notified of their selection
tomorrow morning by Blankfein and President Gary D. Cohn,
according to a person briefed on the process.
Even with the recent increases in contributions, the amount
invested by Goldman Sachs employees pales compared with the pre-
crisis funds. Bankers at the firm contributed more than $1.5
billion to employee funds tied to Capital Partners VI in 2007
and more than $1 billion to funds tied to Capital Partners V two
years earlier, filings show.

Investing Risks

The reduction may be because the financial crisis exposed
the risks of investing in the funds. Some that invested
alongside real estate funds before the housing market collapsed
lost money. The funds also aren’t liquid. General Counsel Greg
Palm and Jon Winkelried, then co-president of the firm with
Cohn, found that out when they needed cash in late 2008. The
firm ended up buying their stakes.
Still, individual contributions have been capped because
demand for the funds often outpaced their targeted size.
Contributions are locked up for several years and distributions
can continue over more than a decade.
Former CEO Hank Paulson had between $3.6 million and $7.6
million in 22 Bridge Street and Stone Street funds from the
1990s and 2000 as of the end of 2005, according to public
financial disclosures from when he became U.S. Treasury
Secretary the following year.

Blankfein Benefit

While the firm doesn’t provide details of the funds’
performance, bankers who have participated said that previous
employee funds have performed well, in some cases more than
doubling the amount invested.
Blankfein, 60, has received $173.4 million from employee
funds in the past 12 years. Palm and Cohn also have received
more than $100 million of distributions. Goldman Sachs doesn’t
disclose how much of that is profit and how much return of
invested capital.
The return to employee-only funds eliminates one added
bonus from the previous structure: Bankers who invested in the
earlier funds also received a share of the fees that the firm
charges outside clients. Blankfein and Palm, the two largest
investors in employee funds among the firm’s officers, have
received more than $9 million of such gains since 2008.

T2 Biosystems

The recent funds have made several profitable investments.
Bridge Street 2011 funds were involved in a buyout that
year by Goldman Sachs and Warburg Pincus LLC of Endurance
International Group Holdings Inc., one of the world’s largest
website-hosting companies. Burlington, Massachusetts-based
Endurance went public last year, and the stake held by Bridge
Street funds has gained more than 40 percent, according to data
compiled by Bloomberg.
In March 2013, that year’s Bridge Street fund made a
preferred investment alongside Goldman Sachs in Lexington,
Massachusetts-based T2 Biosystems Inc., a maker of diagnostic
instruments for detection of infectious diseases. Seventeen
months later, Goldman Sachs and Bridge Street bought more stock
in T2’s IPO. The fund’s total investment of $4.34 million has
increased more than 50 percent in value, based on yesterday’s
closing price.
Bridge Street funds also own preferred shares in iKang
Healthcare Group Inc., a Beijing-based company that provides
health-care services to corporations, and have stakes in credit-
reporting company TransUnion Corp., Indian cable-television
operator DEN Networks Ltd. and Interline Brands Inc., which
sells plumbing and air conditioning products.
“Historically these kinds of funds have done well,” said
Johnson, the pay consultant. “And even when they haven’t done
well, people kind of sucked it up and didn’t complain.”

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To contact the reporter on this story:
Michael J. Moore in New York at +1-212-617-6919 or
mmoore55@bloomberg.net
To contact the editors responsible for this story:
Peter Eichenbaum at +1-212-617-5722 or
peichenbaum@bloomberg.net
Robert Friedman, David Scheer