Goldman Sachs Group Inc., New York, is shutting down its life settlement unit, a company spokesman acknowledges.
The company is already winding down operations at the unit, Longmore Capital, Southborough, Mass., in what Goldman Sachs spokesman Michael DuVally terms "a commercial decision."
"When we entered the business in 2006, we thought the market had the potential to grow into an institutional marketplace," DuVally says. "That did not prove to be the case, and we expect the market to remain small."
Goldman's retreat from settlements occurs against a backdrop of adverse publicity the company has received for its involvement with the discredited mortgage-backed security market. It has also been called on to testify on life settlement securitization by the Senate Finance Committee, a fact that might not have encouraged Goldman's top management to think kindly toward another potentially controversial investment.
Reactions from executives in the business ranged from dismay to mild surprise.
Rich Nemet, partner, Life Settlement Company Of America, Livingston, N.J., called Goldman's withdrawal "a crushing blow to the industry" in terms of the its public image. "But I don't think it's shocking to people in the industry. The reality is, the business was just too small for them," he says.
Goldman also may have been turned off by the process of securing a life settlement deal. Many companies entering the business find that process is much lengthier than they first thought, he adds.
Nemet believes, too, the market for settlements has often been "grossly overstated" by experts in the industry.
Ronnie Katz, president, Settlements for Life L.L.C., Memphis, Tenn., called Goldman Sachs' retreat "no surprise."
"Right now in the industry, supply is more limited than we had hoped for, both on the policy and capital sides," Katz says. "But there are always deals in the works. Many entities are working on bond [life settlement securitization] issues. At some point, I think there will be a breakthrough in bond issues."
