As private equity, hedge funds, and other alternative asset management firms seek additional capital, keeping internal operations confidential remains an important priority.

These companies rely on secrecy and limited disclosure to protect future plans, unique trading strategies, or other business practices. Because of this need to keep operations confidential, raising capital through global exchanges that are heavily regulated and require large amounts of disclosure is a less attractive option.

GSTrUE
This need to raise capital but limit disclosure is a service Goldman Sachs’s GSTrUE (GS Tradable Unregistered Equity OTC Market) intends to provide. GSTrUE is a private market that provides access to only institutional and highly sophisticated investors. This market allows private companies to raise capital without the disclosure requirements of public markets.

GSTrUE follows specific SEC rules to avoid the disclosure requirements. Under these rules, companies are able to sell securities without registering them if the issued securities are limited to qualified institutional buyers (investors with at least $100 million in assets), and there are less than 500 shareholders.

The market is run through a Goldman Sachs trading system. This system allows the members of GSTrUE to view bid and ask offers and recent sales. Actual transactions are made through special brokers.

Because of the lack of disclosure in GSTrUE, shares on the market are expected to trade at a discount to the equivalent price achievable if the shares were listed on a public market. Companies utilizing GSTrUE, however, believe that the ability to avoid disclosure requirements of public markets is more important than receiving the higher price available from a public exchange listing.

Major GSTrUE Listings
Oaktree Capital, a hedge fund, sold a $700 millon stake in the alternative investment firm through GSTrUE. Apollo Management, a giant private equity firm, also plans to sell shares on the private GSTrUE.

GSTrue is another innovate Goldman Sachs idea that should fill an important need for companies wishing to raise capital but avoid regulation. Nasdaq also plans to create a private exchange called Portal that would utilize a computerized trading platform to market private listings to institutional investors. The need for this service may also highlight some of the flaws or limitations in the current regulation structure of the large public exchanges.

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