Private Goldman Exchange Officially Closes for Business

We hardly knew ye, GSTrUE.

With Thursday’s initial public offering of the Oaktree Capital Group, a once-promising private Goldman Sachs stock exchange has officially come to an end.

The backstory: In 2007, Goldman started its own marketplace for companies that wanted to list their shares but avoid the disclosure and regulatory requirements of a public listing. They called it the Goldman Sachs Tradable Unregistered Equity platform, or GSTrUE.

Notwithstanding the clunky acronym, GSTrUE seemed like a good idea at the time.

With markets soaring, companies saw private exchanges like GSTrUE as a weigh station to an eventual public listing. They could quietly raise money from large, outside investors while at the same time remaining private. Potential investors found the Goldman platform alluring because, unlike more restrictive private placement deals, they could sell their shares on an exchange with transparent pricing.

Realizing the appeal of such a marketplace, two of the savviest investment firms on Wall Street signed up as charter members — Apollo Global Management and Oaktree. Each sold minority stakes in their firms, raising about $1 billion each.

Goldman had grand ambitions for the platform, highlighting it as an example of its ability to innovate in its 2007 annual report.

“GSTrUE pioneered the offering and trading of privately placed securities, bringing the liquidity of an exchange with the flexibility of a private placement,” Lloyd C. Blankfein, Goldman’s chief executive, wrote in his letter to shareholders.

Yet there was one problem: No one showed up to trade on the exchange. Goldman executives who created GSTrUE thought a liquid market would develop among qualified investors. They were wrong. Investors in both Apollo and Oaktree who bought shares on GSTrUE found few, if any, buyers, for their stock when they wanted to sell.

“To say that our shares traded by appointment is putting it generously,” said one executive whose company listed on the exchange.

Part of the problem was bad timing. Just as the exchange started, the credit markets began to seize up. The following year came the global financial crisis, and investors became allergic to any investment where liquidity was an issue.

The lack of trading volume frustrated Apollo and Oaktree investors, as well as the firms’ principals. Not only was there no trading in their shares, but they also felt that the lack of liquidity was causing the shares — when they did trade — to change hands at a steep discount to their true value.

Apollo moved its listing to the New York Stock Exchange a year ago. And now, with Oaktree following suit, GSTRuE’s only two members have moved on.

A Goldman spokesman confirmed that Oaktree’s move to the N.Y.S.E. spells the demise of the bank’s private-exchange experiment.