Colin Barr

Following the money in banking, economics, and Washington

Is Goldman getting top heavy?

March 29, 2011: 4:21 PM ET

The inner circle at Goldman Sachs  is as crowded as it has ever been. Is a shakeout at hand?

You might think it is after reading a report Tuesday from the New York Times, which points out that Goldman's (GS) partners sold $108 million of stock in December and January. That's up 42% from their sales in October and November.

Time to drain the partnership pool?

That isn't a huge amount of selling at a firm whose average daily trading volume approaches $800 million. Of course, this being Goldman, there is the suspicion that the selling could be a sign that partners who won't be staying with the firm are cashing out as they prepare to spend quality time with family or, perhaps less upliftingly, elsewhere in the business world.

Goldman's partnership pool is a relic from before its 1999 initial public offering, when the firm was a limited partnership whose leaders shared the firm's profits and stood ready to commit capital when Goldman lost money.

Under the post-IPO arrangement, Goldman's partners – technically managing director partners – share a piece of the firm's profits and get the right to invest in some choice deals. Their compensation can run well into the millions of dollars, largely in stock they can't sell immediately.

With last fall's class of 110 new members, Goldman has its biggest group of managing director partners ever. The firm says it doesn't disclose the size of its partnership group, but the Times report puts the current number at 483.

That's up from a reported 443 in 2008 – a class that was named in the midst of the financial meltdown – and media reports ranging between 267 and 320 in the middle of the past decade. The firm discloses how many people join the pool with each biennial class and says they stay on average for about eight years or so. But it doesn't say how many leave, which makes the size of the pool at any given moment a moving target.

A bigger class at a time of squeezed profits seems to point toward an inevitable thinning of the partner ranks. Partners who have been around for a bit aren't going to want to see their checks get soaked by having too many people in the bonus pool.

At the same time, it's worth noting that the size of Goldman's partner class hasn't changed much as a proportion of the firm's total workforce. So if profits do hold up, the pressure to trim the partnership list won't be intense.

The pool was 221 when the firm went public in 1999, for instance. That's 1.7% of the firm's employment as of February 1999 -- compared with 1.4% now.

Goldman will surely bring in another hundred or so hard hitters in 2012, and there's going to have to be room to give them their cut of the Goldman pie without whittling down the existing partners' pieces. Not everyone is going to make that cut, obviously.

All the same, you're not exactly likely to see a bunch of ex-partners sporting sandwich boards any time soon, either.

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About This Author
Colin Barr
Colin Barr
Senior Writer, Fortune

Colin Barr has covered finance for Fortune.com since November 2007. Previously he was a writer and editor for TheStreet.com, winning a 2006 Society of American Business Editors and Writers award for "The Five Dumbest Things on Wall Street," and for Dow Jones Newswires. He is a 1991 graduate of Penn State and lives in Port Washington, N.Y., with his wife Meena Bose and their two kids.

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