Goldman Sachs is closing down Principal Strategies.

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Kate Kelly broke the news that Goldman

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[GS  Loading...      ()   ] was preparing to shut down its large-cap equity trading group about a month ago. Bloomberg on Friday confirmed the story with two sources, adding the news that plans to spin Principal Strategies off into a hedge fund have been shelved.

Principal Strategies operated as kind of internal hedge fund, trading large cap equities with Goldman’s own capital and operating under the aegis of Goldman’s equities division. DealBook today described it as the "best-known — or, conversely, most infamous — investment bank proprietary trading desk" on Wall Street.

(Goldman’s other big prop trading operation, the Global Special Situations Group, operates under the Fixed Income, Currency and Commodities Division.)

A couple of years back, Goldman shifted about half of Principal Strategies—both traders and assets—to its asset management division.

This accomplished a couple of things. It allowed Goldman to take half of the risk of Principal Strategies off its books and to open the fund to clients. But since the firm had capital invested in the new created fund, called Goldman Sachs Investment Partners, Goldman in effect became a client of itself.

Until very recently, a lot of people thought that this was the model for how Goldman would handle the spinoff of the rest of Principal Strategies. Alternatively, many thought that the Principal Strategies group would just start their own hedge fund.

The Bloomberg story seems to indicate that neither of these things is happening. But if Principal Strategies isn’t being shifted to asset management and those guys aren’t forming an independent hedge fund, what’s going on? Was there trouble raising outside capital?

Or, as some are whispering, is a foreign investment bank preparing to bring them on board?

We haven't been able to get any clarity on the subject. And Goldman's spokesfolks are staying mum.