March 30 (Bloomberg) -- Byron Trott, the Chicago-based investment banker who advises billionaire investor Warren Buffett, is leaving Goldman Sachs Group Inc. after 27 years at the company, said two people familiar with the matter.

Trott, a 50-year-old vice chairman of investment banking, is leaving to start a merchant-banking fund that will invest in and advise companies controlled by families or entrepreneurs, said one of the people, speaking on condition of anonymity because the plans haven’t been publicly disclosed. The fund aims to raise $2 billion, the person said.

Banks such as Goldman Sachs that have taken government money face tougher regulatory oversight and greater public scrutiny, which may drive top bankers and traders to leave, said Henry Higdon, managing partner at recruitment company Higdon Partners LLC. Jon Winkelried, Goldman Sachs’s co-president, resigned last month.

“Nobody’s having fun at these banks if they’ve taken a nickel of government capital,” said Higdon, who is based in New York. “The place to be over the next two years is going to be private companies. The guys with the confidence, who are true entrepreneurs, are going to start their own companies.”

Trott didn’t reply to a phone call and e-mail seeking comment. Andrea Rachman, a spokeswoman at Goldman Sachs, declined to comment.

Capital Injections

Goldman Sachs was the biggest and most-profitable securities firm until it converted to a bank in September, a week after Lehman Brothers Holdings Inc. went bankrupt. Goldman Sachs was among the first nine banks that received capital injections from the U.S. Treasury in October, receiving $10 billion. The government has since enacted laws that restrict compensation at banks that have taken government money.

Trott, who joined New York-based Goldman Sachs in 1982, helped line up a $5 billion capital injection from Warren Buffett’s Berkshire Hathaway Inc. in September that was later supplemented with a $5.75 billion sale of common stock.

Buffett, whose insurance and investing firm is based in Omaha, Nebraska, is such a fan of Trott’s that he has praised him in Berkshire Hathaway’s annual reports. “He understands Berkshire far better than any investment banker with whom we have talked and -- it hurts me to say this -- earns his fee,” Buffett wrote in 2004.

Buffett will invest in Trott’s new company, the Wall Street Journal reported on its Web site. Debbie Bosanek, an assistant to Buffett, confirmed that Berkshire Hathaway “will have a modest investment” and didn’t reply to additional requests for information.

Buffett didn’t respond to a request for an interview.

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net.

Last Updated: March 30, 2009 14:09 EDT