Goldman's Global Alpha Fund Plummets

Another day, another hedge fund implosion

August 13, 2007

Advertisement
AdvertisementGOLDMAN Sachs Group's $US8 billion ($9.5 billion) Global Alpha hedge fund has fallen 26 per cent this year, a decline that may prompt more investors to withdraw their money, people familiar with the fund say.

Goldman's largest hedge fund, managed by Mark Carhart and Raymond Iwanowsk, has dropped almost 40 per cent since July 31, 2006, said the people, who declined to be named because the fund is private. The Standard & Poor's 500 Index of the biggest US stocks has returned 16 per cent during the same period.

Virginia Parker, who helps oversee about $US1.8 billion at Parker Global Strategies LLC, said it was hard to imagine how investors could maintain confidence. "There has been a broad range of market climates and the fund has not demonstrated the ability to excel in any of them," she said.

Quantitative hedge funds - including those run by Goldman, Highbridge Capital Management LLC, AQR Capital Management LLC and Tykhe Capital LLC - have lost money in August as credit spreads have widened and stock-price volatility has jumped, jarring the computer models the managers use to make their bets.

The $US1.7 trillion hedge-fund industry has been roiled by declines in the credit and equities markets during the past two months. Two hedge funds managed by Bear Stearns Companies collapsed and Sowood Capital Management LP, run by a former manager of Harvard University's endowment, is shutting down after a 60 per cent loss.

James Simons's $US29 billion Renaissance Institutional Equities Fund has fallen 8.7 per cent this month, hurt by swings in securities prices, the 69-year-old told investors. The two-year-old fund has fallen 7.4 per cent since January.

A Goldman spokesman, Peter Rose, declined to comment.

Global Alpha losses may lead to more redemptions. Withdrawals for its $US6.2 billion offshore version were $US394 million in the month ended June 30, an investor who declined to be identified said. That was almost three times the $US142 million in new money added.

Global Alpha decreased 8 per cent during the last full week of July and was down 16 per cent from the beginning of January through August 3. There is an August 15 deadline for Global Alpha investors who want to redeem money on September 30.

Bloomberg