Goldman Sachs Flagship Hedge Fund Falls 11.6 Percent

Date: Friday, December 8, 2006
Author: Katherine Burton, Bloomberg.com

(Bloomberg) -- Goldman Sachs Group Inc.'s $10 billion flagship hedge fund dropped 11.6 percent this year through the end of November, extending earlier losses as its managers misjudged the direction of global stock and currency markets, according to two investors.

Goldman's Global Alpha Fund lost money partly on wrong-way bets that equities in Japan would rise, stocks in the rest of Asia and the U.S. would fall and the dollar would strengthen, the investors said. In August, the fund lost almost 10 percent on unprofitable investments in global bond markets. New York-based Goldman is the world's largest hedge fund manager, with $29.5 billion in assets.

Global Alpha, managed by Mark Carhart and Raymond Iwanowski, both 40, is designed to make big, risky wagers, which can produce large returns as well as heavy losses. Other so-called macro funds that bet on global stocks, bonds, currencies and commodities are up an average of about 7 percent this year through November, according to Chicago-based Hedge Fund Research Inc. Last year, Global Alpha returned almost 40 percent, said the investors, who declined to be identified.

``The fund was anticipated to be volatile -- it has had volatile periods in the past,'' said Peter Rose, a Goldman spokesman in New York. ``Since inception it has delivered positive returns for investors,'' he said. Rose declined to comment specifically on the fund's performance.

Stocks, Euro

The Topix index of Japanese stocks fell about half a percent in the two months ended Nov. 30. Other Asian stocks returned 12 percent during the same period, according to the Morgan Stanley's MSCI AC Asia Pacific Index. The Standard & Poor's 500 Index, the U.S. stock benchmark, returned 5.2 percent.

In currencies, the euro strengthened against the dollar in the past two months, reaching a high of $1.32 against the dollar at the end of November from a low of $1.25 on Oct. 13.

Hedge funds, private pools of capital that allow managers to participate substantially in gains on the money invested, oversee a total of $1.3 trillion, more than double the amount they managed five years ago.

Goldman's hedge fund business is part of Goldman Sachs Asset Management, which is based in New York. The firm reported in October that its asset management and securities services division produced $485 million, or 21 percent, of its $2.36 billion in pretax profit for the fiscal third quarter.

Global Alpha, which started in 1995 with $10 million, uses computer-driven quantitative models to help make investment decisions. Allied World Assurance Holdings Ltd. reported in an October filing with the U.S. Securities and Exchange Commission that Goldman's Global Alpha Fund Plc, which is registered in Ireland, charges it a management fee of 1.5 percent of assets and keeps 20 percent of investment gains. Allied World is a Bermuda- based insurer.

To contact the reporter on this story: Katherine Burton in New York at kburton@bloomberg.net ;