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Goldman's Global Alpha Falls 26% in 2007, People Say

Date: Monday, August 13, 2007
Author: By Katherine Burton and Jenny Strasburg

Aug. 10 (Bloomberg) -- Goldman Sachs Group Inc.'s $8 billion Global Alpha hedge fund has fallen 26 percent so far this year, a decline that may prompt more investors to withdraw their money, according to people familiar with the fund.

Goldman's largest hedge fund, managed by Mark Carhart and Raymond Iwanowsk, has dropped almost 40 percent 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 U.S. stocks has returned 16 percent during the same period.

``It's hard to imagine how investors can maintain confidence, because their losses have been taking place over a long period of time, starting last year,'' said Virginia Parker, who helps oversee about $1.8 billion at Parker Global Strategies LLC in Stamford, Connecticut. ``There has been a broad range of market climates, and the fund has not demonstrated the ability to excel in any of them.''

Quantitative, or ``quant,'' hedge funds in the U.S., 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 $1.7 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 Cos. collapsed and Sowood Capital Management LP, run by a former manager of Harvard University's endowment, is shutting down after a 60 percent loss.

Simons's Decline

James Simons's $29 billion Renaissance Institutional Equities Fund has fallen 8.7 percent this month, hurt by swings in securities prices, the 69-year-old said yesterday in a letter to investors. The two-year-old fund now has fallen 7.4 percent since the beginning of January.

Goldman spokesman Peter Rose declined to comment.

Global Alpha's performance has reduced the fees paid to New York-based Goldman. The biggest U.S. securities firm booked $700 million from the fund following its 2005 gain of 40 percent.

Goldman's fund-management unit had a record $758 billion under management at the end of May, generating more than $1 billion in fees for the firm during the second quarter. Alternative investments including hedge funds such as Global Alpha made up $151 billion of the funds under management, an 18 percent increase from a year earlier.

Executive Change

Still, the firm showed zero net new money into the alternatives during the second quarter after collecting $2 billion in the first quarter and $32 billion during 2006. On June 26, Goldman said Eric Schwartz, co-head of asset management since 2003, would step down in the next few months and leave Peter Kraus in charge of the fund unit.

Goldman's Global Alpha losses may lead to more redemptions. Withdrawals for the fund's $6.2 billion offshore version totaled $394 million in the month ended June 30, according to an investor who declined to be identified. That was almost three times the $142 million in new money added.

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

To contact the reporters on this story: Katherine Burton in New York at kburton@bloomberg.net ; Jenny Strasburg in New York at jstrasburg@bloomberg.net ;

Last Updated: August 10, 2007 18:03 EDT