Litterman Said to Retire From Goldman Sachs Hedge-Fund Unit

Date: Monday, January 25, 2010
Author: Tom Cahill, Bloomberg

Robert Litterman, chairman of Goldman Sachs Group Inc.’s quantitative hedge-fund group, will step down at the end of this month, a move planned before President Barack Obama’s call yesterday to limit proprietary trading at banks, according to people familiar with the situation.

Litterman, a 24-year Goldman Sachs veteran, advised a unit that ran Global Equities Opportunities, a quantitative hedge fund that required a $3 billion cash infusion in 2007. The fund, which used mathematical models to trade securities, closed last month after its assets fell to $200 million from as much as $7.5 billion, according to two people familiar with the situation.

Litterman’s departure was not connected to the fund’s closure, the people said. Global Equities and Goldman Sachs’s Global Alpha fund lost value in August 2007 when many quantitative managers raced to exit trades simultaneously. In June 2008, Litterman said the hedge funds suffered because they were too large for a “de-leveraging explosion.”

“One of the lessons learned is we cannot be as big as we were,” Litterman said at the GAIM International hedge-fund conference in Monaco on June 19, 2008. “We couldn’t get out and if we had, it would have made it worse. We had to ride it out.”

Litterman couldn’t be reached for comment today. Andrea Raphael, a spokeswoman for Goldman Sachs in New York, confirmed his planned departure and declined to comment further. Litterman had been an advisory role at Goldman for several years and wasn’t managing funds.

Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.

Black-Litterman Model

Litterman worked with economist Fischer Black, who died in 1995, to develop an investment analysis method called the Black- Litterman Global Asset Allocation Model.

Before joining Goldman Sachs’s quantitative group, Litterman was head of the firm’s risk department, according to the CFA Institute.

Litterman worked for the Federal Reserve Bank of Minneapolis and as an assistant professor in the Massachusetts Institute of Technology’s economics department before joining Goldman Sachs in 1986, according to the International Association of Financial Engineers.

To contact the reporters on this story: Tom Cahill in London at tcahill@bloomberg.net;