Goldman Hedge Fund takes it on the chin

Discussion in 'Wall St. News' started by Q12, Aug 6, 2007.

  1. Q12


    and another...

    Goldman's Global Alpha Fund Fell 12% in Two Weeks, 16% in '07

    By Jenny Strasburg and Katherine Burton

    Aug. 6 (Bloomberg) -- Goldman Sachs Group Inc.'s Global Alpha hedge fund fell almost 12 percent in the two weeks ended Aug. 3, bringing this year's decline to 16 percent after losses in stocks and bonds.

    This year's drop in the $9 billion fund, managed by Mark Carhart and Raymond Iwanowski, follows the loss of about 9 percent in 2006, said two investors in the fund. 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 in 2006.

    The $1.7 trillion hedge-fund industry was roiled by losses 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.

    ``The fallout from June and July's credit rout is clearly resulting in some significant losses at a number of hedge funds,'' said Peter Plaut, senior analyst at Sanno Point Capital Management, a New York-based hedge fund firm. ``We are likely to see the losses result in redemptions.''

    Goldman spokesman Christopher Williams declined to comment about the fund's performance.

    Global Alpha lost 8 percent during the last full week of July, hurt by declines in investment-grade credit and U.S. stocks, said the investors who declined to be identified. The fund fell 9 percent in July, net of fees, they said. The fund had another 3 percent drop during the first three days of August as the Standard & Poor's 500 Index fell 1.5 percent.

    To contact the reporter on this story: Jenny Strasburg in New York at ; Katherine Burton in New York at .
  2. One


    How did they earn 700M on a 9B fund that lost money in 2006?
  3. Q12


    That must be a misprint.... unless they charge 8 & 20!
  4. A few months ago, in Dec, they lost -12% for 2006, and then... proceeded to hire a dozen former Amaranth traders... Amaranth is the hedgefund that imploded due to a natural gas directional trade that went the other way.

    Now Global Alpha lost -12% in 2 weeks.

    The biggest risk now for GS is not taking enough risk. They need to leverage up and swing for a grandslam to make up losses. Or else they won't get their performance fee.
  5. Frankly, the article reads like a "me too" piece of news. Everyone prolly wonders "Howz GS doing through all of this?" There ya go. Now you know. Previous poster mentioned the numbers didn't add up, probably just some memo (no one read) and sent to the reporters as a favor. Actually I thought it was a sin for GS to talk to the press anyways.
  6. Not all funds book incentive fees annually. In some instances it is common for funds to book incentive quarterly. So they could have done well in the first half and booked their 700M from that and then when they lost money in the last half they just move further from the high water mark but keep the fees.
  7. GS Global Alpha Fund recruited from around the world and employed the very best quants and PhD's in statistical normalization. That's why they jumped to recruit from Amaranth.

    They used a quant trading system with the Cray XT4 supercomputer and was also used to analyse probability of value at risk (VAR). After running their statistical models for two months continuously on the Cray it was determined that the VAR was 0.00000000001% with a return period of over 10,000 years e.g. the risk of a -12% drop in the fund in one year was impossible, let alone a 16% drop in one month.

    That's why in Corporate Finance they lecture about efficient markets - as when asset value drops the market will correctly price the asset. In this case the GS Global Alpha Fund is correctly valued and is still dropping as I type this.
  8. jasonjm


    it sounds kind of interesting, but i dont get it (seriously)....

    can you put it in plain english?
  9. YEH....the quants got it wrong....their model blew up because they failed to account for liquidity, and the asset prices were not being priced by the market but rather by a mathematical
    "theoretical" value.

    Makes me wonder, is this another LTCM in the making? Are they going under like Aramanth?
  10. How do you know this is true? I'm not accusing anyone of lying, just would like more confirmation
    #10     Aug 6, 2007