Hedge Fund woes

Month of misery as hedge fund gains disappear
By Liz Chong, The Times, Sep 14th 06

source: http://business.timesonline.co.uk/article/0,,9063-2356822,00.html

A $10 BILLION hedge fund run by Goldman Sachs has nearly erased its gains for the year, after losing 8.2 per cent of its value in August.

Global Alpha, which is housed in Goldman’s asset management unit, had gained 9.2 per cent for the year until the end of July.

The fund’s unusually bad August performance could stoke concern about the reliability of profits at the investment bank, which has a strong reputation for successful trading. The bulk of Goldman’s profits come from its trading operations, including its internal hedge funds. Goldman said this week that its revenue from trading had declined more than 30 per cent in the third quarter. The bank blamed a slowdown in the markets over the summer.

An investor, who declined to be named, said that Global Alpha was highly volatile and was expected to record a sharp decline every 20 months or so.

Global Alpha has reported annual returns of 25 per cent on average since it was set up in late 1995. The hedge fund is one of dozens that follow the macro strategy that earned George Soros infamy as the man who broke the Bank of England when he bet against the pound. They make big- picture punts on the world economy with currencies, equities or bonds and are expected to perform well as the markets absorb increasing concern about inflationary fears and imbalances in the world economy.

Many macro hedge funds have performed well this year: the Credit Suisse/Tremont index measuring their returns has climbed 10 per cent in 2006. These include the $10 billion (£5.3 billion) Brevan Howard fund. Run by Alan Howard, a former star trader at Credit Suisse, the fund has jumped 11.4 per cent this year.

Global Alpha is just one of several leading macro hedge fund managers to have performed poorly. The macro fund at GLG, one of the biggest hedge fund managers in Europe, has erased more than 15 per cent. The $732 million macro fund at Lansdowne Partners has also posted a lacklustre performance, declining 2.9 per cent this year.

Steven Drobny, an expert at Drobny Global Advisers, an American firm advising hedge funds on macro strategies, said: “We are entering a new paradigm in investment. The shift is always difficult for hedge funds.”

Separately, Marshall Wace, one of the UK’s largest hedge funds, said yesterday that it plans to float a closed-end fund for one of its equity trading strategies by the end of the year. It is the largest hedge fund so far to follow in the footsteps of Kohlberg Kravis Roberts, the private equity firm that floated a fund in Amsterdam.

 

what were the market conditions in august that led to the bad performance?

 

I wonder if the author's dad is Chong from "Cheech and Chong"?

The research and writing quality would lead one to believe they are definitely related.

 

not familiar with cheech and chong. what are you saying about the writing style.

 

"Dave, open up!"

"Dave's not here..."

<img src ="http://imagecache2.allposters.com/images/pic/MMPH/240386~Cheech-And-Chong-Posters.jpg"/>

 

Thanks for posting the article.

nitro

 

they must have been leveraged long energy stocks

 

I bet it's the whipsaw of stocks, bonds, and currencies futures that's killing the fund. In contrast, the energy futures should be doing well for Global Alpha if they trade them. Precisely, it's the flip flop of the interest rate expectation that's causing the whipsaw. My guess is that Global Alpha uses short term trending following strategies.