It may have been a horrible, final week in July for the hedge funds. But Goldman Sachs is in particularly zealous damage control over reports of trouble at its Global Alpha hedge fund.
On Tuesday Goldman denied market talk that it was liquidating the fund, following reports it had fallen a total of 12 per cent in two weeks, reports Reuters - and lost what Bloomberg reports was 8 per cent alone in the last full week of July. The losses were magnified because the fund borrows money to make its trades, and finished the month down 9 per cent, net of fees, suffering another 3 per cent drop in the first three days of August as the S&Ps 500 Index fell 1.5 per cent and credit spreads widened, says Bloomberg, quoting investors.
Earlier, says Reuters, several traders noted persistent market talk that the Global Alpha fund was being wound down, and that it was selling large amounts of stock in German car parts supplier Continental, aerospace company EADS and Italian carmaker Fiat. Goldman wasn’t commenting.
Bloomberg on Wednesday reported that the Alpha fund had fallen 12 per cent in the two week period ended August 3, and was down 16 per cent for the year, with recent losses caused by wrong-way bets on US stocks and investment-grade debt.
The Alpha fund aims to generate returns that are not correlated to the S&P 500 index, although the risk the fund takes on, as measured by the volatility of its returns, is supposed to be similar to the S&P 500, notes Reuters, quoting a fund of funds investor. The investor added that the Global Alpha fund invests mainly in liquid assets, “and should be able to sell assets to meet investor redemption demands.”
A Goldman spokesperson in London declined to comment on the fund’s position in those individual stocks while a Goldman spokesman in New York declined to answer questions about the fund, citing US regulations surrounding hedge funds, Reuters added.
Underperformance by Global Alpha’s managers put a dent in Goldman’s first-quarter results, Reuters added. Fund management incentive fees for the asset management group fell 78 per cent to $23m from $105m a year earlier, and much of that was driven by Alpha, analysts said.
Perhaps, then, that is why Goldman is trying a whole new approach, as FT Alphaville noted last week, citing a New York Times report that Ranaan Agus, head of Goldman’s equity prop trading desk, will move over to asset management to start a new fund.
Part of his principal strategies team - the formal name for the prop desk - will join Mr Argus to start the fund, which insiders told the NYT could reach $10bn. The fund will raise money both from within Goldman and from outside investors.
The fund, through which Goldman can continue to put its own money in the hands of Mr Agus, as well as generating fees and offering a vehicle for its clients to invest in, will be the bank’s first large long-short hege fund.
Sounds as though it might just be a safer bet than Global Alpha, at this point.
