Aug. 13 (Bloomberg) -- Goldman Sachs Group Inc., the most profitable securities firm and second-largest hedge-fund manager, will invest about $2 billion to shore up its Global Equity Opportunities Fund after a 28 percent decline this month.
Investors including Maurice ``Hank'' Greenberg, the former chairman of American International Group Inc., and billionaire Eli Broad will put an additional $1 billion into the hedge fund, New York-based Goldman said today in a statement. Assets dropped by $1.4 billion to $3.6 billion in the past week as the fund's computer-driven investment strategies were upended by turmoil in the financial markets.
``It looks better for them if others are willing to put money in alongside them,'' said Benjamin Wallace, who helps manage about $750 million at Grimes & Co. in Westborough, Massachussetts. ``Goldman spreads its risk out a bit but also demonstrates that other people want to be involved in this.''
Goldman said it wasn't rescuing the fund, which had fallen along with other so-called quant funds that use mathematical formulas to make trades. Instead, the infusion will give managers Mark Carhart and Raymond Iwanowski ``more flexibility to take advantage of the opportunities we believe exist in current market conditions,'' the firm said.
``Current values that the market is assigning to the assets underlying various funds represent a discount that is not supported by the fundamentals,'' Goldman said in the statement.
The cash infusion may discourage investors from redeeming their money, which would pressure managers to sell assets at prices they believe are too low.
`Pretty Confident'
``I certainly would hope that even if people were going to redeem -- and I don't know who would have and who wouldn't have -- they obviously would see that we're pretty confident in the future success of the fund and would not,'' Chief Financial Officer David Viniar said today in a telephone interview.
Global Equity investors can pull their money monthly with 15 days' warning, meaning notices for Aug. 31 are due this week. Global Alpha investors can redeem quarterly, and certain share classes also must notify the fund this week.
Perry Partners LP, the New York-based hedge-fund firm run by Richard Perry, is adding cash to Goldman's fund, alongside Broad and C.V. Starr & Co., Greenberg's investment and insurance firm. Perry, 52, began his Wall Street career at Goldman Sachs on the merger arbitrage desk run by Robert Rubin.
The investors, including Goldman, will pay the same fees and have the same investment terms as other clients.
Global Alpha
Goldman's Global Alpha, a $7.25 billion quant hedge fund also run by Carhart and Iwanowski, both 41, has lost 27 percent this year. The company didn't pump money into that fund or into its $500 million North American Equity Opportunities hedge fund, which lost 15 percent of its value this year as of July 27.
Goldman saw more potential for gains in Global Equity Opportunities, Viniar said.
``We were focused on the equity long-short strategies,'' said Viniar, adding that the global fund is more attractive than the North American fund because it is larger and invests in more markets.
Long-short managers buy shares they expect to go up and sell short stocks they expect to fall. In a short sale, an investor will borrow shares and immediately sell them in the hopes they can be bought back later at a cheaper price.
Global Equities has made money in only five months out of the past 12 months. Global Alpha, which trades bonds, currencies and commodities as well as stocks, made money in only four of those months.
Models Intact
Goldman executives don't expect to see a major shift in the models that determine investments.
``We don't think the strategy is going to change,'' said Viniar.
Global Alpha lost most of its money this year on stocks. Its equity strategy is more like that of the North American fund than the global fund, Viniar said.
The Global Equity fund has about $3.50 in borrowed money, or leverage, for each $1 of client money, down from $6 before the capital infusion announced today, Viniar said. The fund plans to keep leverage at the current level.
Goldman shares fell $1.01, or 0.55 percent to $179.49 at 1:27 p.m. in New York Stock Exchange composite trading. The Standard & Poor's 500 Index gained 0.20 percent to 1457.44.
Hedge funds are largely unregistered pools of capital that cater to wealthy individuals and institutions and allow managers to participate substantially in profits from investments. They try to make money in rising as well as falling markets.
Credit Market
The $1.7 trillion industry has been roiled in July and August as credit spreads widened to the most in two years and U.S. stocks rose or fell by more than 1 percent on 13 days. Also posting losses in recent weeks are quant funds run by AQR Capital Management LLC and Highbridge Capital Management LLC.
The difference in yields between the riskiest corporate bonds and U.S. Treasuries has expanded nearly 2 percentage points since June, according to Merrill Lynch & Co. index data. Volatility, as measured by the Chicago Board Options Exchange SPX Volatility Index, has averaged more than 23 since the beginning of August. Between June 2003 and the end of July 2007, it averaged 14.
Bear Stearns
Bear Stearns Cos. last month sought bankruptcy protection for two hedge funds that invested in securities backed by home loans to the riskiest borrowers. The New York-based investment firm closed the funds after granting $1.6 billion in emergency financing in June and then telling investors they would get little if any money back. The attempted bailout was the biggest since the collapse of Long-Term Capital Management LP in 1998.
The troubles started as some large quant funds lost money in their fixed-income or credit positions on the back of a decline in the subprime mortgage market. The firms were forced to sell more liquid stock investments to raise cash and reduce debt, according to a report published by Lehman Brothers Holdings Inc. analyst Matthew Rothman.
The selling caused the models used by quantitative funds to short circuit. Stock positions that the models expected to fall in price rose, and shares they expected to rise, fell.
``The models (ours included) are behaving in the opposite way we would predict and have seen and tested for over very long time periods (45+ years),'' Rothman wrote.
E o que vale é que estão todos confiantes...
A coisa cada vez cheira mais a esturro
Enviado: 17/8/2007 1:49