财经观察 2285 : Goldman winds down flagship hedge fund

Goldman winds down flagship hedge fund

By Sam Jones in New York

Published: January 21 2010 20:10 | Last updated: January 21 2010 20:10

Goldman Sachs has moved to wind down its Global Equity Opportunities Fund once the flagship of its prestigious set of in-house hedge funds.

The bank’s asset management division closed the fund at the end of December, according to a person familiar with the situation.

At its peak, GEO managed more than $7bn, but became one of the first blow-ups and bail-outs of the financial crisis when it lost close to $1.5bn in the first two weeks of August 2007.

Though it was not obligated to, Goldman decided to step in alongside the billionaire investor Eli Broad and rival hedge fund Perry Capital in a $3bn bailout of GEO to keep it afloat.

The bank had anticipated the fund would rebound and clients could be expected to stay invested.

In a conference call at the time, David Viniar, the bank’s chief financial officer, denied that the rescue was a bail-out.

“This investment reflects our collective belief that the value of this fund is suffering from a market dislocation that does not reflect the fundamental value of the fund’s positions,” said Mr Viniar.

Although the bank recouped its loan to the fund, GEO never fully recovered.

Client redemptions and lucklustre performance in 2008 and 2009 saw it shrink to just $200m in size at the end of last year, at which point the bank took the decision to shut it down.

A spokesperson for Goldman Sachs declined to comment.

GEO was one of a clutch of highly levered algorithmic funds that suffered in the late summer of 2007 in the so-called ‘quant crisis’.

The fund levered clients’ capital six times, according to a person familiar with the situation.

In the wake of growing concerns about the state of the subprime mortgage market and a nascent liquidity crisis among Canadian money market funds, algorithmic hedge funds saw their computers moving in concert to delever and dump stocks, leading to a brief, though severe, fire sale that battered their portfolios.

GEO saw its investments fall by 30 per cent over a two-week period. Renaissance Technologies and DE Shaw ? two of the world’s other most-prominent algorithmic specialists, saw severe losses to their flagship strategies too, though both recouped losses and stayed afloat.

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