Goldman Sachs is closing a prominent ”quant” hedge fund after the portfolio fell sharply and investors headed for the exits, according to a letter sent to clients of the Global Alpha Fund and people familiar with the situation.
The fund, which employs computer-driven trading strategies, has had a checkered history – reaching $12bn in assets before a sharp decline in 2007. This year has seen more large losses, with a decline of about 12 per cent to the end of August, according to a person familiar with the fund.
Cliff Asness, who co-founded Global Alpha in 1995 before leaving Goldman to start his own asset management firm AQR Capital, said: “It’s a bit melancholy to think about for those of us who were there at the inception but it’s never smart to count Goldman Sachs out; they will be back.”
Goldman is having to navigate new regulations, including the “Volcker rule” designed to ban banks from proprietary trading and limiting their ownership in hedge funds and private equity firms. But “sponsorship” of funds is still allowed as long as banks put in little or none of their own money. A person familiar with the decision to close Global Alpha said it had nothing to do with the new regulatory landscape.
In a letter to clients dated Wednesday, Goldman said it had “begun liquidating the assets”, which should be completed by mid-October. About $1bn in assets were left after a series of investor redemptions.
Three years to the day since Lehman Brothers collapsed, Goldman said in the letter that claims against – and liabilities to – the Lehman bankruptcy estate clouded the final tally of the fund and a “prudent” amount of assets were being held back to cover any claims.
“While the timing of closure to these matters is uncertain and could take a significant period of time (potentially years), we have dedicated significant resources to seek a resolution with Lehman Brothers,” Goldman said.
Some 10-15 per cent of the fund’s assets would be held back from the liquidation. The rest would be returned to investors.
“What is interesting to me in this environment is that so many hedge funds have been wrongfooted in a big way precisely when the point of these funds is supposed to be that they’re not correlated with markets,” said Peyton Young, senior fellow at the Brookings Institution. “The fact is that a great many of the funds are heavily correlated with markets. And, of course, they’re leveraged.”
Katinka Domotorffy has stepped down as head of the quantitative investment strategies group, which includes Global Alpha, but that move was unrelated to the fund’s closure, according to the person familiar with the situation.
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