Goldman Sachs Shuts Global Alpha Fund

By Christine Harper - Sep 16, 2011 6:52 AM GMT+0700
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A pedestrian passes 200 West Street, which houses the headquarters of Goldman Sachs Group Inc., in New York, U.S. Goldman Sachs has been shrinking Global Alpha since 2007 when it lost 40 percent because of bad bets on currencies, equities and bonds worldwide. Photographer: Scott Eells/Bloomberg

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Lloyd C. Blankfein, chairman and chief executive officer of Goldman Sachs Group Inc. Photographer: Chris Kleponis/Bloomberg

Goldman Sachs Group Inc. (GS), the fifth-biggest U.S. bank by assets, will shut its Global Alpha fund after clients pulled money from the quantitative trading pool that was once the firm’s largest hedge fund.

Global Alpha will stop charging fees at the end of this month and aims to finish liquidating most assets by mid-October, according to a letter that Goldman Sachs Asset Management sent to clients Sept. 14. The fund, which managed $11 billion of assets in 2007, had less than $1.7 billion at the end of June, according to a person familiar with the matter who spoke on condition of anonymity because the numbers aren’t public.

Goldman Sachs, led by Chairman and Chief Executive Officer Lloyd C. Blankfein, 56, has been shrinking Global Alpha since 2007 when it lost 40 percent because of bad bets on currencies, equities and bonds worldwide. The fund’s co-managers Mark Carhart and Raymond Iwanowski quit in March 2009, and Katinka Domotorffy took charge of the quantitative investment strategies unit, which uses computers to pick securities and oversees $56 billion.

Reuters reported yesterday that the Global Alpha fund was down 12 percent through the end of August, and the Wall Street Journal reported that it was being shut. Ed Canaday, a spokesman for the New York-based bank, confirmed the letter’s contents and said he couldn’t comment on the performance.

Lehman Claims

Domotorffy is leaving at year-end and being replaced by new managers, including Armen Avanessians, a partner who has served on the securities division’s executive committee since 2003, according to a separate letter to investors Sept. 14. Ron Hua, who oversaw $12 billion of equity assets at PanAgora Asset Management Inc., was hired as chief investment officer and head of the quantitative equity alpha business.

Goldman Sachs wrote in the letter that it aims to distribute 85 percent to 90 percent of the total proceeds from the fund’s assets to clients by the end of October. The fund’s claims against Lehman Brothers Holdings Inc. (LEHMQ), which declared bankruptcy three years ago, may take longer and the fund may have liabilities to Lehman as well, according to the letter.

“We have extensively reviewed the fund’s claims against, and potential liabilities to, Lehman Brothers and intend to vigorously pursue a resolution with Lehman Brothers that is in the best interests of investors in the fund,” Goldman Sachs wrote. “We cannot predict when the fund will be able to make final distributions, if any, to investors in the fund.”

Goldman Sachs is aiming to build the fund-management unit and improve its performance. The overall business had $844 billion under management at the end of June and generated 13 percent of the firm’s revenue in this year’s first six months.

Asset Management Moves

Avanessians, who joined Goldman Sachs in 1985 and became a partner in 1994, is the latest executive to move into asset management from other parts of the bank. Jim O’Neill, the chief economist, was appointed chairman of asset management last year. The investment unit’s co-heads, Timothy J. O’Neill and Edward C. Forst, came from other divisions.

Bill Fallon, who became chief investment officer and head of alpha strategies when Domotorffy took over, will cede the equity business to Hua and focus on quantitative macro funds, according to the letter. Don Mulvihill will remain chief investment officer and head of customized beta strategies, Goldman Sachs said. Both will report to Avanessians, who will be based in New York. He will report to O’Neill and Forst, who signed the letter.

Domotorffy joined Goldman Sachs in 1998 as a portfolio manager and researcher with the quantitative global macro and fixed-income teams, according to the letter. She became head of strategy for the quantitative investment strategies group in 2007 before taking the leadership role two years later.

Carhart is now running Kepos Capital Management LP, which has $150 million under management and has made a 9 percent return so far this year, before fees, according to a person familiar with the matter.

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.