Goldman Sachs Hedge Fund Loses 22.7% — In August
Kurt Brouwer September 14th, 2007
Hedge funds have taken a beating lately, in particular, those associated with various subprime mortgage bonds. Now, Henny Sender at the Wall Street Journal reports that Goldman Sach’s flagship hedge fund lost 22.7% in August [emphasis added].
‘For years, Goldman Sachs Group Inc.’s flagship Global Alpha hedge fund could do no wrong. Over the past year, it has been able to do almost nothing right.
August was the worst month in the fund’s 12-year history; it was down 22.7% last month alone, according to a recent letter to investors. So far this year through the end of August, it was down 33.4% due to bad bets on everything from the Australian dollar, the Norwegian stock market and Japanese government bonds. The letter gave no indication about how the fund was faring this month. Over the past 12 months, the fund has lost 37% of its value…’
This hedge fund had some startling returns for a period of several years. It had a flexible strategy which allowed the fund to invest in virtually anything. Apparently, the fund just ran into a bad patch in which all of its bets and strategies failed.
‘…Global Alpha’s dismal record this year is especially startling because it is a “multi-strategy fund” and can engage in an array of strategies. In theory this should give it the flexibility to adapt to volatile and difficult markets and avoid problems arising from any single strategy. But over the past year practically everything Global Alpha touched went wrong.
The problems show how one of the key dangers that have tripped up hedge funds in the current turmoil are strategies touted as unique but which channeled funds into very similar investments. Everyone got hurt when the investments wound up needing to be sold all at once. One investor in the fund described the losses as “shocking” that they could have lost money “across so many different strategies.”…’
I found the investor’s comment that the losses were “shocking” was revealing. It is imperative that investors understand that a fund that goes up 30% or 50% or whatever it is, can also go down by at least that amount. In other words, risk and reward are closely correlated. This is true whether we are talking about hedge funds, mutual funds or any other investment. What goes up, can and may go down.
We have covered other hedge fund issues here and here.
- Geopolitics , Hedge Funds , Investing , Money
- Comments(1)
Did you enjoy this article?
I like the news, even know I have just read the news now, I became interested to know what is a Hedge fund and what it really means.