GS up $3.70.
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UPDATE: Goldman, Others Injecting $3B Into Quant Fund
Last update: 8/13/2007 8:01:09 AM
DOW JONES NEWSWIRES
Goldman Sachs Group Inc. (GS) announced it and other investors will inject $3 billion into a quantitative fund that has seen its performance "suffer significantly."
As a result, the company has cut risk and leverage for the Global Equity Opportunities fund, as well as its Global Alpha internal hedge fund and North American Equities Opportunities Fund, another quantitative fund.
Global Equity Opportunities, which has both long and short positions, is getting the funds from Goldman, C.V. Starr & Co., Perry Capital LLC and Eli Broad. C.V. Starr, an insurance broker, is headed by former American International Group Inc. (AIG) Chairman and Chief Executive Hank Greenberg.
"We consider this an attractive investment opportunity," Goldman said in a statement. "Existing investors in the fund will also have the opportunity to participate. The investment will also provide the fund with more flexibility to take advantage of the opportunities we believe exist in current market conditions."
Goldman said the fund, which had a nearly $3.6 billion net asset value before equity investment, was hit by "significant market dislocation" that has impacted many funds using quantitative strategies. Such funds rely on computer models to make market bets.
Goldman's statement had been expected; the company plans to host a conference call at 9 a.m. EDT to walk investors and analysts through some of the losses its "quantitative equity" funds have suffered.
The trouble for quantitative funds started Aug. 3, when stocks started moving not only in ways that commonly used models didn't predict, but in precisely the opposite direction from what was expected. Equally troubling, the moves were far more volatile than models based on decades of testing assumed were likely. Those relatively minor anomalies escalated quickly this week, exploding into a global rout for quantitative funds by Wednesday.
"Across most sectors, there has been an increase in overlapping trades, a surge in volatility and an increase in correlations," Goldman said. "These factors have combined to challenge many of the trading algorithms used in quantitative strategies. We believe the current values that the market is assigning to the assets underlying various funds represent a discount that is not supported by the fundamentals."
As for Global Alpha, Goldman said its "disappointing performance" is being led by the North American Equities Opportunity Fund. The investment firm added, "At their current levels of equity capital, we believe the funds are positioned to actively pursue market opportunities."
Hedge fund firm AQR, which pursues quantitative strategies, also is actively soliciting new funds to take advantage of the recent downturn. AQR officials collected an additional $1 billion between Thursday and Friday specifically to invest in downtrodden markets, according to a person close to the firm. The vast majority of the new funds, up to 80%, will be invested in market-neutral strategies, this person said.
Shares of Goldman closed Friday at $180.50, and there was no premarket trading.
-Kevin Kingsbury, Dow Jones Newswires; 201-938-5963
(END) Dow Jones Newswires
August 13, 2007 08:01 ET (12:01 GMT) |
