Hedge fund getting $3 billion injection
NEW YORK – Goldman Sachs Group said Monday it is leading a group of investors including Maurice “Hank” Greenberg and Eli Broad in injecting $3 billion into a Goldman hedge fund that lost about 28 percent of its value last week.
The investment bank said its Global Equity Opportunities fund, one of its largest hedge funds, “suffered significantly” as global markets sold off on worries about debt and credit, dragging its value down to $3.6 billion, from about $5 billion last month.
Goldman Sachs will invest $2 billion. Other investors will contribute about $1 billion to the fund, whose computer-driven “quantitative” investment strategies were disrupted by triple-digit swings in the financial markets.
“This is not a rescue,” said Goldman Chief Financial Officer David Viniar. “Given the dislocation in the market, we believe this is a good investment opportunity for us and other investors.”
Joining Goldman in the infusion were Greenberg, former chairman of American International Group, and Broad, a California real estate developer who helped found SunAmerica and later sold it to AIG. Hedge fund Perry Capital LLC, which is run by a former Goldman Sachs equity trader, is also an investor.
The investment bank said two other hedge funds it manages – Global Alpha and the North American Equities Opportunities Fund – have also suffered during the market turmoil. The Alpha fund has lost 27 percent of its value this summer – with more than half of that last week alone.
Viniar would not say if the bank was considering similar action for the other two funds, which combined are worth about $6.4 billion. He said Goldman has spent the past week reducing the risk and leverage for all three funds to stem losses.
The $2.7 trillion hedge fund industry uses investments from wealthy individuals and institutions to make bets on stocks and other securities using sophisticated investment strategies.
Hedge funds have been routed in the past few months as Wall Street has become much more volatile. Quantitative funds like Goldman Sachs’, which rely on computer models to make investments, have taken a beating from triple-digit swings on Wall Street the past few weeks.
Quantitative funds run by other firms, including AQR Capital Management LLC and Highbridge Capital Management LLC, may also have sustained heavy losses.
Goldman, one of the world’s premiere financial companies, joins Bear Stearns Cos. and France’s BNP Paribas in revealing that its hedge funds have been slammed by the credit market crisis.
Bear Stearns earlier this summer disclosed that two of its multibillion dollar hedge funds were wiped out because of heavy bets on mortgage-backed securities. BNP Paribas said last week it would freeze three funds invested in U.S. asset-backed securities.