Goldman Wagers
On Cash Infusion
To Show Resolve
By HENNY SENDER, KATE KELLY and GREGORY ZUCKERMAN
August 14, 2007; Page A1
Goldman Sachs Group Inc.'s injection of $2 billion into one of its flagging hedge funds opens a new window on the difficulties even some of the world's premier financial players are having as credit-market anxiety infects a widening circle of investors.
After a week when financial markets were spooked by losses in several Goldman funds -- among other startling setbacks in the financial world -- the big investment bank yesterday said three of its funds have seen the net value of their assets fall a total of about $4.7 billion so far this year.
Goldman announced just before New York's financial markets opened that it led a high-profile group putting $3 billion into Goldman's Global Equity Opportunities Fund. The fund, worth $3.6 billion before the new money arrived, lost more than 30% of its value last week during one of the market's most turbulent stretches in years, Goldman said.
The move, which the firm described as a solid investment that will pay off in time, helped calm markets. But it also amounts to a bold gamble by one of Wall Street's most respected names: By drawing attention to its conviction that this is a turning point -- and by bringing some heavyweight investors on board -- Goldman is betting it can shore up confidence in one of the worst-hit areas of the market and pave the way for a rebound.
"We are investing not because we have to, but because we want to," said Goldman Chief Financial Officer David Viniar.
Goldman provided about $2 billion of the hedge-fund infusion. The rest came from others including C.V. Starr & Co., Perry Capital LLC and Eli Broad, a Los Angeles-based entrepreneur. Starr is run by former American International Group Inc. executive Maurice "Hank" Greenberg; Perry Capital is run by former Goldman trader Richard Perry.
Other hedge funds that have sustained losses also are raising money for new investments. AQR Capital Management LLC, a $38 billion hedge fund in Greenwich, Conn., that took hits in recent days, received commitments from current and new investors for about $1 billion to invest in a variety of its funds, according to someone close to the matter.
In Goldman's situation, the risk is whether losses mount further in coming weeks. The attention drawn to Goldman's Global Equity Opportunities Fund, which relies heavily on computer-driven programs to buy and sell, could also spark renewed concern about funds pursuing similar strategies. Like Goldman, many used a great deal of borrowed money, known in financial markets as leverage.
While Goldman is hardly the only fund manager to suffer setbacks in recent weeks, the firm's reputation as one of Wall Street's savviest players has taken some knocks. In addition to the Global Equity Opportunities Fund, two of its other funds have taken a beating.
Its Global Alpha Fund is down 27% so far this year, with half that loss occurring last week. Alpha now has about $7.3 billion under management, down from about $10 billion earlier this year. And the North American Equity Opportunities Fund was down 25%. The firm said it has no plans to put more cash into these two funds.
Goldman shares, which along with other financial firms have been battered in recent weeks, fell 1.7% to close at $177.50 in New York Stock Exchange trading yesterday.
The infusion into the Global Equity Opportunities Fund, made in the span of a day and half last week, comes as the chieftains of global finance have been working overtime to stabilize markets and restore investors' waning confidence. Central banks in Europe, the U.S. and Japan continued a trend begun last week by again pouring cash into their money markets yesterday.
That initially helped stocks, with European markets moving sharply higher and the Dow Jones Industrial Average at one point rising 98.61 points. However, jitters continued and most U.S. major indexes finished with small declines, with the Dow ending down 3.01 points to 13236.53.
Goldman's funds, like many others, have been buffeted by some of the biggest stock-price swings in years. The problems began in late July as a credit-market squeeze set in and losses on securities tied to the struggling subprime-mortgage market spread.
Around that time, Bear Stearns Cos. announced it was closing two subprime funds, despite earlier efforts to rescue one of the funds with a $1.6 billion infusion of cash.
Last week, so-called quantitative funds -- "quants" in Wall Street parlance -- were hit especially hard. These funds employ computer models to make trades and design investment strategies that attempt to profit whether markets are falling or rising. But the computer models didn't take into account some unusual trends in the market -- or the popularity of the models themselves, which left many funds trying to escape the same trades at exactly the same moment.
On Wednesday, a group of senior Goldman officials huddled in Chief Executive Lloyd Blankfein's office to figure out how to handle the firms' floundering funds, a person close to the matter says. The Global Equity Opportunities Fund, a quant that had fallen steeply during the first few days of the week, was the most urgent concern.
As the markets gyrated, this person said, the executives were undecided as to whether it made economic sense to inject new capital into the fund, known as GEO for short. Surrounded by Mr. Viniar and co-presidents Gary Cohn and Jon Winkelried, among others, Mr. Blankfein posed what seemed like a rhetorical question, according to the person familiar with the events. Goldman had never made a substantial investment to try to stabilize one of its funds. But, Mr. Blankfein asked, "If a third party came to us and said, 'Here's a portfolio that looks like GEO,' would we buy it?" The answer was a resounding yes.
Over the next 36 hours, a handful of top Goldman executives reached out to select investors, asking if they would be interested in joining Goldman in quickly putting additional cash into the GEO fund. By Friday, according to the person familiar with the matter, $3 billion was in place, about $1 billion of which came from a group of roughly 10 sophisticated investors. Goldman itself put in about $2 billion, Mr. Viniar said during a public conference call yesterday.
Goldman executives took pains to contrast their decision with Bear Stearns's injection of $1.6 billion cash into one of its floundering funds. That one, along with another Bear Stearns fund with a similar strategy, has since filed for bankruptcy-court protection.
Goldman said it isn't struggling to meet investors' requests for refunds, which had been another major problem for the Bear Stearns funds. The new investors in Goldman's GEO fund agreed to keep their money in place for six months, sending a signal to nervous others who might pull their money out.
The move helped breathe life into a group of major quants hit especially hard last week. The losses were startling to many because these funds had been among the most successful in recent years.
Many quants lately had been unwinding trading positions -- selling stocks and other assets and reducing their borrowing -- to raise cash and reduce potential liabilities, traders say. Yesterday, many quant-oriented hedge funds racked up huge gains.
"Unlike Bear Stearns, which folded its hedge funds after big losses, Goldman is putting money in. They seem confident they can get through this," said Michael Napoli, who runs Absolute Return Group, a Los Angeles hedge-fund advisory firm.
Yesterday, some funds began buying, traders said, while others saw existing positions recover, adding to gains some of them recorded on Friday and suggesting that a number of funds were righting their ships.
AQR Capital Management, which secured commitments of about $1 billion yesterday, racked up gains of as much as 9% in certain funds, while New York Life's quantitative hedge-fund strategies saw gains of about 9%, according to investors.
Late yesterday, Renaissance Technologies, a large quant-oriented firm that has sustained losses lately, told investors that one of its two big hedge funds rose 4% on Friday and 2.5% yesterday, underscoring the improved mood of some of these firms.
But some traders warned it is too early to give the all-clear signal. They note that investors in market-neutral hedge funds expect steady performance, not the sharp volatility and heavy losses of the past 10 days or so. Some could pull money out in the months ahead, putting new pressure on the funds to sell assets. In fact, tomorrow is the date some investors can give withdrawal notices to hedge funds, telling them to refund their money by the end of the third quarter. Late yesterday, Barclays Global Investors, a huge quantitative money manager based in San Francisco, said it has lost 7% so far this month, despite some gains since Friday. |
发表于 2007-8-14 21:50:41
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