Monday, January 07, 2008

Goldman Sachs Leads Hedge Fund Stragglers

“Goldman Sachs Group Inc.'s (GS) flagship Global Alpha fund recorded the biggest loss of almost any hedge fund last year as the industry struggled to match the double-digit returns of 2006.”

The Global Alpha fund, which started last year with $10 billion, made an estimated loss of 39%, according to an investor in hedge funds, who has seen its initial results for December.

The fund lost money after recording a 7.7% drop in the last full week of July. It made a 6% loss in 2006 and a 40% gain in 2005.

The investor said: "Any independent manager with those figures would have gone out of business."

Goldman Sachs, which in August invested $2 billion of its capital into another of its hedge funds, Global Equity Opportunities, declined to comment.

The hedge fund industry made close to double-digit returns for the year, with many funds failing to improve on their performance for the first 11 months.

Of the seven data providers publishing hedge fund performance estimates, four showed returns of between 8.97% and 9.9% for the year to November, while three showed returns of between 10.06% and 12.04%.

An initial estimate of last month's returns, the investable index published by Hedge Fund Research, showed a loss of 0.07% to December 28.

The industry recorded a gain of 13% in 2006, which investors and bankers described as a return to form after two years of single-digit returns.

Each main strategy is expected to record positive returns for last year, led by emerging markets funds, which were up 22.7% for the first 11 months, according to Hedge Fund Research and 18.7% according to Credit Suisse/Tremont.

Global macro funds, which trade in derivatives based on government bond yields and foreign exchange rates, were up 10.9% for the first 11 months and gained a further 2% in December, according to Hedge Fund Research's indices.

Long/short equity funds, following the largest hedge fund strategy, were up between 9.9% and 13.2% for the first 11 months, according to the main data providers, but fell 0.5% in December, according to Hedge Fund Research's investable index.

Fixed-income arbitrage hedge funds struggled, with an estimated return of 3% for the year. Convertible arbitrage funds were expected to finish the year up 4.3% and distressed debt funds up 5.5%. Individual funds generated high performance.

U.S. firm Paulson Capital Corp.'s (PLCC) event-driven fund was up 52%, according to an investor who has seen the fund's returns, while its credit opportunities fund was expected to record returns in the high hundreds by shorting sub-prime U.S. mortgages.

Kensington, the flagship fund run by Citadel Investment Group, was up 27% and U.S. firm Atticus Capital's European fund was up 26%. Highbridge Capital, the flagship multi-strategy fund of JP Morgan-owned U.S. manager Highbridge, the world's largest hedge fund manager, was up 6%.

Richard Blake, a senior portfolio manager of Comas, Commerzbank AG's (CRZBY) fund of hedge funds business, said its multi-strategy fund of funds had recorded a net investment return of 14.15% for the year, with volatility of 2.75%, its best return since launch eight years ago.

Richard Watkins, chief executive of U.K. investment consultant and placement agent Liability Solutions, said he expected 2008 would be good for hedge funds.

He said: "Investors will pour in money this year. I think the amount of assets in hedge funds will double to $4 trillion within the next three years."


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