Global Alpha’s Losing Ways Accelerate

Sep 13 2007 | 12:35pm ET

Goldman Sachs’ flagship hedge fund continues to dig itself a deeper hole after a 22.5% drop last month. The one-time Cadillac of Hedge Funds is now down one-third year-to-date, and has dropped 44% from its March 2006 high-water mark.

The fund, run by Mark Carhart and Raymond Iwanowski, saw investors yank $1.6 billion on July 31—almost one-fifth of its assets, Bloomberg News reports.

According to a letter to investors, Global Alpha’s most recent woes stem from bad bets on currency and stock trades, especially wrong-way bets on the Japanese yen and Australian dollar.

“We still hold our fundamental investment beliefs that sound economic investment principles couple with a disciplined quantitative approach can provide strong uncorrelated returns over time,” the letter said. “Longer term, successful quant managers will have to rely more on unique factors. While we have developed a number of these factors over the last several years, in hindsight we did not put sufficient weight on these relative to more popular quant factors.”

As things stand, Carhart and Iwanowski will have to find some extremely lucrative factors before their fund can become the cash cow it once was for Goldman: The hedge fund must return 80% before it can begin charging its 20% performance fee again.

However, the news isn’t all bad for Goldman: Its Global Equity Opportunities Fund, which received a $3 billion Goldman-orchestrated bailout last month after dropping some 28% in the early days of August, rebounded somewhat, rising 12% the following week.


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