Goldman Revolutionizes Hedge Fund Fee Structures

Goldman Sachs is not necessarily known for financial innovation, but today’s revelation that they will run money for practically free is a first in the hedge fund business.

Goldman Sachs Group Inc. waived fees to draw investors to its Global Equity Opportunities hedge fund after stock-market losses wiped out $1.4 billion of assets this month, according to a person with direct knowledge of the terms.

New participants won’t pay the 2 percent management charge and Goldman will cut its performance fee in half, said the person, who declined to be named because the information is private. The New York-based firm and investors including billionaire Maurice ``Hank’’ Greenberg agreed to put $3 billion in the fund earlier this week. Goldman spokesman Lucas van Praag confirmed the terms and declined to comment further. Bloomberg

We are big fans of freebies, and won’t even charge them to read this post. But we might lend them a friendly tip, straight from our shoeshine boy: The margins on free really stink.

With most of the funds they manage seemingly far below their high-water marks, fee generation in their asset management division seems to have nearly evaporated this year. And pumping money in to shore up the GEO fund might divert capital away from more productive uses. We would love to see what Keefe Bruyette or Sandler O’Neill are saying about this, and suggest you punch up First Call and read the most recent notes. Of course Goldman is getting what they need the most, sticky money. At least one guy is a fan of what they are doing…

``It’s an astute pricing strategy,’’ said Douglas Ciocca, who helps manage $950 million, including Goldman shares, at Renaissance Financial Corp. in Leawood, Kansas. ``It tells me they’re looking for people that have the wherewithal and the confidence to commit for a longer period of time, and there should be a reward for that.’’

I have not heard the words “astute” and Goldman mentioned in the same sentence in quite a while. Oh, how the mighty have fallen.

Goldman Fund Cuts Fees to Woo Investors After Loss
Bloomberg
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