Where’s the Alpha, Goldman?

In the late 1980’s George Soros gained notoriety as the best global macro hedge fund manager. His son often recounted stories about how George traded off his “gut feel”; sometime a pain in his back would lead him to place massive positions.

Call it intuition. Or sixth sense. But those days are long gone.

Today quants rule. And Goldman Sachs is the 800 pound gorilla. It appears they will soon overtake JP Morgan as the largest hedge fund manager in the U.S., despite lousy numbers in their flagship Global Alpha fund.

Perhaps their quantitative fund could perhaps use a few humans.  Or new algorithm’s.

But clients will likely get spin. Because the numbers continue to stink.

April 3 (Bloomberg)—Goldman Sachs Group Inc.’s flagship hedge fund, managed by Mark Carhart and Raymond Iwanowski, lost 5.7 percent in February, hurt by wrong-way bets on stocks, global bonds and currencies including the Japanese yen.

The decline left the $10 billion Global Alpha fund down 2 percent for the year through Feb. 28, according to a monthly update sent to investors. That compared with an average gain of 1.9 percent for hedge funds worldwide, according to data compiled by Hedge Fund Research Inc. in Chicago.

We don’t feel too bad for those boys, after all the fund generated $700 million in fees last year when it lost nine percent.

The water is getting a little high, however.

``The U.S. equity market-neutral strategy was down for the month,’’ fund managers said in the February update. ``The stocks/bonds/cash-timing strategy detracted from overall performance due to our short position in global bonds.’’

Clients might be starting to turn up the heat on these guys. Cutting fees is likely out of the question. But they will throw a bone:

Goldman is expanding its investor reports to provide more detail about volatility and risks of funds, Eric Schwartz and Peter Kraus, co-heads of New York-based Goldman’s money- management division, told clients in a letter accompanying the February update. Bloomberg

Transparency is fantastic. But clients want performance.

No Soup for Goldman.
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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

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