Goldman CEO says raises distressed debt funds

NEW YORK (Reuters) - Goldman Sachs Group Inc (GS.N) Chief Executive Lloyd Blankfein said on Tuesday the investment bank has raised two debt funds and will launch a long-short hedge fund to take advantage of recent credit market turmoil and bolster a money management arm roiled by volatility.

The $1.8 billion fund, known as Liquidity Partners III, is expected to invest in leveraged loans and other debt stuck on bank balance sheets from the credit crunch. Goldman also recently raised a $2.7 billion credit hedge fund, known as Liberty Harbor.

Both are designed "to take advantage of distressed opportunities in the credit markets," Blankfein said at the Merrill Lynch Banking & Financial Services Conference.

In the next few months, Goldman plans to launch a long-short hedge fund run by traders who managed a similar fund within the firm.

"As you know, we've had issues with the performance of certain of our quantitative funds, as have others in this space," Blankfein said. "While direct quantitative hedge funds represent only 5 percent of our assets under management, we realized it would be prudent to further expand our product portfolio in actively managed strategies."

Volatile stock trading in August forced Goldman to orchestrate a $3 billion capital infusion for its Global Equity Opportunities fund, a quantitative fund. Meanwhile the multi-strategy Global Alpha, at one time with $10 billion under management, and the smaller North American Equity Opportunities funds plunged in value.

Goldman's asset management division had been expanding rapidly, growing from $50 billion in managed assets 12 years ago to nearly $800 billion today. In the third quarter, the bank attracted $50 billion of total fund in-flows, contributing to the $200 billion that has poured in since the beginning of 2006.

(Reporting by Joseph Giannone and Michael Flaherty, editing by Tim Dobbyn)