* Goldman's Global Alpha fund down 12 pct year-to-date
* Many other quant funds performing well
* Global Alpha has performed poorly before
By Lauren Tara LaCapra and Svea Herbst-Bayliss
NEW YORK, Sept 15 Goldman Sachs Group Inc's
(GS.N) shakeup of management at one of its highest-profile
hedge funds comes as the fund's performance is badly lagging
The Goldman Sachs Global Alpha fund, which relies on
computer-driven strategies, was down 12 percent through August,
according to two people familiar with the returns. The average
quant fund is down less than 1 percent over that period,
according to performance tracking service Hedge Fund Research
This is the second time in four years that the Global Alpha
fund has suffered big losses and its performance raises
questions about the ability of Goldman Sachs to manage
quantitative strategies for its wealthy clients.
The shakeup comes almost four years to the day that
Goldman's Global Alpha fund lost 22.5 percent, during the early
days of the financial crisis. Those losses prompted investors
to pull money from the fund, which had managed $12 billion at
Since then assets have tumbled dramatically. A Sept. 13
regulatory filing reports that Global Alpha has raised $2.5
billion from clients for its onshore U.S. fund since its
Goldman Sachs declined to comment.
Goldman Sachs Asset Management on Wednesday sent a letter
to Global Alpha investors notifying them that Katinka
Domotorffy, the head of the group's quantitative investment
strategies, would retire at year's end. The letter, a copy of
which was obtained by Reuters, did not discuss the poor
performance of the Global Alpha fund. [ID:nS1E78D28Q]
A person familiar with Goldman Sachs' quantitative group,
which has roughly $56 billion in assets, said the Global Alpha
fund now has about $1.7 billion in assets.
Quant funds like Global Alpha use computer-driven trading
models to quickly take advantage of opportunities in the market
and are supposed to move quickly out of stocks, bonds and other
assets and exit positions before losses accrue. In theory, they
are never supposed to lose money.
DEJA VU AGAIN
Of course, it doesn't always work out that way. In August
2007, when Global Alpha lost 22.5 percent in a matter of weeks,
it was not the only quant fund to melt down. In fact, August
2007 became notorious as the summer when the math geeks on Wall
Street got it wrong and some of the biggest names in quant
trading suffered bad losses.
But what makes this year's poor performance at Goldman's
fund stand out is that most quant funds are generating positive
returns or are off only slightly.
On Wednesday, Reuters reported that some quantitative funds
have done particularly well amid recent market volatility.
James Simons' Renaissance Technologies' Renaissance
Institutional Equities fund has gained more than 25 percent
this year, said a person familiar with the fund run by the math
professor turned hedge fund manager.
Another quant fund, QuantZ Capital Management, for instance,
is up 12.8 percent through Sept. 6, according to a letter sent
Andrew Schneider, president and CEO of Global Hedge Fund
Advisors, said the first half of September has been brutal for
some large hedge funds, due to unpredictable moves in market
"The volatility has been so high; if you're wrong,
especially if you're using margin or leverage, your returns are
going to be extremely poor," said Schneider.
Hedge funds that underperform peers are likely to receive
redemption requests from preferred investors who are offered
liquidity on a more frequent basis than others in return for
their investments, Schneider said.
(Reporting by Svea Herbst-Bayliss, Lauren Tara LaCapra and
Katya Wachtel in New York; editing by Matthew Goldstein and