October 8, 2010 / 5:50 PM / in 7 years

Exclusive: Ex-Goldman manager's fund to launch in November

BOSTON (Reuters) - Mark Carhart, who helped run one of Goldman Sachs Group Inc’s (GS.N) most successful internal hedge funds, will start trading at his new fund firm next month, a person familiar with the matter said.

One year after leaving Goldman, the bearded academic, who once co-managed the Wall Street powerhouse’s highflying Global Alpha fund, has set up Kepos Alpha Fund.

New York-based Kepos, already staffed by 27 professionals, plans to start trading its partners’ capital in November. In January it will begin trading money that it will take in from outsiders, like large institutional investors, said the person, who asked to not be named because the fund is private.

Carhart, who wrote his University of Chicago doctoral thesis on mutual fund performance, told Reuters last year that his goal will be to generate “alpha,” the measure of a manager’s skill in beating U.S. stock returns, without following the same ups and downs as the market, or “beta.”

The fund will trade liquid markets across many asset classes.

Carhart could not be reached for comment.

At Goldman Sachs, Carhart was responsible, along with Raymond Iwanowski, for running the cornerstone of Goldman’s offerings for wealthy clients. At its high-point the Global Alpha fund oversaw $10 billion in assets and earned Goldman hefty performance fees.

But the fund stumbled badly in 2007, with double-digit losses that prompted Carhart and Iwanowski to review how much money they had borrowed and regard the borrowings as a separate risk factor. The fund recovered, however and climbed 2 percent in 2008, when the average hedge fund lost 19 percent. In 2009, the year both Carhart and Iwanowski left Goldman, the fund returned 30 percent.

Signaling that he has learned from his past mistakes, Carhart put together a six-person academic panel to offer Kepos advice and help him oversee risk. Robert Litterman, who retired as chairman of Goldman’s quantitative investment strategy group in January, will sit on Kepos’s risk committee.

Several top-notch hedge funds have recently invited regulators to sit on boards and offer advice, giving some comfort to jittery investors who watched hedge fund returns sink in 2008 only to roar back last year.

Carhart’s Goldman Sachs resume -- he ran the quantitative investment business from 1998 to 2009, when the Global Alpha fund rose an average 12 percent every year -- is sure to appeal to investors, industry sources said.

But he is also raising money at a different time, when investors are taking longer to make decisions and appear to favor large and long-established hedge funds, analysts added.

To make his fund as appealing and successful as possible, Carhart recruited other Goldman alumni to join him and is offering investors a one-year lockup with a chance to ask for money back on a quarterly cycle.

Giorgio de Santis, who headed research at Goldman’s quantitative investment strategies group, has joined Carhart.

Reporting by Svea Herbst-Bayliss, editing by Gerald E. McCormick

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