January 19, 2018

Goldman Sachs Hedge Fund Founder “Reflects” on Its Demise

Goldman Sachs hedge fund founder "reflects" on its demise

Goldman Sachs hedge fund founder “reflects” on its demise, reports Murray Coleman at Barron’s.

Last week, Goldman Sachs shut down its Global Alpha hedge fund, an important division of Goldman Sachs Asset Management, or GSAM.

The decision comes on the heels of a management shake-up of the fund and a double-digit decline in returns this month. That’s well behind the performance of similar hedge funds that rely on computers to quickly crunch numbers and spot openings in markets.

Some $1.6 billion will be returned to investors. In 2007, Global Alpha reportedly had more than $12 billion in assets. The fund was created in 1997 by Goldman and initially led by legendary Goldman trader Cliff Asness. He left in 1998 to form AQR Capital Mangement, now a $41 billion hedge fund firm.

As noted by the WSJ, which broke the story, Global Alpha was a leader in the push by Wall Street firms into using computer models as an investing weapon. In an email to the paper, Asness commented: “It’s a pretty reflective moment for those of us who were there in the early years.”

He added that it would be unwise to “underestimate the resiliency of Goldman Sachs.” Still, some analysts are wondering how committed Goldman will remain to such so-called quant strategies in the future.

Asness was incredibly successful running the hedge fund which paved the way to set up AQR using the same strategies he developed with Global Alpha. Scott Patterson, a Wall Street Journal reporter, blamed Asness and quantitative programs for the 2008 market collapse in his book, “The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It”. His blame of technology and its incorporation into trading strategies is misplaced. Lax risk controls across the industry seem a better cause. Still, having found the program, one would think Asness might have reflected on his personal shortcomings in setting up the hedge fund’s strategies. It’s nice that he can peer down from his own fund as the Goldman Sachs hedge fund founder “reflects” on its demise.

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