Investment bank Goldman Sachs Group said on Monday it and outside investors would pour $3 billion of new capital into Goldman's Global Equity Opportunities fund, a long-short quantitative hedge fund hurt by recent market volatility.
In addition to Goldman, investors will include C.V. Starr & Co. Inc., Perry Capital LLC and Eli Broad. Goldman, which said the fund had a net asset value of $3.6 billion before the new capital, said existing fund investors can also add new money to the fund.
Given the market dislocation, the performance of (Global Equity Opportunity) has suffered significantly. Our response has been to reduce risk and leverage, Goldman said in a rare statement about its operations.
Goldman said a conference call to discuss the investment was scheduled for 9 a.m. EDT.
Last week Goldman shares were pounded as investors worried recent market turmoil had generated significant losses at two Goldman-managed hedge funds: Global Alpha and North American Equity Opportunities.
In the statement, Goldman acknowledged for the first time that market conditions had led to fund losses.
Many funds employing quantitative strategies are currently under pressure as recent conditions have resulted in significant market dislocation, Goldman said. Across most sectors, there has been an increase in overlapping trades, a surge in volatility and an increase in correlations. These factors have combined to challenge many of the trading algorithms used in quantitative strategies,
The bank, where past success attracted many billions of dollars into its own hedge funds, said the turmoil has created new investment opportunities.
We believe the current values that the market is assigning to the assets underlying various funds represent a discount that is not supported by the fundamentals, the bank said. The investment will also provide the fund with more flexibility to take advantage of the opportunities we believe exist in current market conditions.
Goldman Sachs also said it has reduced risk and leverage in Global Alpha, a multi-strategy hedge fund, and North American Equity Opportunities fund, a long/short equity quantitative fund.
At their current levels of equity capital, we believe the funds are positioned to actively pursue market opportunities, the bank said.
(Reporting by Joseph Giannone)