As a sidenote in an article about Goldman Sachs' Global Equity Opportunities fund, the Financial Times has reported that Goldman Sachs' North American Equity Opportunities fund (NAEO) closed up shop earlier this year:
The withdrawals comes after investors abandoned GEO and two other Goldman quantitative hedge funds, one of which – North American Equity Opportunities, or NEO – was closed earlier this year.
Word had originally come in August that NAEO was in trouble. At this time, we are unaware of the particulars of the NAEO funds closure. Information we could use includes detail on their total losses, any letters to investors, total loss, etc. If you have any information regarding NAEO, please let us know!
Original Ailing post 2007-08-09:
North American Equity Opportunities (NAEO) fund
The WSJ published an article (link $) today noting that the NAEO, which had roughly three quarters of a billion in management earlier this year, is down 15% for the year:
Goldman's North American Equity Opportunities hedge fund had $767 million under management earlier this year. The Fund was down over 15% this year, through July 27, according to investors and was down more than 11% in July alone. It is not known how much the fund has sold in recent days.
The North American Equity Opportunities hedge fund is known as a "equity market neutral fund" and relies heavily on computer programs to make market bets. Equity market neutral means the fund buys certain stocks and bet against others, by shorting their shares. The idea is to generate impressive returns in any kind of market. This strategy is seen as relatively conservative, and can generate steady gains, the funds often feel comfortable using leverage, or borrowed money, to boost their returns. Most funds perusing such strategies hope to uncover small price discrepancies and rely on large slugs of borrowed money which magnifies losses when the bets go wrong. It is not known how much borrowed money the North American Equity Opportunities Fund uses.
Forbes reports that Goldman Sachs' nine billion dollar Global Alpha quantitative hedge fund was down 16% for the year:
It was widely reported in the media on Thursday that Global Alpha, a mega $9 billion hedge fund in Goldman's asset management group, was down 16% for the year. According to people familiar with the matter, the fund has suffered the most in the last few months, when the markets were especially volatile.
Unlike the typical hedge fund, Global Alpha is a quantitative fund, meaning that its trades are determined by computers and convoluted mathematical models. Some quant funds are completely computer dictated, while others spew out investment options for a human trader to veto or accept. When the markets follow the laws of probability, quantitative hedge funds can cash out big. Traditionally, quantitative funds are considered low-risk instruments because they use historical benchmarks to analyze trades.
Back in its heyday, Global Alpha was one of the bank's best-performing jewels. In 2005, the fund boasted a near 40% return. However, like humans, computers are not perfect--nor can they predict the future. Global Alpha was also engineered to place big, risky bets--one unexpected swing in the market could take a major bite out of the fund. After years of consecutive growth, the fund started to wobble--in 2006 it fell 6%.
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Important: This fund is on our list of hedge funds that have "imploded" (see also ailing lenders). However, please note that "imploded" is a somewhat subjective. The "imploded" list contains hedge funds (or other unregulated and autonomous speculative investment funds) which have gone through some sort of permanent adverse change. This is a somewhat subjective call, and does not necessarily mean total shutdown or bankruptcy. It can also mean steep and rapid mark-downs in net asset value; or abnormal "bail-out" by corporate parents or peers in order to avoid write-downs and provide liquidity. The funds are of any type and sector.