| Goldman Sachs Group Inc. lined up $3 billion in new capital to bolster its Global Equity Opportunities Fund after it lost $1.4 billion, or 28 per cent, in the past two weeks.
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| New investors include Maurice ``Hank’’ Greenberg, the former chairman of American International Group Inc, hedge-fund manager Perry Capital LLC and billionaire investor Eli Broad, the New York-based company said on Monday in a statement. Goldman will also invest in the fund, whose assets dropped to $3.6 billion from more than $5 billion in July.
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| “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,’’ New York- based Goldman said on Monday in the statement.
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| `` The investment will also provide the fund with more flexibility to take advantage of the opportunities we believe exist in current market conditions.’’
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| The Global Equity fund’s computer-driven investment strategies were disrupted by turmoil in the financial markets triggered by declines in subprime-mortgage bonds. Other so- called quant managers posting losses include AQR Capital Management LLC, Highbridge Capital Management LLC and New York- based Tykhe Capital LLC.
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| Hedge funds are largely unregistered pools of capital that cater to wealthy individuals and institutions and allow managers to participate substantially in profits from investments. They try to make money in rising as well as falling markets.
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| The $1.7 trillion industry has been roiled in July and August as credit spreads widened to the most in two years and US stocks rose or fell by more than 1 per cent on 13 days.
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| One of AQR’s Global Stock Selection funds, which uses borrowed money, lost 21 per cent year to date, according to investors. The fund has less than $1 billion in assets.
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| The pool has ``come under severe pressure’’ resulting in ``shockingly bad’’ returns for the fund and others with similar strategies, according to an Aug. 10 letter to clients from Clifford Asness, the firm’s founder and managing principal. Asness blamed the losses on the ``strategy getting too crowded,’’ rather than the models not working.
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| AQR’s larger asset-allocation fund was up about 3.5 percent in August, and the firm has received commitments for at least $700 million in new capital. AQR, based in Greenwich, Connecticut, manages about $10 billion in hedge funds.
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| Highbridge’s $1.7 billion Highbridge Statistical Opportunities Fund, which invests in US, European and Asian equities, fell 18 percent in the month through August 8, and 16 per cent year to date, the New York-based firm said in a letter to investors.
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| Executives at the firms declined to comment.
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| The difference in yields between the riskiest corporate bonds and US Treasuries has expanded nearly 2 percentage points since June, according to Merrill Lynch & Co. index data.
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| Volatility, as measured by the Chicago Board Options Exchange SPX Volatility Index, has averaged more than 23 since the beginning of August. Between June 2003 and the end of July 2007, it averaged 14.
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| The troubles started in late July and early August as some large quantitative hedge funds lost money in their fixed-income or credit positions on the back of a decline in the subprime mortgage market.
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| The firms were forced to sell more liquid stock investments to raise cash and reduce debt, according to a report published by Lehman Brothers Holdings Inc. analyst Matthew Rothman.
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| The selling caused the models used by quantitative funds to short circuit. Stock positions that the models expected to fall in price rose, and shares they expected to rise, fell.
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| “The models (ours included) are behaving in the opposite way we would predict and have seen and tested for over very long time periods (45+ years),’’ Rothman wrote. |
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