Top Goldman fund reports $1bn decline since launch in January

By Kate Burgess, Financial Times

Published: November 4 2008 02:00

One of Goldman Sachs' flagship hedge funds, run by two of the Wall Street bank's most talented traders, has lost close to $1bn (£632m) since its launch in January, showing the extent of the crisis facing the industry.

Goldman Sachs Investment Partners, which was hailed as one of the biggest hedge fund launches when it raised more than $6bn, has told investors it lost $989m by September.

It said the fund was down about 13 per cent in the third quarter. Year-to-date performance fell about 15.5 per cent in the year to September.

"We are disappointed with our performance," the managers said. "GSIP is not alone in producing disappointing returns this quarter and this year. We anticipate that these results will lead to net outflows from the hedge fund industry," they added.

Hedge funds have had a horrible year with asset prices in freefall, redemptions at record levels and banks imposing tougher conditions on lending, prompting some managers into fire sales.

GS Investment Partners, which imposed a two-year lock-in at launch and has a strong bias towards equities, is managed by Raanan Agus and Kenneth Eberts, former heads of proprietary trading desks at Goldman.

The fund was launched after a poor year for the bank's quantitative, or computer-driven, hedge funds. They were hit in August 2007, forcing the bank to inject $3bn to rescue its Global Equity Opportunities fund.

More than half of GS Investment Partners' losses in the third quarter was from investments in commodities, basic materials, metals, mining, energy and agriculture.

Like many multi-strategy funds diversified across equity, credit markets and convertible bonds, however, GS Investment Partners took big losses on convertible bonds, debt instruments that can convert into equity.

It said returns from the convertible asset class had been "abysmal".

The Hedge Fund Research convertible bond index showed returns had dipped 20 per cent in the year to September. The falls accelerated sharply in October.

Copyright The Financial Times Limited 2008