Has Goldman Sachs written off hedge funds? Well, not exactly, but Goldman Sachs Asset Management International’s Petershill Offshore, a private equity vehicle set up in November 2007 to take minority stakes in hedge fund firms, has decided not to make any more investments at the moment.
The reason? There are no attractive opportunities. As a result, Goldman is letting some committed capital off the hook rather than seek out more investments.
Petershill’s first investment, made in 2007 before the $500 million fund closed, was a 9.9% stake in David Harding’s $11.84 billion managed futures firm Winton Capital Management of London.
In 2008, the fund acquired noncontrolling, minority interests in at least four more managers, including the $3 billion London-based fixed-income manager Capula Investment Management; $1.56 billion Trafalgar Asset Managers, an event-driven firm also in London; $1.8 billion Claren Road Asset Management, a global long/short credit shop in New York; and the $834 million Longacre Fund Management, a high-yield and distressed-debt group also in New York.
Petershill, managed by Jonathan Sorrell, was formed to profit by taking an equity slice of well-established but still-growing hedge funds running $1 billion or more. One of Goldman’s possible exit strategies was to be the hedge fund firm’s initial public offering.
Hedge fund operators had expected Goldman’s support, if not directly through capital introduction then in other ways through Goldman’s extensive contacts. One investor briefed by a Petershill hedge fund said that this fund has been disappointed about the lack of reciprocity in the arrangement. A spokeswoman for Goldman Sachs declined to comment.
But the disappointment probably goes both ways. Since the vehicle’s launch, the financial crisis has crimped many hedge funds’ performance-and has put many others out of business.
The funds in Petershill’s portfolio had mixed success last year. Winton Futures Fund, Capula Global Relative Value Fund and Trafalgar’s self-invested fund of funds, Trafalgar Multi-Strategy, all turned a profit in 2008, as did Claren Road Credit Fund, although not without controversy. (See “Claren Road irks investors over Lehman exposure,” Absolute Return, June 2009. In sum, Claren Road wrote down its Lehman Brothers exposure by half instead of all the way, as many other Lehman clients had done, a move that some investors said unjustly pushed 2008 performance into positive territory so that Claren Road could collect incentive fees.)
On the other hand, Longacre Capital Partners gave up 23.8% in 2008. This year has been a mixed bag as well. Through July, Winton Futures was off 8.41% and Trafalgar Multi-Strategy was down 2.24%. Meanwhile, Claren Road was up about 18.85% through July, Capula had gained 8.49%, and Longacre’s flagship was up 3.59%.
Little or no incentive fees and lower management fees based on pared-down capital bases has meant Petershill’s expected cash flow has also dried up.
For some fund managers, the most important sign of an upturn would be the renewal of Petershill’s investment program. CS
