Once a $7 billion fund, the quantitative equity vehicle had declined to around $200 million under management since its performance fell 30% during the massive quant meltdown of 2007. After starting 2008 on the rebound, it fell another 10% in 2009.
Goldman shut down a related fund, Goldman Sachs North American Equity Opportunities Fund, in late 2007, but it supported GEO, as Global Equity Opportunities was known, in August of that year with its own cash as well as that of such outside investors as Richard Perry’s Perry Capital and Maurice “Hank” Greenberg, the former chairman of American International Group.
GEO’s troubles in 2009 came as Goldman’s Global Alpha Fund trounced the macro indices to produce a net return of about 27%. The gain brought Global Alpha much of the way back to clearing its high-water mark for all of its assets after a devastating 39.8% drop in 2007. At the end of September 2009, the last date for which figures are available, the fund ran about $2 billion, down from a peak of roughly $11.5 billion in mid-2006.
Its managers overhauled the way the fund was run even before 2007 was out, most importantly by adding a new mechanism—called a financial distress indicator—that was aimed at avoiding the kind of rapid, systemic deleveraging that occurred in the summer of that year. One investor attributed the fund’s performance in 2009 in part to its ability to begin putting on risk in the first quarter, when others were still largely avoiding it after 2008’s debacle.
The closure of GEO came amid a number of personnel changes in Goldman’s quantitative strategies group. At year-end, Chairman Bob Litterman retired. Bob Jones, founder of the quantitative equities effort and most recently its co-chief investment officer, became an advisory director to the group. Those changes followed the retirement in April of Mark Carhart and Ray Iwanowksi, the group’s long-time co-heads, as well as former research co-chief Giorgio De Santis. Carhart is now setting up his own hedge fund operation; Litterman and De Santis are said to be joining him.
--Sarah Wood
