Goldman Sachs Group Inc.’s Global Equity Opportunities Fund fell 13.9 percent in the 12 months ended July 31 as its computer-driven trading strategies were disrupted by turmoil in financial markets, Bloomberg reports.
Goldman’s $8 billion Global Alpha fund dropped 26 percent this year through Aug. 9 as its mathematical models also failed to keep pace with market changes. Hedge-fund losses have tarnished the reputation of the New York-based firm’s asset- management unit, which generated more than $1 billion in fees in the second quarter.
“These strategies break down when there are sharp market swings,” says Andrew Lo, a professor of finance and investment at the Massachusetts Institute of Technology’s Sloan School of Management in Cambridge, Massachusetts. “We’re in for a long period of uncertainty and disruption,” says Lo, who also runs the hedge-fund firm AlphaSimplex Group LLC of Cambridge.
The $1.7 trillion hedge-fund industry has been roiled in July and August as credit spreads widened to the most in two years and U.S. stocks rose or fell by more than 1 percent on 13 days.