Goldman Sachs forced to withdraw hedge fund


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Goldman Sachs is pulling the plug on one of its flagship hedge funds after a long period of under-performance that led investors to demand their money back.

The Global Alpha Fund was once one of the most powerful and famous hedge funds on Wall Street, the largest of the so-called "quant funds" which use computers and sophisticated statistical analysis to generate millions of quick-fire trades.

At its peak, the Global Alpha Fund was worth $12 billion (£7.6bn), but it has dwindled to $1.6bn and a disastrous performance this year was the final straw.

While most other quant funds have enjoyed positive or even stellar returns, the Global Alpha Fund had lost 13 per cent of its investors' money in the year to early September.

That compares to a positive return of more than 25 per cent, for example, at the Global Alpha Fund's old rival, Renaissance Institutional Equities, a fund created by the maths professor turned hedge fund manager, Jim Simons.

It will take several weeks to liquidate the Global Alpha Fund's trading positions. According to a letter sent to outside investors yesterday, between 85 per cent and 90 per cent of the money will be returned immediately to investors, who include institutions and rich individuals.

The remaining cash will be held to cover the potential costs of a legal dispute with the estate of bankrupt Lehman Brothers, the investment bank which folded in 2008.

The size and power of the Global Alpha Fund at its peak in 2007 was one of the reasons Goldman Sachs was once nicknamed a giant hedge fund with a small investment bank attached.

At the start of the credit crisis that year, though, confidence was shaken when the Global Alpha Fund lost 23 per cent in the space of a few weeks.

It was announced earlier this week that Katinka Domotorffy, the head of the Goldman Sachs Asset Management's quantitative investment strategies group, would retire at the end of this year.