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rffrydr
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HenryTo
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nodoodahs
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 Posted: Fri Aug 10, 2007 8:14 pm Post subject: |
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Global Omega?
Let's face it, this is probably not what they signed on for. Investors in managed futures funds may be prepped for 50% annual drawdowns in exchange for 50% CAGR, but even they pull out. The investors in "Global Omega" probably were told it was "low risk."
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He was wearing my Harvard tie. Can you believe it? My Harvard tie. Like oh, sure, HE went to Harvard. |
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HenryTo
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| Posted: Sun Sep 16, 2007 5:50 pm Post subject: |
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I've posted this before, but following is an April 2007 profile of GSAM (and Global Alpha) on Institutional Investor magazine:
http://www.iimagazine.com/Article.aspx?ArticleID=1325069&PositionID=24127
| Quote: | Global Alpha's miseries earned Goldman unwanted headlines, but the problems run deeper. Also suffering are Goldman's global tactical asset allocation portfolios, lower-risk versions of Global Alphalike trading strategies that are aimed at institutional investors, such as pension funds and endowments. The firm's GTAA portfolios, which had $55.8 billion in institutional assets as of December, also ended the year in the red, losing 2.51 percent on average after fees, according to composite return figures supplied by Goldman. And the firm's quantitative stock pickers underperformed their benchmarks in both U.S. large-cap and small-cap stocks. These problems come on the heels of continuing low returns in GSAM's actively managed global equities division despite a management shake-up that began two years ago.
"The active global equity space," concedes Kraus, "has been the toughest place for us to get performance right."
So far Goldman's glittering brand, strong quant pedigree and solid long-term track record have helped the firm win a remarkable amount of new business, even in a tough year. But a prolonged downturn in performance would almost certainly translate into outflows.
Some cracks are beginning to show. Earlier this year the $26 billion Arizona State Retirement System terminated its $1.4 billion GTAA mandate. Arizona had concerns about Goldman's "organization/business model, their investment process and performance," chief investment officer Gary Dokes told an investment committee meeting, according to minutes posted on Arizona's Web site. (An Arizona spokesman declined to comment.)
In 1996, John McNulty, who had begun his Goldman career as an adviser in the private wealth management business, became a co-head of GSAM, along with David Ford, who had been appointed in 1994. McNulty led an aggressive expansion drive, and this time Goldman was more willing to consider hedge funds. "The game plan before McNulty was burdened by caution," says Shuch. "He was a persuasive force who highlighted the potential of asset management."
Goldman's highly regarded quantitative operation -- today one of GSAM's key growth drivers -- began gathering force under Ford and McNulty. Shortly after being tapped to help run GSAM, McNulty started selling Global Alpha, GSAM's first hedge fund, which was seeded with $10 million in capital from Goldman. The fund was designed and overseen by Clifford Asness, who holds a doctorate in finance from the University of Chicago and had been hired some years earlier.
McNulty also looked outside Goldman for growth. In 1996 he purchased British pension fund manager CIN Management, which added $23 billion in assets, and Tampa, Floridabased growth equity manager Liberty Investment Management, which oversaw $6 billion in assets. The following year, in a truly inspired move, he snapped up Princeton, New Jerseybased Commodities Corp., a managed-futures specialist that ran about $1.6 billion. The operation had been the training ground for star hedge fund managers like Bruce Kovner and Paul Tudor Jones II and became the backbone of Goldman's fund-of-hedge-funds business. Called the Hedge Fund Strategies Group, it today manages $18.1 billion and is the 12th-largest multimanager operation in the world, according to the latest survey by Institutional Investor's sister publication, Alpha.
While McNulty was making acquisitions, Global Alpha was notching impressive results. In a little more than two years, the fund raked in $560 million in assets and delivered enviable returns: 74 percent gross annualized returns with 17 percent annualized volatility and a low correlation to the Standard & Poor's 500 index.
But the quantitative strategies group was soon plunged into turmoil. In January 1998, Asness left Goldman to set up his own firm, Greenwich, Connecticutbased AQR Capital Management. He took nine Goldman people with him, leaving only a handful of junior members and two senior members of the quantitative team that he knew from the University of Chicago and had recruited the previous year: Raymond Iwanowski, formerly a fixed-income analyst at Salomon Brothers, now part of Citigroup, who had left before completing his Ph.D.; and Carhart, who earned his doctorate and studied under Eugene Fama, the academic credited with developing the Efficient Market Hypothesis, which holds that stock prices reflect all known information.
Robert Litterman, Goldman's head of risk management, was called in to head up a new group, quantitative resources, that included the team. "It was a significant loss," he says of the mass defection. But within months Carhart and Iwanowski were put in charge, and they quickly set about rebuilding the operation, hiring three senior staffers in their first year at the helm.
The GSAM quantitative strategies team that oversees Global Alpha and the GTAA portfolios also had a tough year -- but not for lack of brainpower. The 75-person group, run by co-heads Carhart and Iwanowski, includes roughly 15 Ph.D.s. Every week they invite an outside speaker to give a talk before lunch on subjects ranging from earnings anomalies to accounting issues. In March one of the guests was Vish Viswanathan, professor of finance at Duke University's Fuqua School of Business, who discussed trading. In other internal seminars members of the team present new research to the rest of the group.
"The idea is to have critical minds asking questions," says Carhart.
These days those questions are likely centered on what has been going wrong. Global Alpha's 6 percent loss last year, for example, was largely the result of underperformance in August, September and October. "Previously, we had low inflation and consistent global growth -- and suddenly, we saw a significant decline in oil prices and the Fed and other central banks declining to raise interest rates," explains Carhart, who says that his global macro strategies delivered a strong performance in December and January but that February was again weak.
Quantitative strategies is a complex operation. The team employs 25 different macro trading strategies with varying levels of risk. Global Alpha uses all of these strategies and has a high annualized volatility of 17 percent. The GTAA funds for institutions invest only in the five most liquid strategies in developed markets spanning fixed income and equities, so the end product has average volatility of just 2 to 3 percent a year.
"We run an alpha factory," says Iwanowski.
The group manages $55.8 billion in GTAA institutional accounts and the $12.5 billion in Global Alpha, which is mostly for wealthy individuals and Goldman employees. The team also oversees about $21 billion in global equity overlay strategies, $15 billion in currency overlays and some $8 billion in quantitative fixed-income products. All of their macro strategies use derivatives to gain exposure to the markets and employ some leverage.
Carhart and Iwanowski can tailor their portfolios to the needs of individual clients, changing the level of risk, the benchmark or the benchmark currency, for example. They can also offer dynamic risk management in certain products. "We can dial down the risk if a portfolio gets close to double-digit losses in products that are designed to have this level of drawdown control," says Carhart.
The team's strategy that goes long and short stock indexes in the developed world illustrates the approach. GSAM's computer models seek countries that are cheap as measured by stocks' price-to-earnings or price-to-book value, where there is strong price and earnings momentum and where the market has underestimated macroeconomic growth. The models also incorporate investor sentiment by measuring fund flows and investors' perceptions of risk, for example.
"The more risky the perceived risk, the higher the expected return," says Carhart. Early this year his team was long stock markets in Japan as well as many European countries but short the U.K. and U.S.
Global Alpha uses the same five strategies as the GTAA funds, along with 20 other strategies, including investments in stocks, bonds and currencies in emerging markets as well as volatility and dispersion trades.
Funds like these that employ global macro trading are volatile. "They're taking big bets," says Stephen Wiltshire, chief investment officer for Europe at Russell Investment Group in London. "These are long-term strategies."
Goldman's institutional GTAA funds were up an annualized 3.64 percent on average for the five years through December 2006 gross of fees, compared with a 1.6 percent return for the GTAA Master Blended benchmark. Goldman won't disclose the performance of Global Alpha, but a rival hedge fund manager who has seen the numbers says that the funds returned 36.1 percent in 2003, 2.7 percent in 2004 and 39.9 percent in 2005 before faltering last year.
Rivals hope to profit from the quantitative strategy team's recent troubles. "If any major competitor stumbles, it always means more people are likely to look around for alternatives," says SSgA's Lowe. |
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HenryTo
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HenryTo
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| Posted: Wed Sep 19, 2007 1:18 am Post subject: |
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Goldman's views on its "Global Alpha" fund as articulated in a letter to its investors:
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Goldman vows improvement at Global Alpha fund-WSJ
NEW YORK, Sept 19 (Reuters) - Goldman Sachs Group Inc's (GS.N: Quote, Profile , Research) Global Alpha hedge fund has promised it will handle borrowing and volatility better, the Wall Street Journal said in its online edition on Wednesday, citing a letter from the fund's managers to investors.
Goldman will not close the $6 billion fund or inject any of its own money into the fund, which dropped 22.7 percent in August, the report said.
According to the report, the letter said the fund would constrain its borrowing in the future, and consider the level of borrowing as a separate risk factor. The letter also said that as a result of recent volatility, the fund would adjust positions more rapidly, the report said.
"Our intent is to move aggressively to limit the size of the fund and to increase our agility in times of market stress," the Journal quoted the letter as saying.
Goldman Sachs was not immediately available for comment. |
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HenryTo
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| Posted: Thu Sep 20, 2007 2:34 pm Post subject: |
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| With regards to the Canadian Dollar reaching parity today, don't forget that the Global Alpha fund was short the Canadian dollar earlier this year. Not sure where they are now but I would not be surprised if they are liquidating their positions as we speak. |
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rffrydr
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HenryTo
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