Goldman Sachs shells out to stanch bleeding

NEW YORK — Goldman Sachs Group said Monday it is leading a group of investors including Maurice "Hank" Greenberg and Eli Broad in injecting $3 billion into one of its hedge funds that lost 28 percent of its value last week.

The investment bank said its Global Equity Opportunities fund, one of its largest hedge funds, "suffered significantly" as global markets sold off on worries about debt and credit, dragging its value down to $3.6 billion, from about $5 billion last month.

Goldman Sachs will invest $2 billion. Other investors will contribute about $1 billion to the fund, whose computer-driven "quantitative" investment strategies were disrupted by triple-digit swings in the financial markets.

"This is not a rescue," said Goldman Chief Financial Officer David Viniar. "Given the dislocation in the market, we believe this is a good investment opportunity for us and other investors."

Joining Goldman in the infusion were Greenberg, former chairman of American International Group (AIG), and Broad, a California real-estate developer who helped found SunAmerica and later sold it to AIG.

Hedge fund Perry Capital, which is run by a former Goldman Sachs equity trader, is also an investor.

The investment bank said two other hedge funds it manages — Global Alpha and the North American Equities Opportunities Fund — have also suffered during the market turmoil. The Alpha fund has lost 27 percent of its value this summer, with more than half of that last week alone.

Viniar would not say if the bank was considering similar action for the other two funds, whose combined worth is $6.4 billion.

He said Goldman has spent the past week reducing the risk and leverage for all three funds to stem losses.

The $2.7 trillion hedge-fund industry uses investments from wealthy individuals and institutions to make bets on stocks and other securities using sophisticated investment strategies.

Hedge funds have been routed as Wall Street has become much more volatile. Quantitative funds like Goldman Sachs', which rely on computer models to make investments, have taken a beating from triple-digit stock swings the past few weeks.

Quantitative funds run by other firms, including AQR Capital Management and Highbridge Capital Management, may also have sustained heavy losses.

Goldman, one of the world's top financial companies, joins Bear Stearns and France's BNP Paribas in revealing the credit-market crisis has slammed its hedge funds.

Bear Stearns earlier this summer disclosed that two of its multibillion-dollar hedge funds were wiped out because of heavy bets on mortgage-backed securities.

BNP Paribas said last week it would freeze three funds invested in U.S. asset-backed securities.

Britain's Barclays, in the midst of a takeover battle for ABN Amro, is said to be among the banks having troubles, according to The Wall Street Journal. Barclays Global Investors is one of the world's biggest fund managers, with some $2 trillion in assets under management.

Goldman Sachs held a conference call Monday to update analysts and investors about the plight of its funds. This was a rare move for a company known for being insular and closed off to most outsiders.

Viniar said the company has no intention of unwinding Global Alpha or the North American Equity Opportunities funds.

Global Alpha is a multistrategy fund with a significant quantitative equity long-short portfolio, a primary contributor to the fund's recent weakness.

The North American Equity Opportunities fund is a quantitative equity long-short fund.

Viniar said the funds do not "represent the fundamental values, either positive or negative, of the underlying stocks." He added that the market is "way out of whack."

"While there is a lot of volatility and a difficult market, we also think there are a fair number of assets that are selling at distressed prices and aren't distressed," he said. "When we see those assets, we will try and take advantage of the situation."

While analysts seemed satisfied with the explanation and Standard & Poor's reaffirmed its ratings on the investment bank, Goldman Sachs shares fell $3, or 1.7 percent, to $177.50.