Last week, Goldman Sachs
Getting past an annus horribilis
Despite this year's gains, the fund remains well below its "high-water mark," the prior peak value the fund needs to achieve before Goldman can begin earning its lucrative performance fees. In addition, thanks to investor redemptions and fund losses, the fund's assets under management have shrunk by more than three-fourths from their high, to less than $3 billion. Combine both these factors and it's clear that Global Alpha is far from being the fee-generating engine it once was.
This case shows the benefits to a hedge fund of being under the roof of a well-capitalized and diversified parent. Global Alpha's 2006-2007 performance might have been the death knell for many independent hedge funds, causing investors to pull their money and flattening a portfolio manager's incentive to dig himself out of the hole. When quantitative funds ran into trouble last summer, Goldman added capital to one of its funds.
Two roads to stability for hedge funds
Certainly, investment banks have shown their appetite to tie up with hedge funds. JPMorgan Chase
To achieve greater stability, hedge funds do have another option: an initial public offering. Fortress Investment Group
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