The Independent- Goldman Sachs has been forced to pump $2bn (£1bn) of its own cash to bail out its in-house hedge funds, after they lost $3bn in a single week.
The investment banking titan said that its biggest funds would take on significantly lower amounts of debt from now on – reducing their risks, but also potentially crimping their profits in the future.
The damage from the firestorm that swept through large sections of the hedge fund industry last week was only yesterday starting to become clear. Goldman became the first major manager to give details of its losses, saying that three funds had been affected.
It has pulled together a band of new investors to rescue the Global Equity Opportunities (GEO) fund, which lost around a third of its value last week, about $1.8bn. Two insurance industry veterans, the California billionaire Eli Broad and the former head of AIG Hank Greenberg, are among those putting in new money. But $2bn out of the $3bn recapitalisation will be Goldman Sachs’ own money.
The company is rushing to shore up its reputation, for fear that other investors in GEO and other Goldman hedge funds might demand their money back. Executives insisted yesterday that the market turmoil of the past few days created exciting opportunities for those with the funds to stick with their investing strategy.
Billions of dollars were wiped from the value of hedge funds that use sophisticated computer programs to make millions of small trades across financial markets. The Wall Street credit crunch has meant that lenders to the funds have been demanding repayment, and the simultaneous liquidation of positions last week sent the computer programs haywire. Returns have since rebounded strongly in percentage terms, but many hedge funds were forced to take money out of the markets and so have not recouped their losses.
