Slate- Back in July, we suggested, tongue firmly in cheek, that the Blackstone Group, the private equity firm that had just gone public, could take advantage of its plummeting stock price by taking itself private.
A Blackstone leveraged buyout of Blackstone would have provided a hypothetical example of a Wall Street firm profiting from the ill effects of its own overreachingâ€â€while investors and the reputations of those who sold its securities would suffer.
Sometimes, life imitates fiction. When the Global Equity Opportunities fund, a hedge fund managed by Goldman Sachs, blew up in August, investors who had entrusted their funds to the Wall Street titan suffered big losses. Goldman bailed out the fund by rounding up $1 billion from rich investors and $2 billion from its own coffers.
When markets are volatileâ€â€as they were in Augustâ€â€successful investing is all about the entry point. If a stock finishes the month at $20, those who managed to buy at $10 have doubled their money, while those who bought at $40 are out 50 percent. When it comes to its own hedge fund, Goldman clearly bought at $10.
As the Financial Times reported, “Goldman Sachs made $300 million last month from the rescue of one of the investment bank’s troubled hedge funds, even as external investors lost more than a fifth of their money.” As one investor in the fund told the FT: “It is typical of Goldman to find a way to profit from this disaster.”
