Goldman acts to lure money to hedge fund

Goldman Sachs Group Inc. waived fees to draw investors to its Global Equity Opportunities hedge fund after stock-market losses wiped out $1.4 billion of assets this month, according to a person with direct knowledge of the terms.

The new investors won’t pay Goldman’s annual management fee, which is 2% of assets, and Goldman will halve its share of the fund’s profit, the source told Bloomberg News. Investors who already had holdings in the fund can get the new terms for any additional money they commit to investing by Friday.

To get the new terms, however, investors must commit to keeping their money in the fund for six months. Global Equity’s existing investors can withdraw their money monthly with 15 days’ notice.

“It’s an astute pricing strategy,” said Douglas Ciocca, who helps manage $950 million, including Goldman shares, at Renaissance Financial Corp. in Leawood, Kan. “It tells me they’re looking for people that have the wherewithal and the confidence to commit for a longer period of time, and there should be a reward for that.”

Goldman and outside investors including billionaires Eli Broad of Los Angeles and Maurice “Hank” Greenberg agreed this week to put $3 billion into Global Equity. The New York-based securities firm, the second-largest hedge fund manager, sought capital for the fund after it lost 28% of its value this month as stock prices declined worldwide. Other so-called quant, or quantitative, funds suffered similar losses.

In a report to clients this week, Goldman blamed its total of $3 billion in hedge fund losses this month on too many quant managers making the same trades and said it needed to develop new investing strategies.

“Longer term, successful quant managers will have to rely more on unique factors,” the report says. “While we have developed a number of these factors over the last several years, in hindsight we did not put sufficient weight on these relative to more-popular quant factors.”

Goldman’s quantitative funds all suffered “extreme negative returns” from July 30 through Aug. 10 in the U.S., Japan and Europe, according to the report.

Current prices of securities don’t appear to reflect what the assets are worth, Goldman said in the report. “If so, the current environment may represent a significant investment opportunity,” the report says. But it adds that “substantial risks still accompany these opportunities.”

Hedge funds are largely unregistered pools of capital that cater to wealthy individuals and institutions.

Goldman shares Wednesday fell $4.85, or 2.9%, to $164.90. They are down 17% this year.