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Readings: Quant Funds in trouble

Goldman Sachs Group Inc.’s $8 billion Global Alpha hedge fund has fallen 26% so far this year, a decline that may prompt more investors to withdraw their money, according to people familiar with the fund. Goldman’s largest hedge fund, managed by Mark Carhart and Raymond Iwanowsk, has dropped almost 40% since July 31, 200.

The two-year-old quantitative, or “quant,” hedge fund now has declined 7.4 percent for the year. Simons said other hedge funds have been forced to sell positions, short-circuiting statistical models based on the relationships among securities.

New York-based Tykhe Capital, which has $1.8 billion in assets, told investors that performance of its various share classes with some quantitative strategies range from minus 17% to minus 31% in the month through yesterday.

“The trading volumes are going thru roof, to the point that the program trading desks servers are crashing,” one reader writes. “For what it’s worth, I think it’s part of the unwinding of leverage from June and July. A number of multi-strategy shops are looking at losses and can’t even get a bid on certain swaps, fixed income and derivatives. So, what’s a risk manager/CIO going to do? Sell the most liquid part of their book.”

 

This entry was posted on Saturday, August 11th, 2007 at 9:54 am and is filed under investing. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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    3 Responses to “Readings: Quant Funds in trouble”

    1. Gambler Says:
      August 11th, 2007 at 10:46 am

      Please see this new site

      http://hf-implode.com/

      in commemoration of the great Ponzi scheme of the 21st century.

      Very soon India specific HFs will figure in this list.

    2. Kaushik Says:
      August 11th, 2007 at 11:31 am

      Thanks for the link. I also suggest looking at John Mauldin’s latest commentary: The Fugu Ultimatum.

      “There are any number of statistical relationships which have simply not functioned as they have in the past. Large quantitative hedge funds that employ teams of mathematicians and physicists to develop complex “black box” trading programs to computer trade on these relationships are finding themselves losing money.”

    3. Hedge Fund Says:
      March 19th, 2008 at 10:09 pm

      Quants may be in trouble bust most are surviving. More managers are moving towards marketing their firm as less quant-oriented and layering on a more robust portfolio manager overlay on their original investment process to lower risks of markets moving in un-predicted directions which models might not handle well.

      - Richard
      Hedge Fund Consulting Blog