Goldman Sachs Group said on Monday it was leading a group of investors that includes Maurice "Hank" Greenberg and Eli Broad in injecting US$3 billion into one of its biggest hedge funds, which has seen its value plunge amid market volatility.
The investment bank said its Global Equity Opportunities fund "suffered significantly" as global markets sold off on worries about debt and credit. The fund lost about 28 percent in the past few weeks, dragging its value down to US$3.6 billion, from about US$5 billion last month.
Goldman Sachs will invest US$2 billion. Other investors will contribute about US$1 billion to the fund, whose computer-driven investment strategies were disrupted by triple-digit swings in the financial markets.
"This is not a rescue," said Goldman chief financial officer David Viniar. "Given the dislocation in the market, we believe this is a good investment opportunity for us and other investors."
Joining Goldman in injecting more capital was former American International Group (AIG) chairman Greenberg, and Broad, a California real estate developer who helped found SunAmerica and later sold it to AIG. Hedge fund Perry Capital LLC, which is run by a former Goldman Sachs equity trader, is also among the investors.
The investment bank said that two other hedge funds it manages -- Global Alpha and the North American Equities Opportunities Fund -- have suffered during the market dislocation. The Alpha fund, for instance, has lost 27 percent of its value, with more than half of that last week alone.
Viniar would not say if the bank was considering similar action for the other two funds, which combined are worth about US$6.4 billion. He said Goldman has spent the past week reducing the risk and leverage for all three funds to stem losses.
Goldman, one of the world's premiere financial companies, joins Bear Stearns Cos and France's BNP Paribas in revealing that its hedge funds have been slammed by the credit market crisis. There is some US$2 trillion believed to be held in hedge funds globally.
Bear Stearns earlier this summer disclosed that two of its multibillion dollar hedge funds were wiped out because of heavy bets on mortgage-backed securities. BNP Paribas said last week it would freeze three funds invested in US asset-backed securities.
Britain's Barclays PLC, in the midst of a takeover battle for ABN Amro, is said to be among the banks that is having troubles. Barclays Global investors is one of the world's biggest fund managers, with some US$2 trillion in assets under management.
Goldman Sachs held a rare conference call on Monday to update analysts and investors about the plight of its fund. This was a rare move for the company, which is known on Wall Street for being insular and closed off to most outsiders.
Viniar said the company had no intention of unwinding Global Alpha or the North American Equity Opportunities funds.
Investors appeared satisfied that Goldman made the right move. Shares edged down US$3, or 1.7 percent, to US$177.50 on Monday.