Institutional Investor's Alpha Magazine - December 2007/January 2008 - (Page 10)

Bondurant, Mixson & Elmore attorney Lamar (Mickey) Mixson: Eagerly awaiting the outcome of Amaranth’s suit. “Goldman is undoubtedly the best hedge fund brand out there,” says James Hedges, president and CIO of Naples, Florida–based advisory ﬁrm LJH Global Investments. “The bank is known for its trading ability and has a track record in equities that goes back 30 years.” The standing of the firm’s traders has never been higher, as smart bets on mortgage markets in 2007 made it one of the few banks to proﬁt from the U.S. subprime crisis. At a time when many of its rivals revealed staggering losses, Goldman reported record proﬁts of $11.6 billion in the ﬁscal year ended November 2007. The new fund diversiﬁes GSAM’s alternatives business away from the struggling quantitative funds that last year hurt the group, which has $868 billion in assets under management. GSAM’s performance fees fell 81 percent, to $187 million, in 2007, primarily because of losses in its quant funds. Inf lows into alternatives dwindled to $9 billion, versus $32 billion for the same period in 2006. Goldman CFO David Viniar revealed that GSAM suffered client losses of about $3 billion in the fourth quarter, with close to half of that coming from Global Alpha. He also warned of more damage to come. “We think redemptions in the first quarter will be even greater,” Viniar told analysts. Goldman’s new fund is expected to help make up some of that shortfall. “Goldman’s secret is that it mutates its model when something stops working,” says former Goldman analyst Mark Hurley, CEO of Dallas-based wealth management ﬁrm Fiduciary Network. “The ﬁrm is very good at taking advantage of market opportunities.” Goldman Sachs Investment Partners has the beneﬁt of being managed by some of the ﬁ rm’s brightest stars. Agus, who graduated with a BA in economics from Princeton University and joint law and business graduate degrees from Columbia University, has managed the ﬁrm’s principal strategies group since 2003. Eberts, a Stanford University graduate with degrees in quantitative economics and history, took over as head of U.S. investments the same year. Since then the group’s aggressive bets have been an important driver of Goldman’s trading proﬁts. This is the ﬁ rst time Goldman Sachs has moved its proprietary traders to asset management to manage a hedge fund. But Goldman Sachs alumni have long enjoyed special status in the hedge fund industry. In November 2004 former Goldman co-head of equities Eric Mindich raised more than $3.5 billion for the launch of his New York–based multistrategy hedge fund ﬁrm Eton Park Capital Management — the largest hedge fund launch at the time. Mindich’s ﬁrm has since grown to $10 billion and posted returns of roughly 35 percent in 2007, according to industry sources. Similarly, in early 2005, Dinakar Singh, the former co-head of Goldman’s principal strategies group with Agus, raised $2.8 billion for his fund, New York–based TPG-Axon Capital Management. TPG has since grown to $13 billion. Keeping its star traders in-house looks like a smart move for Goldman, which will earn close to 2 percent management fees on the $7 billion invested in its new hedge fund, regardless of performance, not to mention incentive fees of almost 20 percent if the fund succeeds. But Agus and Eberts will likely have to temper their investment style. One former Goldman employee notes that within the investment bank, traders have a year to make a trade work, but outside investors will be much less tolerant of risk. — Jo Wrighton Primary Concerns M ore than a year after closing its doors following $6.5 billion in trading losses, Amaranth Advisors is blaming part of its demise on JPMorgan Chase & Co. and seeking more than $1 billion in restitution. On November 13, the Greenwich, Connecticut–based multistrategy ﬁrm, which once managed $9 billion, ﬁled a lawsuit against JPMorgan. The suit alleges that more than $2.5 billion of its losses resulted from the bank’s undermining of Amaranth’s efforts to sell its energy derivatives portfolio — and that the banking giant did so to nab the portfolio for itself. “It is our view that absent JPMorgan’s actions, the fund’s losses, though signiﬁcant, would have been survivable and far less dramatic,” Nicholas Maounis, Photo by Ann States for Alpha 10 • INSTITUTIONAL INVESTOR’S ALPHA • DECEMBER 2007/JANUARY 2008

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - December 2007/January 2008

Institutional Investor's Alpha Magazine - December 2007/January 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Liberal Returns The Good Guy: Inner-city MVP Cover Story: Marathon Men Interview: Rizk Management Profile: Living on Hostile Ground Profile: Buy and Hold In Theory: The Fallacy of Portable Alpha Strategies: Changing Course Alpha Bytes: Behind the Scenes Unhedged: Commentary: An Activist Alternative

Institutional Investor's Alpha Magazine - December 2007/January 2008

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