Goldman Sachs Group Inc.'s injection of $2 billion into one of its flagging hedge funds opens a new window on the difficulties even some of the world's premier financial players are having as credit-market anxiety infects a widening circle of investors.
After a week when financial markets were spooked by losses in several Goldman funds -- among other startling setbacks in the financial world -- the big investment bank yesterday said three of its funds have seen the net value of their assets fall a total of about $4.7 billion so far this year.
Goldman announced just before New York's financial markets opened that it led a high-profile group putting $3 billion into Goldman's Global Equity Opportunities Fund. The fund, worth $3.6 billion before the new money arrived, lost more than 30% of its value last week during one of the market's most turbulent stretches in years, Goldman said.
The move, which the firm described as a solid investment that will pay off in time, helped calm markets. But it also amounts to a bold gamble by one of Wall Street's most respected names: By drawing attention to its conviction that this is a turning point -- and by bringing some heavyweight investors on board -- Goldman is betting it can shore up confidence in one of the worst-hit areas of the market and pave the way for a rebound.
"We are investing not because we have to, but because we want to," said Goldman Chief Financial Officer David Viniar.
Goldman provided about $2 billion of the hedge-fund infusion. The rest came from others including C.V. Starr & Co., Perry Capital LLC and Eli Broad, a Los Angeles-based entrepreneur. Starr is run by former American International Group Inc. executive Maurice "Hank" Greenberg; Perry Capital is run by former Goldman trader Richard Perry.
Other hedge funds that have sustained losses also are raising money for new investments. AQR Capital Management LLC, a $38 billion hedge fund in Greenwich, Conn., that took hits in recent days, received commitments from current and new investors for about $1 billion to invest in a variety of its funds, according to someone close to the matter.
In Goldman's situation, the risk is whether losses mount further in coming weeks. The attention drawn to Goldman's Global Equity Opportunities Fund, which relies heavily on computer-driven programs to buy and sell, could also spark renewed concern about funds pursuing similar strategies. Like Goldman, many used a great deal of borrowed money, known in financial markets as leverage.
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