Goldman Sachs Continues to Raise Money for New Hedge Funds

It was a summer that began with high hopes as we watched the Dow Jones, NASDAQ, and S&P 500 all reaching record highs in June and the beginning of July. Then suddenly, what will go down in history as the infamous “credit crunch” of 2007 took place in mid-July. It started off with Bear Stearns (BSC) reporting its hedge funds’ exposures and subsequent losses due to high-risk subprime mortgages with leverage. Bear was forced to break the shocking news to hedge fund investors that their money was now worth a whopping $0.09 to the dollar. Unfortunately, Bear Stearns was not the only bulge bracket bank that was slaughtered by the mid-summer catastrophe that has spilled over into the fall months, with Merrill Lynch (MER) and Citigroup (C) the two most recent victims with each firm offering up their CEO as the sacrificial lamb.

With financial firms being destroyed across the board, the one investment bank that has managed to slip through this credit crisis without much damage has been Goldman Sachs (GS). Goldman has experienced the smallest write downs and the largest profit this past quarter, and appears poised to perform again. While the markets have been extremely volatile over the last few months, one facet of its business that has maintained its consistency is Goldman Sachs Asset Management, and its unparalleled ability to continue growing its assets under management despite taking its own bath this summer.

There were heavy losses suffered by two of its computer-driven trading hedge funds in the month of August, Global Alpha and Global Equity Opportunities. The Global Alpha fund was down 34.9% for the year to mid-September. The Global Equity Opportunities fund was down 23% in August alone, and Goldman still arranged for it to receive a $3 billion injection of its own, and others' capital. But did the performance of these two funds adversely affect Goldman’s fundraising capabilities? Somehow, some way, the answer is no.

The black eye I have predicted has never come. During the summer turmoil, where Goldman lost billions for its clients, it was printing money in its proprietary trading operations, probably on the winning side of trades that were blundered by its hedge funds. Apparently neither ultra high net worth families or institutions care based on a new swift raise of capital.

Goldman has raised $4.5 billion for two new hedge funds. One of these is a credit hedge fund called Liberty Harbor that raised $2.7 billion. The other, GS Liquidity Partners, had $1.8 billion raised for it, and will make investments in distressed credit. On top of these two funds which have already been fundraised for, Goldman is planning to launch yet another long/short equity fund in the next few months.

Goldman has brilliantly moved Raanan Agus from his position as head of the principal strategies group in New York to run this new fund. All three of these funds will be run by manager discretion, rather than by computer-based trading as was the case with the two underperforming funds in August.

So what is it about Goldman that is allowing them to raise more money than even many of the winners of summer? Well, some might say it is just the fact that the name “Goldman” instills fear, and greed in the hearts of ultra high net worth families and institutions. Others might point to the fact that Goldman Sachs has such a strong presence in every facet of the industry and around the globe, including former Goldman exec Duncan Niederauer who recently was made President of NYSE Euronext (NYX) after the defection of another Goldman alum John Thain over to the top spot at Merrill Lynch. Either way, the way Goldman prints money, the next time I stop at an ATM I will be sure to check to see if the legal tender it dispenses displays the inscription “In Goldman We Trust.”

Disclosure: Mr. Corn is CEO of Clear Indexes LLC. He does not hold any positions mentioned. Goldman Sachs Group Inc. (GS), Merrill Lynch (MER), Bear Stearns (BSC) and NYSE Euronext (NYX)) are constituents in the Clear Global Exchanges, Brokers and Asset Managers Index licensed for the ETF (EXB). Mr. Corn owns shares of the ETF (EXB).