Massachusetts State Pension Fund Dumps Goldman Fund on Questionable Promotion

[The below is courtesy of the good people at AlphaLetters:]

According to FINalternatives, despite the poor performance of Goldman’s (GS) flagship Global Alpha, which lost 40% in 2007, Mark Carhart (the co-portfolio manager of Global Alpha), is being promoted to co-chief investment officer of Goldman’s quantitative equity group, with eventual plans to succeed his co-chief, Robert Jones. These changes were not warmly welcomed by one top client: the Massachusetts State Pension Fund terminated its contract to run a $1.2 billion “enhanced equity” portfolio for the pension fund. Part of these changes will be the merger of Carhart’s group into the larger quantitative equity group (manages around 120 people) and the firing of 20 people in the process.

According to CNNMoney.com, the Massachusetts State pension Fund terminated its contract for $1.2 billion contract because of their board of directors' alleged discontent with performance and with staff changes. They expressed that Goldman had failed to outperform the S&P500 index and they will now temporarily invest money in passive funds that track indices.
They were uncomfortable with the changes where Mark Carhart is expected to eventually head the merger of the quantitative strategies group and Goldman's quantitative equities group.

According to ReportonBusiness.com, although US Financials may look too cheap to pass up, strategists at Merrill Lynch are wary stocks are "value traps" because they have further to fall. They believe two industry groups were heavily hit, financial and consumer discretionary, and only consumer discretionary is beginning to look attractive. According to Subramanian (quantitative strategist at Merrill Lynch), a typical Down cycle lasts around 11 months, Financials are only at their 5th month and thus it's too early to buy into financials. However, she sees signs of life in the discretionary sector.

According to PIonline.com, the most profitable strategy in the fourth quarter of 2007 is shorting equities with average performances of 13.23%. According to Morningstar, outperformance of emerging market specialist funds is due to good returns from Russia, India and China and shorting.

- Q4 performance numbers for some quant funds under the category of “Global non-trend funds”:

Balestra Capital Partners 40.42%

Clarium 30.89%

Quantitative Global Fund (3X) 28.73%