It's Not 2008, It Is 2007: Goldman Global Alpha Just Blew Up All Over Again

Tyler Durden's picture

Those who have been around for more than one trading generation (which in the old days was 3-4 years, but in the current centrally-planned, vacuum tube-traded times, is more like 3-4 months), will distinctly recall that the first rumbling of the financial crisis started not with the bankruptcy of Lehman, or even the handoff of Bear (and its massive silver legacy short) to Jamie Dimon, but in August 2007, when days after the market hit its all time high, something went massively wrong in the quant market segment (nobody still knows what it was but many speculate that is was simply every algo being on the same side of the trade and trading out all at the same time following the blow up of the Bear Stearns hedge funds). What the first week of August 2007 was notable for, in addition to massive losses for such legendary quants as RenTec (very well described in Scott Patterson's book titled appropriately enough "The Quants"), was that for the first time ever, the infallible Goldman Sachs... fell. Specifically, its heretofore mythical Global Alpha quant fund, which had the mythical allure of a 33rd degree Freemason dinner, imploded, and crashed, forcing the end of a quant generation, and the beginning of the end of Goldman's aura of invincibility. As Bloomberg recalls those August 2007 days: "Goldman Sachs Group Inc.'s $8 billion Global Alpha hedge fund has fallen 26 percent so far this year, a decline that may prompt more investors to withdraw their money, according to people familiar with the fund...On June 26, Goldman said Eric Schwartz, co-head of asset management since 2003, would step down in the next few months and leave Peter Kraus in charge of the fund unit. Global Alpha decreased 8 percent during the last full week of July and was down 16 percent from the beginning of January through Aug. 3. There is an Aug. 15 deadline for Global Alpha investors who want to redeem money on Sept. 30." Well, the reason we bring all of this up, is because unlike what everyone claims, it is not 2008.... it is 2007 all over again. To wit: Goldman Global Alpha just blew up, for the second and probably last time.

From Reuters:

Katinka Domotorffy, the head of Goldman Sachs Group Inc's (GS.N) quantitative investment strategies group, will leave the bank at the end of the year, according to an internal memo, as one of its biggest hedge funds continues to suffer from weak performance.

 

Domotorffy is a Goldman veteran who joined the bank in 1998 as a portfolio manager and researcher.

 

She took on her most recent title as chief investment officer and head of QIS within the asset management division in 2009 when Mark Carhart and Raymond Iwanowski, co-founders of Goldman's prominent Global Alpha Fund hedge fund, retired.

 

The Global Alpha Fund is down 12 percent this year, according to sources familiar with the matter.

If 2007 was any indication, and it was, every terminal event for Global Alpha is a harbinger of many, many bad things coming. What is just as ominous is that if Goldman's quant fund has now blown up, then there are tens if not hundreds of other quant funds, and otherwise, that are completely defunct and liquidating, but simply choose to keep quiet.

As we predicted a month ago, the rot will very soon stink up the place, but little did we expect that it would start at the head.

Look for many more such stunner announcements in the days to come, and also, since it is now 2007 all over again, it may just be the case that Goldman's dramatic S&P 500 target cut, just discussed, will actually come true much faster than anyone expects.