Goldman Sachs is using $2 billion of its own money to fund a $3 billion bailout of a fund that acts on computer analysis
Goldman Sachs has been forced to inject more than $2 billion (£1 billion) of its own money into a $3 billion emergency package to rescue one of its hedge funds from "significant market dislocation".
The bank acknowledged today that its Global Equity Opportunities fund, which has a $3.6 billion asset value, had received investment from a number of parties including Perry Capital, a hedge fund, and Eli Broad, an American billionaire and philanthropist, to "reduce risk and leverage".
But Goldman admitted to investors today that the rescue would involve $2 billion of its own money, adding that the Global Equity Opportunities fund had “suffered significantly".
Goldman Sachs's Global Alpha and North American Equity Opportunities funds have both had to be given cash injections, but the investment bank declined to reveal how much had been pumped into the funds.
The party's over
Cheap credit has led to a torrent of takeovers with little regard to risk. Last week the market woke up
Global Alpha's returns have fallen by 27 per cent this year but Goldman Sachs denied that it would unwind the fund.
The bank laid the blame at the recent market volatility and its impact on "quantitative" funds that use complex computer programmes and risk strategies to determine where to invest billions of dollars of assets.
Quantitative funds invest in both debt and equity.
In recent weeks, debt markets have stagnated as banks have been left with huge chunks of borrowings they have been unable to syndicate to other lenders while global equities took a battering last week
Panic selling spread throughout the markets, leaving quantitative funds battered from both angles.
Goldman Sachs said: "We believe the current values that the market is assigning to the assets underlying various funds represent a discount that is not supported by the fundamentals."
In the wider markets, Wall Street rebounded today after the Federal Reserve and other central banks added more cash to their banking systems, helping investors set aside some concerns about credit tightness.
The New York Fed, which carries out the central bank’s market operations, announced minutes after the opening bell $2 billion in overnight repurchase agreements.
The move, following similar injections by the Fed and other central banks last week, appeared to placate Wall Street for now.
In midmorning trading, the Dow Jones industrial average rose 55.03, or 0.42 per cent, to 13,294.57.
Shares in Goldman rose $2.90 to $183.39.
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