“Our Clients Interest Come First” – Goldman Sach’s tagline
Goldman Sach’s tagline comes to mind while coming across a story in Friday’s Financial Times (subscription required). Apparently, the white shoe investment bank raked in some $300 million in profits from the $2 billion it injected into its failing Global Alpha and GEO hedge funds along with several partners including Hank Greenberg, who was just interviewed by the SEC concerning his involvement in possible wrongdoing at A.I.G. On the other hand, the investors in the hedge fund are still reeling from losing 23% of their original investment.
This situation truly is an example of “Wall Street versus America,” which is also the title of a highly recommended book written by Gary Weiss, a former investigative reporter at BusinessWeek and prominent blogger. Gary’s book dedicates several chapters on hedge funds and opens chapter nine with the following passage:
It happens when you least expect it. You may be at an alumni reunion where people are drinking too much, or perhaps you are at a party that you know you should have skipped. A “financial consultant” or “advisor” sidles up to you near the munchies, asks a few innocent-sounding questions, and purrs gently, “So…that means you are an accredited investor! Now I have at my office a numbered offering memorandum I can send right over to you for the Millennium Partners Variable-Interest Market Neutral Alpha Partners Partnership III.”
If anyone ever says that to you, take the nearest crudités and eject them firmly in the direction of the offending words. If bodily injury results – well, any jury would call it self-defense.
Hyperbole aside, Weiss’ book is actually a balanced look at alternative investment strategies and I wrote a review of it for the Daily Deal here. But whatever the advantages or disadvantages to investing in hedge funds, they are in the business to make money for themselves - first and foremost. You, the investor, are only a means to that end.
And, above all else, hedge funds fiercely guard their privacy when it comes to investment strategy. Investors in Goldman’s hedge fund likely did not have access to the minutia of the Global Alpha and GEO funds’ strategy, so they probably didn’t have any way to effectively gauge whether to pull their money out or leave it in the fund. Goldman Sachs likely did and saw an opportunity. Careful to share the risk when it comes to their own proprietary investments, Goldman was even generous enough to share it with billionaire Wall Street friends.
Low and behold the timing was brilliant and they all made money while investors on the outside are left wishing they bought into Goldman Sachs’ shares and not its hedge fund. Just another case of “Wall Street versus America.”
This situation truly is an example of “Wall Street versus America,” which is also the title of a highly recommended book written by Gary Weiss, a former investigative reporter at BusinessWeek and prominent blogger. Gary’s book dedicates several chapters on hedge funds and opens chapter nine with the following passage:
If anyone ever says that to you, take the nearest crudités and eject them firmly in the direction of the offending words. If bodily injury results – well, any jury would call it self-defense.
Hyperbole aside, Weiss’ book is actually a balanced look at alternative investment strategies and I wrote a review of it for the Daily Deal here. But whatever the advantages or disadvantages to investing in hedge funds, they are in the business to make money for themselves - first and foremost. You, the investor, are only a means to that end.
And, above all else, hedge funds fiercely guard their privacy when it comes to investment strategy. Investors in Goldman’s hedge fund likely did not have access to the minutia of the Global Alpha and GEO funds’ strategy, so they probably didn’t have any way to effectively gauge whether to pull their money out or leave it in the fund. Goldman Sachs likely did and saw an opportunity. Careful to share the risk when it comes to their own proprietary investments, Goldman was even generous enough to share it with billionaire Wall Street friends.
Low and behold the timing was brilliant and they all made money while investors on the outside are left wishing they bought into Goldman Sachs’ shares and not its hedge fund. Just another case of “Wall Street versus America.”
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