Commenter tinbox has an
interesting take on the news that Goldman Sachs is injecting liquidity into
its own hedge funds:
It’s wildly implausible that anyone looked at Goldman’s fund and suddenly
decided it is the best investment opportunity on the planet. That simply didn’t
happen. Funds down 15%+ do not attract new investors for a whole variety of
reasons and this self-serving announcement addresses none of them.
Well, there’s at least one good reason why a fund down 15%+ should address
new investors, and it’s called the high-water
mark. If you think that hedge funds are a good investment, you think that
they’re a good investment after they’ve taken out their 20%-of-the-profits
performance fee. Which means that they’re a really good investment
if you don’t have to pay that fee for the first 35% that your investment goes
up.
If the Goldman funds are down 26% from their high-water mark, then they will
have to rise more than 35% from their present levels just to get back to it
and start earning performance fees again. Which makes investments in these funds
some of the cheapest hedge-fund investments available right now.
I reckon there’s a very good chance that the $3 billion of liquidity being
injected into Goldman’s funds won’t pay any performance fees unless and until
those funds reach their high-water mark. If that’s the case, I imagine that
quite a few hedge-fund investors would be extremely interested in buying cheap
exposure to what has historically been a very high-performance fund.