The problem with being super-smart is that when you become dumb it is more obvious. The Goldman Sachs (GS) Global Alpha fund, pride of the bank and the hedge fund industry, is now down 37% over the last year, and fell 23% in August.
Maybe the people who run the fund are too smart for their own good. They made bets on “everything from the Australian dollar, the Norwegian stock market and Japanese government bonds,” according to The Wall Street Journal. The success of the fund supposedly came from the fact that it was flexible and nimble in picking investments.
Global Alpha management found out the hard way that there were other smart fund managers. Many hedge funds started to target the same investments as they all viewed them as promising. But, when they started to head South too many funds tried to exit at the same time. Prices fell of the cliff.
Perhaps the managers of the Goldman fund should have been a little less shrewd. They might have stayed away from markets that the smart money got into and saved themselves a bunch of money.
Douglas A. McIntyre