Goldmans Sachs operates one of the largest funds of hedge businesses in the world . In this interview with Hedgeweek, Hugh Lawson outlines the scale of the business and its strategy in Europe.
HW: What is the scale of the funds of hedge funds business at Goldman Sachs?
HL: We currently operate across North America, Europe and Asia with US$6.5 billion in assets under management in funds of hedge funds across all main sectors of the hedge fund universe.
HW: What is your target market in Europe?
We operate in all the major markets in Europe but concentrate on large institutions and ultra-high net worth individuals. Our mission is not to be the biggest, but to be the best institutionally focused funds of hedge funds manager.
HW: How are you tackling the European market?
HL: The European market is diverse, with national markets that are evolving at differing speeds, so we look at the requirements of each client on a case-by-case basis- each client is a new challenge.
In certain markets, such as Germany, France and Italy, regulatory requirements add to the challenges in meeting a client’s hedge fund investing requirements.
But whatever the regulatory context in which investors operate in Europe it is clear to us, from an investment perspective, that more and more institutions in Europe are now seeking active risk for their portfolios, and hedge funds are one way of providing this.
Many European investors who experienced the bull market of the ’90s may be unduly “index” concentrated and now feel that they need to increase their active risk. In so doing, they will substitute market Beta for the prospect of investment Alpha.
They are seeking answers to a myriad of questions such as: How much active risk should they take? How do they measure and track it? How do they model it?
Our task is to find the right answers and solutions to these questions within the hedge funds arena.
HW: Can you provide an example of a key opportunity you are currently tackling in Europe?
HL: We are working on a number of significant situations in Europe. The most striking feature is their diversity – they cover the gamut, from insurance companies, to banks, to pension funds, to charities.
HW: What are the prospects for retail funds of hedge funds in Europe?
HL: Anybody who really wants to launch into the retail market can probably figure out a way to do so. The real challenge is on the client side – do retail clients really understand what they are buying, do they understand the risks and limitations of the funds of hedge funds product? These questions apply to all products in their portfolios, not just hedge funds.
HW: What investment trends do you see in the hedge funds sector?
HL: Over the past few years, we have seen many hedge fund managers reduce the level of risk they are taking. In many cases, this risk reduction was appropriate. However, some investment risk must be taken for investors to have the prospect of a return. A worrying trend would be if managers as a group took too little investment risk. The key is to take an appropriate degree of investment risk – know what it is and diversify its sources.
Background Note: Goldman Sachs Asset Management is the asset management arm of The Goldman Sachs Group, Inc. (NYSE: GS), which manages US$346 billion as of 28 February 2003. Goldman Sachs Asset Management has been providing discretionary investment advisory services since 1989 and has investment professionals in all major financial centres around the world. The company offers investment strategies across a broad range of asset classes to institutional and individual clients globally. Founded in 1869, Goldman Sachs is a leading global investment banking, securities and investment management firm.
