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Goldmans Hedge Fund Sweetener Revealed

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by Yves Smith and Felix Salmon
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Aug 15 2007 12:00am EDT

Goldman's Hedge-Fund Sweetener Revealed

We bloggers like to speculate, and on Monday I hazarded a guess that the don't-call-it-a-rescue injection of liquidity into Goldman Sachs's Global Equity Opportunities hedge fund would reward investors with lower fees than would normally be available to them. Specifically, I guessed that Goldman wouldn't charge a performance fee until the fund hit its high-water mark.

I was half right.

Bloomberg's Christine Harper reports today that the fund's 2% management fee is being waived entirely, and that the performance fee is being cut in half, to 10%. On top of that, the performance fee doesn't kick in for the first 10% of appreciation – essentially the high-water-mark trick that I was talking about.

In fact, this deal could end up being significantly sweeter for investors than the deal I guessed they were being offered. It's not clear from the Bloomberg article, but it seems the 2% management fee is being waived entirely, not just for the initial period of appreciation but for as long as the investment is kept in the hedge fund. That's huge.

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