The Goldman Sachs Group, Inc. says that the market is undervaluing certain assets owned by its quantitative strategies hedge funds. So, it is bolstering one of those funds, along with other investors, to the tune of $3 billion.

“Many funds employing quantitative strategies are currently under pressure as recent conditions have resulted in significant market dislocation,” Goldman said. “Across most sectors, there has been an increase in overlapping trades, a surge in volatility and an increase in correlations. These factors have combined to challenge many of the trading algorithms used in quantitative strategies.”

“We believe the current values that the market is assigning to the assets underlying various funds represent a discount that is not supported by the fundamentals,” it added.

Within its alternative asset platform, Goldman Sachs Asset Management manages Global Equity Opportunities, an equity long/short quantitative strategy fund. Goldman and various investors, including C.V. Starr & Co., Inc., Perry Capital LLC and Eli Broad, are making a US$3 billion equity investment in GEO.

“We consider this an attractive investment opportunity. Existing investors in the fund will also have the opportunity to participate. The investment will also provide the fund with more flexibility to take advantage of the opportunities we believe exist in current market conditions,” it said.

The fund had a net asset value of approximately $3.6 billion before the equity investment. “Given the market dislocation, the performance of GEO has suffered significantly,” Goldman said. “Our response has been to reduce risk and leverage.”

Goldman Sachs Asset Management also manages Global Alpha, a multi-strategy hedge fund and the North American Equity Opportunities Fund, an equity long/short quantitative strategy. “The market dislocation impacting equity quantitative strategies has adversely affected NAEO’s performance and has been a key contributor to Global Alpha’s disappointing performance,” it noted. “We have reduced risk and leverage in these funds as well. At their current levels of equity capital, we believe the funds are positioned to actively pursue market opportunities.”