Goldman Hedge Fund Investors Pull $3 Billion

Market reaction to Goldman's star performance, however, was surprisingly negative, with investors trading down shares of the New York investment bank to nearly 5%, below $200. Other bank stocks also were down in Tuesday trading.

Similar to Lehman Brothers(LEH Quote - Cramer on LEH - Stock Picks), Goldman faced the worst November in fixed income trading the market has seen in more than 20 years, according to traders. CNBC reported on Tuesday that Goldman might have experienced historically poor performance in its fixed-income business.

A spokeswman for Goldman did not immediately returned a call for comment.

Credit widening in November meant that the price of hedging instruments, such as so-called credit default swaps used to insure against loss in a security, became more expensive while the underlying securities prices dropped, causing basic arbitrage trades that look to maximize on those differences to go haywire.

Goldman saw principal investments drop 26% to $1.03 billion. Trading and principal investments still rose 4% from a year earlier, but fell 16% from the third quarter to $6.93 billion. Lehman's capital markets business dropped 10% to $2.7 billion in the quarter, and fixed-income revenue plunged 60% to $860 million.

All the troubles in its quant hedge funds and fixed income didn't prevent Goldman from leveraging from its other business lines and posting solid returns in other areas, including equity trading.

The firm is also planning to raise additional cash for a $10 billion hedge fund, known as Goldman Sachs Investment Partners, set to open Jan. 1., according to reports.

While Goldman is happy to scale back in its other funds, this planned hedge fund could debut as the largest in history, notes Bloomberg.

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