Goldman Sachs' Global Alpha hedge fund has gained 19 per cent this year, after seeing an erosion of almost 40 per cent of its value in 2007. It's spring back through mid-June is evidence of improved returns for quantitative funds that rely on computers to pick trades. A number of investors exited similar strategies during 2007 while the credit crunch was at its peak.

Global Alpha is run by Mark Carhart and Raymond Iwanowski. The fund dipped to around $2.5 billion from its peak of $12 billion, while Goldman's Global Equities Opportunities Fund dropped to $1 billion in assets from a previous $6 billion. Goldman manages around $146 billion in alternative assets, which include private equity and around 20 hedge funds.

Goldman's Global Equities Opportunities Fund needed a $3 billion cash infusion last year, and has gained around seven per cent according to sources.

Robert Litterman, chairman of Goldman's quantitative investments said at the GAIM International hedge funds conference at Monaco on 19 June, ''One of the lessons learned is we cannot be as big as we were. We couldn't get out and if we had it would have made it worse. We had to ride it out.'' Losses at Global Alpha were seen as high-profile since a number of senior and former Goldman executives had sunk their own money into the fund, boarding the boat with some of Goldman's wealthiest clients.

In his speech in Monaco, Litterman said the dismaying performance in 2007 was on account of excessive amounts of hedge fund money that was also being traded according to mathematical models. Apparently, since all quantitative hedge funds use similar computer programs to pick their companies, and most often use the same triggers to determine when to trade, the market suddenly developed a skew on account of too many players with the same strategies. Consequently, what had been positive returns during previous years quickly turned down during 2006 and 2007.

The quantitative funds have flourished, hedge funds have been mostly flat through May, marking possibly the words start to the year in 20 years for the $1.9 trillion industry. The shake out in 2007 has left only investors committed to the strategy, so quantitative fund managers are not witnessing the same volume of redemptions as funds with other strategies. Goldman, which used to use 5 per cent of proprietary trading ideas around last August, now uses them for around 35 percent of its positions.

The quantitative Alpha fund's rise this year being attributed to a drastically smaller pool of money.