The big banks had a lousy first quarter. Hedge funds are getting pummeled. Regular institutional investors are flailing.
And they're all dragging each other down.
Goldman Sachs CFO Harvey Schwartz said on a recent conference call that nearly 80% of the largest active US equity mutual funds underperformed their benchmarks in the first quarter.
That hurts firms like Goldman, which have big equity businesses. In particular, slowing hedge fund activity weighed on the firm in the first quarter.
"We've had a big commitment to the hedge fund industry across equities and fixed income for a long time - we're always rooting for their performance," Schwartz said.
"In periods like we went through in the first quarter, obviously they have a tendency to derisk, and it reduces trading velocity over many months, although there may be, for example, an active day from time to time."
Essentially, as hedge funds hit hard times, they start to trade less. That means lower revenues for the banks they trade with.
And as Schwartz points out, Goldman's hedge fund business is an important one to the firm.
Hedge funds saw nearly $15 billion in investor funds pulled in the first quarter - their worst withdrawals in years, according to Hedge Fund Research.
Goldman reported miserable first-quarter earnings, with revenues hitting their lowest point since 2006. Trading revenue was down 37% from last year, with equities-trading revenues down 23%.
Equities revenues were down more significantly at Goldman Sachs than at rivals JPMorgan (where they were down 5%), Morgan Stanley (down 8.7%), Bank of America (down 11%), or Citi (down 19%).