Goldman Sachs Group Inc., known for its Midas touch, again found itself on the defensive Thursday amid speculation that two of its hedge funds had fallen sharply in recent weeks and were selling down positions.

Goldman on Thursday insisted it was business as usual at Global Alpha, its flagship $9 billion macro hedge fund, amid a third day of speculation the investment bank was selling off parts of its portfolio.

Meanwhile the Wall Street giant faced speculation that a second hedge fund, North American Equity Opportunities, has also been whipsawed by recent market turbulence markets and forced to sell down positions.

Global Alpha, which fell by 6 percent last year, has been the subject of talk for several days that it had been hammered by volatile markets. Goldman on Wednesday denied talk that it was liquidating the fund and declined further comment.

As of a few days ago, the Global Alpha fund was down about 16 percent this year, including a 12 percent drop in the past two weeks, a source familiar with the fund said.

North American Equity Opportunities, which started the year with about $767 million in assets, was down more than 15 percent this year through July 27, a person familiar said.

Goldman, later Thursday, declined to comment on the North American Equity Opportunities speculation.

Equity Opportunities is a market neutral stock fund that takes long and short bets. The smaller fund, like Global Alpha, relies on computer-driven quantitative trading models.

BUMPY PATCH

Goldman joins other investment banks managing hedge funds that have struggled amid recent market turbulence.

Swiss bank UBS (UBSN.VX: Quote, Profile, Research) was forced to shut down Dillon Read Capital Management less than two years after its launch following losses on mortgage markets. Bear Stearns Cos. (BSC.N: Quote, Profile, Research) shares, and its reputation, were slammed as two of its mortgage funds suffered losses, outflows and then filed for bankruptcy.

Earlier Thursday, French bank BNP Paribas (BNPP.PA: Quote, Profile, Research) froze 1.6 billion euros ($2.21 billion) worth of funds, citing problems over U.S. subprime mortgages.

Analysts said hedge fund declines won't have a major impact on earnings at a firm as large and diversified as Goldman. Still, the declines raise worrying questions about Goldman's largest and most mysterious business: securities trading.

The main threat is on the trading side. That has always been the black box at Goldman that keeps their multiple down, said Les Satlow, a portfolio manager who helps invest $450 million at Cabot Asset Management. That's the kind of thing that makes investors anxious.

Goldman shares were down 6.3 percent in afternoon trading and were 23 percent below their 52-week high. At that price, the stock fetches just 8.2 times forward earnings.

Global Alpha has long been a top performer, fueling growth in Goldman Sachs Asset Management and making the bank one of the world's largest hedge fund managers. Over the years, the fund fattened the wallets of Goldman insiders who invest in it.

Run by 40-year-olds Mark Carhart and Raymond Iwanowski, Global Alpha uses computer models to make bold bets on stocks, bonds, currencies and commodities worldwide. The fund has had wild swings -- it returned nearly 40 percent in 2005 -- but has delivered positive returns since its inception in 1995.

Weak performance at Alpha has put a dent in Goldman's results in recent quarters. In the first quarter, Goldman's incentive fees from asset management fell 78 percent from a year earlier, to $23 million, reflecting poor performance.

In the second quarter, incentive fees fell by 87 percent.

Outside investors responded by pulling out. Goldman's net flows of money into alternative investments were nil in the second quarter, compared with $6 billion received a year ago.

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