Goldman Sachs Hedge Fund Monitor

August 24, 2009 United States: Portfolio Strategy: Hedge Fund Trend MonitorGoldman Sachs Global Economics, Commodities and Strategy Research 1

August 24, 2009

United States: Portfolio Strategy

Hedge Fund Trend Monitor

Fund re-risking: Net long exposure rises to pre-Lehman levels

We analyze 687 funds with $498 billion of long equitypositions and an estimated $346 billion of short positions.Hedge funds covered shorts in 2Q and added to longpositions, which now represent 3.7% of the US equitymarket. We recommend investors buy our “VIP List”, asfunds continue to reenter the equity market <GSTHHVIP>.

Net long exposure rises to 31%, highest since June 2008

Hedge funds have increased net long exposure to the highest levels sinceJune 2008, amidst improving economic data, stabilizing capital markets,and rising equity prices. Hedge funds are no longer net short Financials.

We estimate 7% of hedge funds have shut down since June 2008

Based on public 13-F filing information, roughly 7% of hedge funds thatfiled their holdings in June 2008 did not file in June 2009. These 7% offunds represented 4% of total hedge fund long equity AUM in June 2008.

Invest in the re-risking theme: Buy our Hedge Fund VIP List

Using the 13-F filings to identify the “stocks that matter most” to hedgefunds has proven profitable in the past. Hedge fund selling pressures haveabated, and hedge funds are likely to put more cash into their toppositions. Falling correlation suggests that single-stock investment ideaswill gain favor over a macro-driven market. Our hedge fund “VIP List”identifies the top single-stock ideas of hedge fund managers <GSTHHVIP>.

Hedge Fund net exposure has returned to pre-Lehman levels

Hedge Fund Positioning

($ bil)LongShort% Net LongPortfolioPortfolio(Net/Long)

30-Jun-07

$1,002$547

45%

30-Sep-07

938498

47

31-Dec-07

898506

44

31-Mar-08

858558

35

30-Jun-08

896606

32

30-Sep-08

616513

17

31-Dec-08

393309

21

31-Mar-09

393303

23

30-Jun-09

498346

31

Souce: Lionshare via FactSet, IDC, and Goldman Sachs Global ECS Research.See the Disclosure section of this document for important disclosures about transactions in which the Goldman Sachs Group, Inc. or an affiliate is acting as financial advisor.

David J. Kostin

(212) 902-6781 | david.kostin@gs.comGoldman, Sachs & Co.

Nicole Fox

(212) 357-1744 | nicole.fox@gs.comGoldman, Sachs & Co.

Caesar Maasry

(212) 902-9693 | caesar.maasry@gs.comGoldman, Sachs & Co.

Amanda Sneider

(212) 357-9860 | amanda.sneider@gs.comGoldman, Sachs & Co.

The Goldman Sachs Group, Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should beaware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a singlefactor in making their investment decision. For Reg AC certification, see the end of the text. Other important disclosures follow the Reg ACcertification, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analystswith FINRA in the U.S.

The Goldman Sachs Group, Inc. Goldman Sachs Global Economics, Commodities and Strategy Research

August 24, 2009 United States: Portfolio Strategy: Hedge Fund Trend MonitorGoldman Sachs Global Economics, Commodities and Strategy Research 2

Table of contents

Goldman Sachs Hedge Fund Trend Monitor 3Hedge Fund Re-Risking:

Net exposure rises to pre-Lehman levels

4Re-Risking:

Hedge Funds cover shorts in July and August

6Invest in the re-risking theme:

Buy our Hedge Fund VIP List

7“Stocks that matter most”:

The Hedge Fund VIP List

8The impact of hedge funds:

Look at the “Concentrated” positions

10Goldman Sachs S&P 500 “Concentrated” Hedge Fund Baskets 11Take a walk on the short side:

Exploring hedge fund net exposure

12A “Typical” Hedge Fund 14Sectors:

Funds increased long exposure to Financials

16Size:

Funds increase large-cap exposure after recent decreases

18Hedge Funds & ETFs:

Hedging tools, not investment vehicles

20Appendix A:

Hedge Fund data tables

21Appendix B:

Drawbacks of our Hedge Fund holding analysis

34Appendix C:

Hedge Fund Portfolio Density and Net Long Holdings

35Appendix D:

100 largest hedge funds ranked by equity assets

36Appendix E:

100 largest institutions ranked by equity assets

37Appendix F:

GS Portfolio Strategy Baskets on Bloomberg

38Disclosures 41The Bottom Line:

Our key forecasts for the S&P 500 index, recommended sector positioning and top trade ideas

as of August 20, 2009

S&P 500 Index Forecasts

2009 year-end price target

1,060

5% above current price level of 1007

S&P 500 EPS estimates2007A2008A2009E2010E

GS Portfolio Strategy top-down

$83$50$52$75

Growth (% year/year)

(6)(40)5 45

Recommended Sector Positioning

RecommendedGS Overweight / S&P 500Total ReturnGS AlphaS&P 500 SectorPositioningUnderweight (a)WeightYTD YTD

Energy

300bp12%2%(18)bp

Materials

2003312

Financials

200151516

Information Technology

1001838(1)

Industrials

100106(0)

Utilities

04313

Consumer Discretionary

0921(14)

Telecom Services

(200)3%(3)7

Health Care

(300)148(32)

Consumer Staples

(400)124(8)S&P 5000bp100%13%(35)bp

Thematic Trade Recommendations

InitiationOur best trade ideas: Portfolio Strategy thematic baskets (b)DateReturn

BUY High Operating Leverage (GSTHOPHI); SELL Low Operating Leverage (GSTHOPLO)

See Macro to Micro Shift Part II: 2H 2009 Update (20-Jul-09).

20-Jul-092.1%

BUY BRICs Sales Basket (GSTHBRIC); SELL S&P 500

See Portfolio Passport: Coming to America (5-Nov-08).

4-May-096.6%

BUY Hedge Fund Very-Important-Position (VIP) list Basket (GSTHHVIP); SELL S&P 500

See Hedge Fund Trend Monitor: Fund (24-Aug-09).

24-Aug-09-

OverweightNeutralUnderweight

(a) Sector weightings last rebalanced on 20-Jul-09. (b) US Portfolio Strategy baskets may be found on Bloomberg by typing <GSSU5>. The Bloomberg page providesreal-time basket performance and current basket constituents. To obtain access to our baskets on Bloomberg, please contact your Goldman Sachs salesperson. Theability to trade these baskets will depend upon market conditions, including liquidity and borrow constraints at the time of trade.

Source: FactSet and Goldman Sachs Global ECS Research.

August 24, 2009 United States: Portfolio Strategy: Hedge Fund Trend MonitorGoldman Sachs Global Economics, Commodities and Strategy Research 3

Goldman Sachs Hedge Fund Trend Monitor

This

Hedge Fund Trend Monitor

is part of a publication series we inaugurated inearly 2006. This report focuses on hedge fund positions at the start of 3Q 2009and the meaningful changes from the previous quarter.

The report is based on ananalysis of 687 hedge funds with $498 billion of long stock-specific equity assets. Weinclude a 50-stock “typical” long/short hedge fund portfolio and compare hedge fundholdings and mutual fund holdings by size and sector. This quarter we focus on rising netlong exposure, short covering, and increasing hedge fund ownership. We recommendinvestors buy our “VIP List” of the top hedge fund investment ideas <GSTHHVIP>.

Net long exposure rises to 31%, highest since June 2008

Hedge funds have lifted their net long exposure to the highest levels since June 2008.

Improving macroeconomic data, stabilizing capital markets, and rising equity prices are alllikely contributors to hedge funds’ increasing risk appetite. As of June 30, 2009, hedgefunds appear to be 31% net long, returning to “pre-Lehman” levels of summer 2008.

Hedge funds are no longer net short Financials.

After holding an aggregate net shortposition in Financials for five quarters since 1Q 2008, hedge funds resumed a net longexposure to the sector in 2Q 2009. Hedge funds rising net exposure to Financials resultedfrom significant open market participation in equity capital raises, as well as short covering.

Hedge funds own 3.7% of the US equity market

Hedge fund ownership of the US equity market increased for the second consecutivequarter, rising to 3.7% in 2Q 2009 from a low of 2.9% in 4Q 2008.

Hedge fundownership of Financials has hit an all-time high at 3.7% of the sector’s capitalization.

We estimate that 7% of hedge funds have closed since June 2008

Based on public 13-F filing information, roughly 7% of hedge funds that filed holdingsin June 2008 did

not

file in June 2009.

These 7% of funds represented 4% of total hedgefund long equity AUM as of June 30, 2008. We view these data points as positive for thehedge fund industry, given some investors’ fears that many more funds would close.

Invest in the re-risking theme: Buy our Hedge Fund VIP List

Using the 13-F filings to identify the “stocks that matter most” to hedge funds has provenprofitable in the past. Hedge fund selling pressures have abated, and hedge funds arelikely to put more cash into their favorite positions. We believe stock return correlation willcontinue to decline towards historical averages, suggesting that single-stock investmentideas will gain favor over the recently macro-driven market. Our hedge fund “VIP List”identifies the most important single-stock positions of hedge fund managers <GSTHHVIP>.

Sector Gross and Net Exposure: Key changes during 2Q 2009

Hedge funds have lifted their net long exposure to the highest levels since June 2008.

Improving economic data, stabilizing capital markets, and rising equity prices are all likelycontributors to hedge funds’ increasing risk appetite. As of June 30, 2009, hedge fundsappear to be 31% net long, returning to “pre-Lehman” levels of summer 2008. Hedgefunds are no longer net short Financials. After holding an aggregate net short position inFinancials since 1Q 2008, hedge funds resumed net long exposure to the sector in 2Q 2009.