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The formerly high-flying Global Alpha told investors it lost 3.4 percent in the first four months of 2007, after a six percent loss in 2006, according to the New York Post. In 2005, the multi-strategy hedge fund gained 40 percent, attracted more than $3 billion of new cash, and reportedly generated $700 million in fees.

Hedge fund fees - and employee compensation - are closely pegged to near-term returns. As a result, better-performing funds might seek to raid the Goldman unit, rival fund managers told the Post. One fund manager said that Goldman might in turn find it worthwhile to offer "selective compensation guarantees" to avoid a flurry of departures.

Global Alpha's two co-managers and their most senior lieutenants aren't likely to bolt, the newspaper says. "For mid-level and promising junior-level fund employees, however, the prospect of working for sharply less than their rivals at other funds means they are susceptible to being poached."

Goldman's challenge echoes that of UBS, which announced the shutdown of its Dillon Read hedge fund on May 3 after a first-quarter loss crimped the parent's net income. UBS said it planned to continue employing most of Dillon Read's 250 professionals. But recruiters and Wall Street analysts predicted the bank would have to compete with other hedge funds for the allegiance of the dismantled unit's "high achievers."

A key takeaway from both stories: In today's white-hot market for hedge fund talent, being associated with a troubled fund needn't be a black eye on your resume. Indeed, such incidents can make a fund employee more marketable by temporarily raising their profile among rival funds and headhunters.