NEW YORK (Bloomberg) — Goldman Sachs Group Inc. proprietary traders who created a hedge fund within the firm in 2007 have generated a return of about three percent this year, beating the industry average, people briefed on the gain said.

Goldman Sachs Investment Partners, composed of former employees of the principal-strategies team led by Raanan Agus and Kenneth Eberts, manages more than $7 billion. The fund gained about 26 percent last year after losing more than 18 percent in 2008, the people said. Andrea Raphael, a spokeswoman for New York-based Goldman Sachs, declined to comment.

GSIP's performance may help other members of the proprietary trading group, Goldman Sachs Principal Strategies, as they pursue work outside the firm. Pierre Henri Flamand, who succeeded Agus in running principal-strategies, left in March and is starting a hedge fund called Edoma Capital Partners LLP. The team he left behind is being disbanded to comply with US rules aimed at curbing risk, two people with knowledge of the decision said earlier this month.

Morgan Sze, the Hong Kong-based partner who took charge of principal-strategies after Flamand left, is considering raising money for a new hedge fund focused on Asia, according to people familiar with the matter. Perella Weinberg Partners LP and KKR & Co. are among the firms that are in talks to hire members of the US principal-strategies group led by Bob Howard, two people briefed on the negotiations said last week.

The hedge fund industry posted an average return of 1.65 percent this year through August, 20 percent last year and lost a record 19 percent in 2008, according to Chicago-based research firm Hedge Fund Research Inc.

Goldman Sachs Investment Partners started with about $7 billion, the biggest start-up in the hedge fund industry, and had climbed to $7.5 billion as of October 2009. The company's investment in the fund accounted for about 35 percent of assets as of October, according to fund marketing documents obtained by Bloomberg News.

The fund's investments include stocks, credit, distressed securities as well as hard-to-sell assets, the documents show.

Agus, 42, joined Goldman Sachs in 1993 in the equities arbitrage group, co-ran the principal-strategies group and became head of the group until 2007. Eberts, 43, had worked on the equity derivatives desk from 1992 to 1998, when he moved to the principal strategies group.

Goldman Sachs, which says about ten percent of its revenue comes from proprietary trading, is grappling with a provision of the Dodd-Frank financial-overhaul act that prohibits banks from risking capital by betting for their own accounts.

Goldman Sachs Principal Strategies is housed within the firm's equities division and traces its roots to the risk arbitrage team once led by Robert Rubin, 72, who later became US Treasury secretary. Alumni of the division who have left to start their own hedge funds include Frank Brosens at Taconic Capital Advisors LLC and Thomas Steyer at Farallon Capital Management.