San Fransisco (MarketWatch) – The liquidation of a big hedge fund or investment bank trading portfolio is causing havoc in some parts of the hedge fund business, according tomanagers and investors.

Black Mesa Capital, a hedge fund firm that uses computer models to track down investment ideas, has told investors that at least one very large hedge fund or investment bank is liquidating “massive” trading portfolios, according to a letter the Santa Fe, NM-based firm sent to investors on Wednesday.

That’s causing disruptions and triggering big losses among other so-called market-neutral hedge funds, Black Mesa said in its letter, a copy of which was obtained by MarketWatch on Thursday.

“Clearly, something is amiss in the markets that few in our strategy, if anyone, have experienced before,” Black Mesa’s managers Dave DeMers and Jonathan Spring wrote. DeMers declined to comment on Thursday.

The firm’s hedge fund, which has about $1.9 billion in long positions and $1.9 billion in short positions, is down roughly 7.5% this month through Aug. 7. It could be down as much as 10% since then, Black Mesa noted.

A hedge fund run by Goldman, called the North American Equity Opportunities fund, has sold some of its positions recently, the Wall Street Journal reported on Thursday. Goldman’s largest hedge fund, the Global Alpha fund, has suffered losses recently and may also be selling positions, according to other published reports this week. A Goldman spokesman declined to comment on Thursday.

The Global Alpha fund, which manages almost $10 billion, is a so-called quantitative fund, using computer models to track down investment opportunities.

Such “quant” funds are popular among some hedge fund investors. Many use a market neutral strategy, which aims to balance long positions with short trades, or bets against securities. Others are so-called statistical arbitrage funds, which analyze the historical relationships between related securities and trade when those relationships get out of whack.

Many players in this part of the hedge fund business have similar positions and use lots of leverage, or borrowed money, to increase their bets. However, that also magnifies any small losses. Some of these hedge funds also offer relatively short redemption periods, allowing investors to take their money out every month, with 30 days notice or less.

So if losses trigger investor redemptions, these funds may have to sell lots of their positions. That, in turn, puts more pressure on the historical relationship between related securities, handing more losses to other hedge funds in the space.

If such positions are sold by lots of managers at the same time, the most leveraged funds get hit the hardest, possibly forcing big liquidations of portfolios, which triggers a chain reaction.

One hedge fund investor who didn’t want to be identified said on Thursday that the current turmoil is reminiscent of the collapse of Long-Term Capital Management in 1998. That giant hedge fund had some arbitrage positions based on the historical relationship between related securities.

Alistair Barr is a reporter for MarketWatch in San Francisco.