For years, long-only equity and fixed-income managers
scrambled to relabel their investment approaches as team-oriented following
departures or retirements of household names such as Peter Lynch at Fidelity
Investments or Mr. Gross at Pacific Investment Management Co. In
contrast, hedge fund companies have, for the most part, deliberately kept the
focus on their iconic founders, even as they built their infrastructure to
accommodate billions from institutional investors.
The most recognizable hedge fund superstars tend to be
activist or event-driven managers who have resorted to very public media
campaigns to effect changes that will increase shareholder value in the
companies they own.
Among the high-visibility hedge fund principals:
- John A. Paulson, president, director and
portfolio manager, Paulson & Co., with $22.9 billion under management;
- Daniel S. Loeb, founder and CEO, Third Point
LLC, $14.8 billion;
- William A. Ackman, CEO of Pershing Square
Capital Management LP, $11.6 billion;
- David M. Einhorn, president and director,
Greenlight Capital Inc., $11.4 billion; and
- Barry Rosenstein, managing partner and
co-portfolio manager, JANA Partners LLC, $10.7 billion.
The “star mentality is still very much evident” in the hedge
fund industry and is played out when portfolio managers leave a larger manager
to start their own companies and try to attract investors. Among the
star-powered spinouts that observers said have attracted attention and inflows
is Three Bays Capital LP, founded by Matthew K. Sidman, managing partner and
chief investment officer. Three Bays' assets grew to $1.4 billion as of April 1
from $500 million at the beginning of the year, according to its SEC ADV
For many hedge fund firms, especially large companies like Paulson
& Co., the growth of their institutional client base over the past decade
required a huge increase in investment and risk management, administration,
client service, marketing, legal and compliance processes. More institutional
money has also required deeper due diligence by internal investment teams,
consultants and hedge funds-of-funds managers into the support network beneath
the star investor.
Kenneth J. Heinz, president of industry tracker Hedge Fund
Research Inc., Chicago, noted that hedge fund companies now put far more
emphasis on multiple layers of management — investment and operational — than
they did 10 years ago.
Some funds try to “obscure the fact that the star is no
longer the key player in managing the fund,” while others are “more
straightforward about the evolution of the organization” which in fact may be a
better strategy if the firm hopes to outlive the founder's active participation.
Succession planning — or the lack thereof — can be a pivotal
factor for investment consultants and investors debating an investment with a
particular hedge fund company.
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