Hedge Fund Titans - The Good, the Bad and the Ugly...

Ok I am biased.  I have been associated with the hedge fund industry since the early 90's. In the early days I was a complete believer in true active portfolio management verses long only asset managers who were glorified benchmark huggers. I was proud to work for a hedge fund manager, trying our best to make money for our clients. We were driven by passion of investing in an unconstrained manner. I guess we were too successful; as our returns compounded investors money verses the equity market more money flowed into the industry and more institutional clients came. This growth led to our industry developing a breed of hedge fund titans, most were great investors or traders and their fortune and fame started getting public attention. Their firms grew exponentially in line with their wealth and unfortunately media attention. So today as I assess the last few month news in the hedge fund industry I feel the need to both to defend and attack these investment gurus. Lets start with the Ugly. It is not so much a person but a situation that is developing. SEC's relentless assault on Steve Cohen and SAC is an ugly situation. It is a data point that should worry the whole industry but especially large firms. Their is a clear message: the regulator is worried about the power of large hedge funds. Do not get me wrong, I am not saying that some form of insider trading did not happen at SAC or that the firm should not be fined and improve their internal systems but their attack on Steve Cohen is bordering on vindictiveness. There is no doubt SAC is a competitive environment but do you really believe this firm is any worse than the likes of Deutsche Bank, JP Morgan or Goldmans. Did the regulator play such hard ball with JP Morgan when there CIO office racked up immense losses that hit shareholders that include pension funds. Or did the regulator really go after Goldmans when they breached the principals of fair treatment of clients when they were selling structured credit products to insurance companies and then helping Paulson structure short credit products with exactly the same positions in them. So the message is simple, beware big hedge funds the SEC is after you. If I were Izzy Englander at Millenium I would be nervous. His smoothed returns on the back of Millenium's variable expenses could be on their radar screen. Now for the bad. You see money is a funny thing, it can lead you to take yourself too seriously. Once that happens and your ego inflates you can be a victim of your own propaganda. Paul Tudor Jones is a great investor. Hi style is one I admire as a fellow macro trader. But his comments about women, which are completely inaccurate statically anyway,  show a ego that only a man who believes he is verging on immortality would make. He also made comments about the lack of hedge fund talent. Here I would tend to agree with him but Tudor as a firm is as guilty as anyone. You see I would not be offered a job at Tudor as a macro manager, even though I have outperformed over the last 15 years. Why? Because I am not educated in the Ivy league, I do not have a mathematics or science degree. I learnt to trade the old fashioned way, by losing money and then working out how to make money. This takes hubris which many graduates who get a job at hedge funds do not have. They are as egotistic as Paul Tudor Jones but without the trading skills or experience. So Mr Jones if you really want to find hedge fund talent, employ me and I build a desk for you the old fashioned way: more about the individual's passion for trading, willingness to learn than their school. I finally and rightly so the good. You see the hedge fund industry still has a lot of good in it. Ray Dallio and his firm Bridgewater is an example as the largest hedge fund manager. His strong moral code, his unique investment philosophy, has led to great returns and he has developed a firm with a great working environment. Likewise Daniel Loeb. Sometimes confrontational but never for the sake of it. In Europe Michael Hintze of CQS is a role model for any investor, hard but fair, intelligent and has built internal procedures that not even the SEC with an itch could fault. Thankfully these hedge fund titans still prove the industry has a lot to offer.