Exclusive: Excerpt from new book “Top Hedge Fund Investors: Stories, Strategies, and Advice”

Manager Selection 11 Jul 2010

The rise of the hedge fund industry does not lend itself to easy characterization. The technology industry, for example, can point to the development of the microchip, the PC, the Internet etc. as milestones in the stepwise evolution that has led us to today’s wonders, the iPad, Google Maps, and Wii Yoga. But the history of the hedge fund industry can probably better be described as a history of people, not technologies. The hedge fund industry is one of personalities – many of which migrated to the nascent industry from disparate disciplines and often with contrasting objectives. In a sense, the history of the hedge fund industry is found in the biographies of Alfred Jones, George Soros, Julian Robertson, Jim Simons, John Paulson and many others.

Cathleen Rittereiser and Lawrence Kochard’s new book “Top Hedge Fund Investors: Stories, Strategies, and Advice” is a superb chronicle of these colourful personalities. (You may recognize Rittereiser and Kochard from their previous book “Foundation and Endowment Investing: Philosophies and Strategies of Top Investors and Institutions”.) This time, the duo pays homage to the personalities that gave birth to the industry and they recount a series of refreshingly frank “open mic “style interviews with today’s industry leaders. Write the authors:

“In the early stages of their investment careers two investors with household names today, Warren Buffett and Barton Biggs, managed money using the Jones model. His investment style remained obscure, however, until Fortune magazine reappeared in his life, and made Jones the subject rather than the reporter of an article.  In 1966, Carol Loomis (still a reporter for Fortune in 2009) wrote “The Jones Nobody Keeps Up With” for the April issue. In the article, she introduced Jones and what she called his “hedge fund” to the investment world. [AAA: see Loomis’ comment in “Hedge Fund Industry Enters Time Warp”, a post about one of her seminal articles from that era.]

“During the 1980s the next wave of hedge funds came to the forefront, led by managers considered legends today, including Julian Robertson, George Soros, Michael Steinhardt, and Jack Nash. They made money in bull and bear markets, capturing the attention and assets of European investors. Another article about an individual hedge fund manager raised the industry’s profile again when Julie Rohrer profiled Julian Robertson for the May 1986 issue of Institutional Investor.”

The book builds on this rich history with chapters on each of about a dozen of today’s luminaries including:

  • Christopher Fawcett, Co-Founder of Fauchier Partners and former Chairman of AIMA,
  • Richard Elden, Founder and Former Chairman of Grosvenor Capital Management,
  • Frank Meyer, Founder and Former Chairman of Glenwood Capital Investments,
  • James R. Hodge, President and CIO at Permal Asset Management and
  • Deepak Gurnani, Head of Hedge Funds at Investcorp.

(Full Table of Contents here.)

Our parent, the Chartered Alternative Investment Analyst (CAIA) Association is featured prominently in the book. One of the chapters is about Mark Anson, CAIA, the former CIO at CalPERS and at several major asset management firms, and the author of CAIA’s Level 1 textbook. With a bit of cajoling, we have been granted permission by the publisher (Wiley) to provide you with a PDF of that particular chapter (Click here to download full chapter). Here’s a taste:

“Sitting at the trading desk one day, he received a call “out of the blue” from a recruiter for CalPERS, the California-based pension fund, that would change his life.

“She said, ‘Would you be interested in a pension fund?’ Honest and blunt, I simply said no. She said the client was confidential, but, ‘What if I were to tell you it’s the largest in the country?’ I asked if it was in Sacramento. Without revealing the confidential client we both knew who we were talking about.”

Anson told the recruiter, “Sure, I’d be willing to have a conversation, just to find out why you would target me and why you would want to talk to me.” He soon learned that CalPERS was beginning to think beyond traditional asset allocation and wanted someone who could “bring new ideas to the table. Probably not realizing just how many different ideas I would bring to the table.”

Anson joined CalPERS to build their alternatives program and “has been an investor and supporter ever since.”

The book also makes reference to another hedge fund pioneer, Alexander Ineichen, CAIA, a board member of the CAIA Association:

“Alexander Ineichen, a leading research analyst and author, has said, “The reputation of hedge funds is not particularly good. The term ‘hedge fund’ suffers from a similar fate as ‘derivatives’ due to a mixture of myth, misrepresentation, negative press, and high-profile casualties.”

Ineichen made a similar observation in another publication: “There is still a lot of mythology with respect to hedge funds. Much of it is built on anecdotal evidence, oversimplification, myopia, or simply a misrepresentation of facts.”

But in that instance, he asserted a hedge fund definition that is simpler and more germane to serious, sophisticated investors: “Hedge fund managers are simply asset managers utilising other strategies than those used by relative return long-only managers.”

The book should hit stores this week, but you can also download the first chapter here for free.

We’ve seen the advance copy and it’s well worth the read. Rittereiser and Kochard have essentially distilled the essence of what drives some of the alternative investment industry’s most influential leaders. They have coaxed these luminaries into revealing not only their investing strategies and outlooks, but also the personality traits and life experiences that make them tick. The result is a must-read for anyone looking for an edge in, or considering a career in, the alternative investment sector.

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