The Private Lives of Hedge Funds

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  Business All NYT Business HOME PAGEMY TIMESTODAY'S PAPERVIDEOMOST POPULARTIMES TOPICS Free 14-Day Trial Welcome,rockysethiMember CenterLog Out MEDIA & ADVERTISINGWORLD BUSINESSYOUR MONEYDEALBOOKMARKETSCOMPANY RESEARCHMUTUAL FUNDSSTOCK PORTFOLIOALERTS AUTOSREAL ESTATEJOBS TRAVELSTYLE ARTSOPINIONSPORTSHEALTHSCIENCETECHNOLOGY BUSINESSN.Y. / REGIONU.S. WORLD BLOGGEDSEARCHEDE-MAILED INSIDER The Private Lives of Hedge Funds ByJENNY ANDERSONPublished: December 29, 2006 Hedge fund managers, let us toast the triumphs and travails of yoursecretive world as the year draws to a close. Already I can hear some of you yelping. You hate being called secretive. Youinsist that it is federal laws that prohibit you from talking to the public, and infact you would like the world to know more about you (except who you are, what you trade and what kind of returns you havegenerated).In 2006, however, some of you discovered the one thingmore valuable than your secrecy: permanent money. TheFortress Investment Group, which runs both hedge fundsand private equity funds, and Citadel, a multi-strategy hedge fund, both filed prospectuses this year to offersecurities to the public. To some, this is preferable toraising more money from investors in the fund becausethey can redeem their money, with certain restrictions, when they want.The trend to lock down permanent capital gained even more traction abroad. Funds andfunds of hedge funds raced to market, ready to sop up all demand for investmentsdeemed alternative. Exchanges in Britain and Amsterdam raised $4.2 billion in 2006,compared with $454.2 million in 2005, according to Dealogic.That outpouring of money into hedge funds mirrors another trend in hedge-fund land:that institutions like pension funds and endowments continue to dump money into thesector. But that means hedge funds are themselves becoming institutions, real grown-up businesses, with offices around the globe and extensive legal teams, rather than a few traders and a Bloomberg terminal.Institutional or not, hedge funds are still more colorful, more outrageous, moreimpressive and more bizarre than other asset managers. They are the new, new money thing. And they deserve special recognitions of their own.So let’s hand out the hedge fund awards for 2006. THE HOUDINI AWARD To Amaranth Advisors and its founder, Nicholas Maounis,for overseeing the evaporation of $6 billion in less than one week at the hands of a 32- year-old Ferrari-driving energy trader. Amaranth had been a respectable fund; investorsloved it for its high returns and energy exposure, until the high returns turned into epiclosses and its energy “exposure” turned out to be a bunch of concentrated bets on thedirection of natural-gas prices (bets that did not work out well).Soon after $6 billion went poof, Mr. Maounis tried to pull a rabbit out of his hat. On a brief, carefully lawyered phone call with investors, Mr. Maounis suggested that he E-MAILPRINTREPRINTSSAVESHARE Enlarge This Image Tom Starkweather/ Bloomberg News Phillip Goldstein was an unknownhedge fund manager at BulldogInvestors until he sued the Securitiesand Exchange Commission. Next Article in Business (6 of 30) » Get DealBook by E-Mail Sign up for finance news, sent before the opening bell.SeeSample Change E-mail Address|Privacy Policy MOST POPULAR 1.Saying Yes to Mess2.Japan, Home of the Cute and Inbred Dog3.Questions Couples Should Ask (Or Wish They Had)Before Marrying4.The Energy Challenge: It’s Free, Plentiful andFickle5. As Minds Age, What’s Next? Brain Calisthenics6. What’s Wrong With Cinderella?7.Rare Glimpses of China’s Long-Hidden Treasures8.Editorial: Meat and the Planet9.Fitness: Quick, Do You Know Your B.M.I.?10.Penguin, Shmenguin! Those Are Savion Glover’sHappy Feet! Go to Complete List » Page1of3ThePrivate Lives of Hedge Funds- New York Times 12/29/2006  intended to win back the trust and faith of his investors. “We have every intention of continuing in business generating for our investors the same consistently high risk-adjusted returns which have been our hallmark.” Right. THE BETTER-THAN-BARINGS BLOW-UP AWARD Amaranth’s energy trader,Brian Hunter, blew through more cash in less time at Amaranth than, well, than anyone Ican think of. When Nicholas Leeson, a young trader at Barings Bank in Singapore, blew up Barings, he burned through $1.3 billion. When Long Term Capital Managementimploded in 1998, its $4.8 billion quickly shrank to $600 million (although enormousleverage magnified the losses and brought the financial system to its knees). Bayou lost$460 million, $100 million less than Amaranth lost on Sept. 14. THE BRAVEHEART AWARD Phillip Goldstein was an unknown hedge fund managerat an unremarkable hedge fund, Bulldog Investors, until he sued the Securities andExchange Commission, contending that the agency did not have the authority to regulatehedge funds, and won. As a result, the court vacated the controversial registrationrequirement and left the S.E.C. with little authority over hedge funds.The S.E.C. is now contemplating a rule that will prohibit all but 1.3 percent of Americansfrom investing in hedge funds. It also rewrote a fraud provision that at least allows it togo after, well, fraud. THE DEBUTANTES AWARD The Citadel Investment Group filed a prospectus toraise as much as $2 billion in bonds, a creative financing strategy that whenaccomplished, makes Citadel slightly less dependent on Wall Street and slightly moresimilar to a normal company that has various forms of debt. The Fortress InvestmentGroup also announced its intention to sell shares to the public. The upshot from itsoffering documents? The people running alternative investment groups make boatloadsof money. THE GRETA GARBO AWARD She just wanted to be left alone. So did ChristopherHohn, the founder and brainpower behind the Children’s Investment Fund, a $9 billionactivist fund based in London that donates a portion of its fees to a foundation run by Jamie Cooper Hohn, Mr. Hohn’s wife. When provided an opportunity to talk about thefund’s charitable work, neither Hohn returned any calls — those who did answer phones would not acknowledge that a foundation existed; yet, in June, former PresidentBillClintonspoke at a fund gathering and praised the foundation. THE BUYER BEWARE AWARD Shakespeare questioned the power of a name and soshould investors. Viper Capital Management, a fund in San Francisco, has been sued by the Securities and Exchange Commission for fleecing investors out of $5 million. PirateCapital, whose letters to investors discuss “treasures” and “shipwrecks” accompanied by matching pictures, suffered a mutiny of talent and disappointing returns (5 percentthrough November for the flagship Jolly Roger fund). Investors not tipped off by thename perhaps should have been warned by a New York magazine article that featuredone of the fund’s 27-year-old analysts, a former snowboarding champion, yelling at achief executive that he was the boss. Capt. Jack Sparrow take heed. THE $100 MILLION WEEKEND AWARD On a Friday in November, a $13 billionfund, Atticus Management, owned or controlled through options 9.9 percent of PhelpsDodge. Two days later, when Freeport-McMoRan Copper and Gold announced that it would acquire Phelps, Atticus made over $510 million. That number understates thefund’s real return, which is based on its previously acquired stake, done when the stock  was cheaper. Since hedge fund managers take 20 percent of the profits, Timothy Barakett, Atticus’s founder and lead manager, made more than $100 million. New television series: Who Wants to Be a Decamillionaire? the perfect ski trip and book it on, too! Also in Travel:Where to go night skiingA weekend of skiing in WhistlerWhere to ski in Vermont ADVERTISEMENTS T. Rowe Price The T. Rowe Price EasyTransfer IRAService makes switching simple. Scottrade: More than $7 Trades. It’s CalledValue & We Value You. Visit E*TRADE Securities' All StarList of leading mutual funds THE NEW YORK TIMES GUIDE TOESSENTIAL KNOWLEDGE Buy Now   Page2of3ThePrivate Lives of Hedge Funds- New York Times 12/29/2006  HomeWorldU.S.N.Y. / RegionBusinessTechnologyScienceHealthSportsOpinionArtsStyleTravelJobsReal EstateAutomobilesBack to TopCopyright 2006The New York Times CompanyPrivacy PolicySearchCorrectionsRSSFirst BookHelpContact UsWork for UsSite Map THE HYPOCRITE’S AWARD For all the talk about wanting to be more open, a lot of  you are still secretive. One of you stopped me on my way into your Greenwich, Conn.,offices and insisted: “You were never here, right?” I joked that such metaphysicalrequests were beyond my abilities. Upon gaining entry into your secret kingdom, yousuggested the press was unfair, perhaps even inaccurate, for calling hedge fundssecretive. And for that, I award you the hypocrite’s award for 2006. Next Article in Business (6 of 30) »Need to know more? 50% off home delivery of The Times.Tips To find reference information about the words used in this article, hold down the ALT key and click on any  word, phrase or name. A new window will open with a dictionary definition or encyclopedia entry. Related Articles S.E.C. Eases Regulations On Business(December 14, 2006)Turning Hedge Fund Dollars Into Works of Art(December 13, 2006)Hedging '06: Year to Read The Caveats(December 11, 2006)Culturally, Hedge Funds Go Public(December 8, 2006) Related Searches Hedge FundsStocks and Bonds AmaranthGoldstein, Phillip Ads by Googlewhat's this? Managed Futures and Forex Since 1988- Complete CTA Department Download Your Free Seminar Hedge Funds Analysis Comprehensive qualitative and quantitative data on 5200+ funds Carnegie Asset Management World-class investment results based on focused stock-picking. INSIDE NYTIMES.COM AMERICAS »BUSINESS »MOVIES »ESCAPES » Diamonds' Glitter Fades fora Brazilian TribeIn Gloom of War, a Child'sParadiseHappy Days:IndulgenceTo Buy or to Rent?   Page3of3ThePrivate Lives of Hedge Funds- New York Times 12/29/2006
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