Monday, March 07, 2005
Why We're Unique in MF PM Recruitment
Barron's Online
Monday, March 7, 2005
FUND OF INFORMATION
Not on the Short List
Hedge funds show little interest in long-only mutual-fund managers
By LAWRENCE C. STRAUSS
WITH HEDGE FUNDS booming, there are lots of openings for portfolio managers. But recruiters aren't knocking on many mutual-fund shops' doors, because they think the best talent lies elsewhere.
"There's a high degree of skepticism among the hedge-fund general partners that the guys from the mutual-fund industry can comfortably and effectively migrate to their world," says Peter Gonye, co-head of the private equity and investment banking specialty practice group at Spencer Stuart, the executive-search firm.
All of this is quite ironic, given how much fuss the mutual-fund industry has made about losing its best managers to hedge funds.
Of course, over the years there have been some very high-profile defections from traditional mutual funds to hedge funds -- one of the most prominent being Jeffrey Vinik, who, under pressure because of his portfolio's performance, left Fidelity Magellan in 1996 to run a hedge fund, Vinik Asset Management. (He closed it in 2000 after a successful four-year run.)
Vinik's move was emblematic of that era, when mutual funds boasted more star managers than they do today. And that was a great era for long-only managers, whose returns seemingly went up every week.
"In the mid-to-late 1990s, it was the mutual-fund guys who came out to start hedge funds," says Stephan P. Vermut, president and chief executive of Merlin Securities and the founder of Montgomery Prime Brokerage Services. In the past two or three years, he says, hedge funds have focused more on recruiting managers from other hedge funds or from trading desks at investment banks. Perhaps the most high-profile example is Eric Mindich, a former Goldman trader who recently launched a hedge fund, Eton Park Capital Management, with more than $3 billion in assets.
"Mutual funds have almost exclusively long-only mandates," explains Ken Marma, who handles hedge-fund recruiting at Wall Street Options in New York. "Managers from long-only funds tend to perform poorly in long/short settings. The dynamics of the short side tend to be a little trickier," he says. So, Marma doesn't think mutual-fund managers make good candidates for running hedge funds. "It's basically two different games entirely," he contends.
Indeed, long-only managers usually don't have much experience shorting stocks, or betting on a price decrease.
"As with other fields where you really need a couple of special skills, having done it before goes a long way, especially considering the risk" of running a hedge fund, observes Randy Shain, president of BackTrack Reports, a New York firm that conducts research for clients on potential managers.
A lack of experience on the short side doesn't necessarily preclude long-only managers from learning and mastering that strategy, however.
Cynthia Nicoll, chief investment officer at Tremont Capital Management in Rye, N.Y., points out that some "very good long-only managers have become good" at shorting stocks. Still, "it takes a while for someone from the long-only side to really understand how to short securities," she says.
Nicoll and others say it's more likely for hedge funds to recruit junior analysts at mutual funds, as their backgrounds can dovetail better with the skills used at a hedge fund. Hedge funds also raid mutual funds for employees with technological expertise.
James Riepe, vice chairman of the mutual fund firm T. Rowe Price, says the firm has lost four or five analysts to hedge funds in the past few years. But he doesn't sense "this great outflow of people" to hedge funds. "You can lose some good people, but I don't see it as a widespread threat," he adds.
Brian Posner, a former fund manager at Fidelity who now works for hedge-fund firm Hygrove Partners, maintains the fund industry has realized that hedge funds are "a viable alternative and competitor for talent."
Another potential threat: long-only hedge funds. "If they were to catch on, and investors were crazy enough to pay hedge-fund fees for a long-only product, that could be a bigger problem for us," says Riepe, who is chairman of the Investment Company Institute, the mutual-fund industry's trade group. Long-only funds account for a tiny sliver of the roughly $1 trillion of hedge-fund assets.
Unlike mutual-fund advisers, which rely solely on a management fee, hedge funds typically charge a management fee of 1% to 2%, plus 20% of annual profits.
With the additional regulation that has come down the pike, from Sarbanes-Oxley to tougher SEC rules in the wake of the mutual-fund scandals, there is the possibility of more mutual-fund managers leaving for less-regulated sectors like hedge funds, Riepe says.
Over the years plenty of mutual-fund managers have left to start hedge funds, most recently John Schneider, who had success running the Pimco PEA Value and the Pimco Renaissance funds. Last month, he started JS Asset Management outside of Philadelphia. (He also ran a small hedge fund for his previous employer.) Schneider, a value manager, plans to run separate accounts, subadvise mutual funds and, yes, launch a hedge fund.
When will the next wave of mutual-fund managers come into hedge funds? Whenever they can produce better returns, as they did in the 1990s. Still, while the migration into hedge funds has slowed, "I don't think it's over," says Vermut of Merlin Securities. "If you're good at managing money, you want to have your own shop."
URL for this article:
http://online.barrons.com/article/SB110998060875871124.html
Monday, March 7, 2005
FUND OF INFORMATION
Not on the Short List
Hedge funds show little interest in long-only mutual-fund managers
By LAWRENCE C. STRAUSS
WITH HEDGE FUNDS booming, there are lots of openings for portfolio managers. But recruiters aren't knocking on many mutual-fund shops' doors, because they think the best talent lies elsewhere.
"There's a high degree of skepticism among the hedge-fund general partners that the guys from the mutual-fund industry can comfortably and effectively migrate to their world," says Peter Gonye, co-head of the private equity and investment banking specialty practice group at Spencer Stuart, the executive-search firm.
All of this is quite ironic, given how much fuss the mutual-fund industry has made about losing its best managers to hedge funds.
Of course, over the years there have been some very high-profile defections from traditional mutual funds to hedge funds -- one of the most prominent being Jeffrey Vinik, who, under pressure because of his portfolio's performance, left Fidelity Magellan in 1996 to run a hedge fund, Vinik Asset Management. (He closed it in 2000 after a successful four-year run.)
Vinik's move was emblematic of that era, when mutual funds boasted more star managers than they do today. And that was a great era for long-only managers, whose returns seemingly went up every week.
"In the mid-to-late 1990s, it was the mutual-fund guys who came out to start hedge funds," says Stephan P. Vermut, president and chief executive of Merlin Securities and the founder of Montgomery Prime Brokerage Services. In the past two or three years, he says, hedge funds have focused more on recruiting managers from other hedge funds or from trading desks at investment banks. Perhaps the most high-profile example is Eric Mindich, a former Goldman trader who recently launched a hedge fund, Eton Park Capital Management, with more than $3 billion in assets.
"Mutual funds have almost exclusively long-only mandates," explains Ken Marma, who handles hedge-fund recruiting at Wall Street Options in New York. "Managers from long-only funds tend to perform poorly in long/short settings. The dynamics of the short side tend to be a little trickier," he says. So, Marma doesn't think mutual-fund managers make good candidates for running hedge funds. "It's basically two different games entirely," he contends.
Indeed, long-only managers usually don't have much experience shorting stocks, or betting on a price decrease.
"As with other fields where you really need a couple of special skills, having done it before goes a long way, especially considering the risk" of running a hedge fund, observes Randy Shain, president of BackTrack Reports, a New York firm that conducts research for clients on potential managers.
A lack of experience on the short side doesn't necessarily preclude long-only managers from learning and mastering that strategy, however.
Cynthia Nicoll, chief investment officer at Tremont Capital Management in Rye, N.Y., points out that some "very good long-only managers have become good" at shorting stocks. Still, "it takes a while for someone from the long-only side to really understand how to short securities," she says.
Nicoll and others say it's more likely for hedge funds to recruit junior analysts at mutual funds, as their backgrounds can dovetail better with the skills used at a hedge fund. Hedge funds also raid mutual funds for employees with technological expertise.
James Riepe, vice chairman of the mutual fund firm T. Rowe Price, says the firm has lost four or five analysts to hedge funds in the past few years. But he doesn't sense "this great outflow of people" to hedge funds. "You can lose some good people, but I don't see it as a widespread threat," he adds.
Brian Posner, a former fund manager at Fidelity who now works for hedge-fund firm Hygrove Partners, maintains the fund industry has realized that hedge funds are "a viable alternative and competitor for talent."
Another potential threat: long-only hedge funds. "If they were to catch on, and investors were crazy enough to pay hedge-fund fees for a long-only product, that could be a bigger problem for us," says Riepe, who is chairman of the Investment Company Institute, the mutual-fund industry's trade group. Long-only funds account for a tiny sliver of the roughly $1 trillion of hedge-fund assets.
Unlike mutual-fund advisers, which rely solely on a management fee, hedge funds typically charge a management fee of 1% to 2%, plus 20% of annual profits.
With the additional regulation that has come down the pike, from Sarbanes-Oxley to tougher SEC rules in the wake of the mutual-fund scandals, there is the possibility of more mutual-fund managers leaving for less-regulated sectors like hedge funds, Riepe says.
Over the years plenty of mutual-fund managers have left to start hedge funds, most recently John Schneider, who had success running the Pimco PEA Value and the Pimco Renaissance funds. Last month, he started JS Asset Management outside of Philadelphia. (He also ran a small hedge fund for his previous employer.) Schneider, a value manager, plans to run separate accounts, subadvise mutual funds and, yes, launch a hedge fund.
When will the next wave of mutual-fund managers come into hedge funds? Whenever they can produce better returns, as they did in the 1990s. Still, while the migration into hedge funds has slowed, "I don't think it's over," says Vermut of Merlin Securities. "If you're good at managing money, you want to have your own shop."
URL for this article:
http://online.barrons.com/article/SB110998060875871124.html
# posted by Tom @ 7:41 AM 
