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Steven Cohen of SAC Capital Advisors with his wife Alexandra. Mr Cohen is raising money so he can hire new professionals.
Steven Cohen of SAC Capital Advisors with his wife Alexandra. Mr Cohen is raising money so he can hire new professionals.

Hedge fund tycoons on charm offensive

These financial wizards are wearing their widest smiles as they try to raise funds with pitches to prospective investors, a big change from the glory days.

Hedge fund managers are not exactly known for their friendliness. Despite writing about hedge funds for more than a decade, when I think of a hedge fund manager, what springs to mind is a committed warrior who will stop at nothing to reach his goal. He might be a slightly portly warrior sporting a ludicrously expensive watch, but he is definitely a fighter.

The stereotypes about hedge fund managers are invariably based on elements including a big ego, aggression, a carefully cultivated air of mystery, a sprawling mansion with a movie theatre, perhaps a helicopter or two, or a trophy spouse. But the market forces that have swept the world in the form of a deep recession in the past two years mean that being a hedge fund manager who conforms to those stereotypes does not really cut it any more.

Take Steven Cohen, of SAC Capital Advisors. Although not many people know much about him - until recently it was a struggle to even find a photograph of him, and rumour has it that he owns the rights to most photographs ever taken of him - he is, widely perceived as the archetypal hedge fund manager. He has the multimillion-dollar mansion in Greenwich, Connecticut, and an art collection to rival many a gallery, with works by Vincent van Gogh, Andy Warhol and Damien Hirst. He is said to have a bit of a temper. And of course he has his hedge fund company, which has posted returns of 30 per cent on average for 18 years and which now manages US$12 billion (Dh44.07bn).

The last figure, pretty huge by any gauge, is actually the reason that hedge fund managers such as Mr Cohen have to distance themselves from the "loadsa money" stereotypes and become more personable. At its height SAC managed $16bn, and along with a host of other funds it lost money during the crisis. The company's flagship fund suffered a 19 per cent loss in 2008, its first ever, as investors ran for the hills.

It is investors such as these, who scurried for cover amid the panic surrounding the collapse of Lehman Brothers in late 2008, who need to be won back by managers through a charm offensive that will be out of character for many, and downright painful for some. Mr Cohen, who is 53 years old, is raising money himself so he can hire and mentor new investment professionals to keep the company going after he retires, according to Bloomberg Markets magazine. The magazine's April cover story, which features a rare photo of Mr Cohen, says he pitched prospective investors at Morgan Stanley's conference on hedge funds, a similar conference organised by Goldman Sachs, and he also made a marketing trip to Europe recently. A few years ago, his appearance at events such as these would never have been documented.

His greater presence and visibility appear to be working: investors poured $1.3bn into SAC in the second half of last year. Mr Cohen is perhaps the most obvious example of the change that is occurring as the need for all hedge fund managers to become more visible with their investors becomes more pressing. "Hedge fund managers are becoming more investor-friendly. Investors, more than ever, want to know the managers to whom they are entrusting their money. They want full transparency, and this means that many managers are having to meet with investors in person far more frequently than they have ever had to in the past," says Samuel Hocking, the global head of prime brokerage sales at BNP Paribas.

In doing so, the mystique surrounding many hedge fund managers is being eroded. Many have spent years jealously guarding their privacy and for some - including Mr Cohen and the famously publicity-shy Louis Baco - this new accent on personal relationships in the wake of the crisis must surely present a challenge. Like it or not, business is returning to the old-school style - face to face dealings, a little like the days when one had a bank branch manager inquiring about births, weddings and your recent round of golf. An air of mystery is becoming a thing of the past.

A recent survey by the institutional investment research company Carbon 360 confirmed that while performance remained a primary concern for those entrusting their money to hedge fund managers, transparency and risk management had grown to become critical concerns for investors. And the palm pressing by managers appears to be paying off more widely. The hedge fund industry's assets increased by $751bn last year to $1.96 trillion, estimates Lee Hennessee, the hedge fund investment adviser and managing principal of Hennessee Group. "A noteworthy development in our 2009 research is the decline in fund of hedge fund assets and continued rise in direct investor assets, predominantly by pensions, endowments and foundations," he says. This represents "a trend we believe that could continue into the future due to lower fees in direct investing and a move to more active fiduciary oversight".

The funds attracting the new money appear to be the largest, most established hedge fund firms, in another example of investors preferring hedge funds that are viewed as relatively safe bets, if nothing else because of their sheer size. Absolute Return + Alpha magazine's biannual survey of US hedge fund firms managing $1bn or more found that, as of the start of this year, the largest 213 hedge fund firms managed combined assets of $1.18tn, an increase of 4.2 per cent from the beginning of last year, when 218 firms held a combined total of $1.13tn. In July 2008, the industry's peak, the 268 biggest firms managed $1.67tn.

A handful of firms managing $5bn or more almost doubled their assets from a year ago, suggesting that the big are getting bigger. According to Absolute Return, scandals may be one reason that the brand-name firms managed to grab a greater share of the pie in the second half of last year as investors sought the security of large, established shops. These are the ones whose managers have realised that in order to further their careers and continue to grow their companies, they need to cast aside secrecy and greet the investing public with a smile on their face and openness in their hearts, minds and books.

business@thenational.ae

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