an entertaining story -g- Hey, Everybody, Letïs Start a Hedge Fund!
By PATRICK McGEEHAN
NYT
June 25, 2000
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NEW YORK -- The newspaper ad for the 90-minute seminar was clear and, apparently, compelling, because it drew more than 250 people to an auditorium in Midtown Manhattan to learn how to start a hedge fund.
You might think that hedge funds, those unregulated investment pools that are reserved for the rich and powerful, had fallen out of favor after two of the most famous managers, George Soros of the Quantum Fund and Julian Robertson of Tiger Management, threw in their monogrammed towels. If so, you may not be cut out to be a "hedgie."
If, however, you see the failures of others as beacons illuminating a bright, shining opportunity, you may have just what it takes to, say, force the devaluation of the British pound, as Soros did in 1992, or threaten the stability of the Western world, as Long-Term Capital Management did in 1998.
It takes something else: As was noted fairly early in the seminar, you'll need $5 million to $10 million from your friends and family to start. It was not clear how many of these prospective hedgies were daunted by the price of admission to this club, but it was a good sign for the hosts that nobody got up and walked out upon hearing it.
"You have to start because you have people who want you to manage their money or because you have personal wealth, family wealth," said Robin Davis, a managing director of Banc of America Securities, the brokerage firm that sponsored the gathering last Monday. Nobody without a sentimental tie is going to hand over large sums to a manager who has not established a track record as an investor, he said.
It seemed unlikely that everybody in this crowd, a mix of young men in golf shirts and gray-haired men in suits -- along with a few women -- had a silver spoon or a golden Rolodex. But in this era of dot-com billionaires, $10 million may not count as real money.
Davis and the lawyers and accounting specialists who were co-sponsors of the seminar made it clear that they stood ready to provide their services to anybody in the audience who could round up a grubstake. What would those services comprise? Map-reading for starters.
Michael Tannenbaum, a partner in Tannenbaum Helpern Syracuse & Hirschtritt, a New York law firm, pointed on a wall-size map to some of the popular havens for hedge funds that cater to investors seeking to avoid United ates taxes. Among the places he noted were Bermuda, the Cayman Islands, the Isle of Man and "a little island off the coast of Madagascar called Mauritius."
Why might we want to run a hedge fund from the Indian Ocean? Because, Tannenbaum explained, Mauritius has a treaty with India that makes it an ideal site for managing investments in emerging markets. Likewise, Cyprus has a treaty that comes in handy for people who want to invest in Russia, he said.
A bonus, he added, is that there are "great golf courses in some of these tax havens, as you might imagine."
Tannenbaum and Gerald Ranzal, a partner in the accounting firm Anchin, Block & Anchin, also ran through some of the regulatory pitfalls that threaten hedge-fund profits, including a variety of local and federal taxes and a web of securities laws that tightly restrict what hedgies can say about their funds and to whom they can say it. A hedge fund that is not careful could find itself subject to the same legislation that governs lowly mutual funds, the Investment Company Act of 1940.
"That's the one to avoid," Tannenbaum warned.
It was Ranzal who homed in on the details that the audience wanted to hear: The typical hedge-fund manager keeps 1 percent of all the money invested and 20 percent of the gains on the remaining 99 percent.
Sure, the hosts acknowledged, there has been a lot of negative publicity about hedge funds since John Meriwether's Long-Term Capital melted down and Soros and Robertson left the business. But the recent past, they said, isn't the only prologue.
"This is the greatest business there is in the world," Davis said from the stage. "The fees you can generate are really limitless." |
