Is a Hedge Fund More Than Its Founder?

Is a hedge fund anything without its founder? Another batch of well-known hedge fund managers have sold out or moved to liquidate portfolios this month. Their legacies as entrepreneurs underscore the challenges of building a firm that outgrows the key risk taker.

The first surprise was the purchase of Michael Hintze’s CQS by Canada’s Manulife Financial Corp. Next came famed short-seller Jim Chanos’s decision to return capital after managed assets fell to around $200 million from $8 billion over the last 15 years.

Their achievements are clear. Chanos will always be famed for short-selling Enron prior to the energy trader’s collapse, inspiring a generation of investors and analysts to root out fraud. A painful bet against Tesla Inc. as it soared in value won’t change that.

CQS became one of London’s best-known hedge funds as a credit-focused firm benefiting from clients’ thirst for yield in a zero interest-rate world. That made Hintze’s fortune, and he became a notable donor to the UK’s ruling Conservative party. Born in China and raised in Australia, he would gain the knighthood and peerage that are the ultimate prizes of the British establishment. Losses in Hintze’s own fund during the pandemic tarnished his status as an investor, even if he has performed well since.

But handing over your fund to a successor, or building a business that can attract new assets through its own brand strength, are trickier legacies to secure by some distance.

You can aspire to be Julian Robertson, whose Tiger Management bred the legendary “Tiger Cubs,” a successor generation of hedge fund managers; or target the scale of a Bridgewater Associates LP. Or aim to become a “platform” like the giant multi-manager powerhouse Millennium Management LLC. But these are exceptions.