Top Hedge Fund Investors: Stories, Strategies, and Advice

230 Pages·2010·3.61 MB·English

by  Cathleen M. Rittereiser

Additional Praise for
Top Hedge Fund Investors
“In Top Hedge Fund Investors, Rittereiser and Kochard have put to rest
anylingeringdoubtsthathedgefundshavebecomeanessentialcomponent
of successful investment programs. When a collection of extraordinarily
talented individuals, like those profiled in this book, dedicate their lives to
a common discipline, we can be sure that these strategies have reached a
permanent level of prominence in the investment world. Top Hedge Fund
Investors profiles men and women with passion, courage, intellect, tenac-
ity, inquisitiveness and resiliency, who have helped establish a standard of
excellence in hedge fund investing that all those who read this book will
benefit from emulating. We are all richer for the authors’ efforts to bring
togetherthisoutstandingvolumeofStories,StrategyandAdvicefromsome
ofthebesthedgefundinvestorsinthebusiness.”
—MarkW.Yusko
CEO&ChiefInvestmentOfficer
MorganCreekCapitalManagement
“Top Hedge Fund Investors offers a refreshing perspective and unique in-
sightintotheshroudedworldofhedgefunds.Wegetaglimpsebeyondthe
numbers and gain an insider’s view of this complex industry. As one who
hasbeenwiththisbusinessfornearlythirtyyears,Icanattestthatthisbook
ringstrue.”
—LawrenceP.Chiarello,Partner
SkyViewInvestmentAdvisorsLLC
“Great subject, terrific insights from top allocators to hedge funds. Eldon,
MeyerandHodgeshowhowtoavoidmakingunforcederrorswheninvest-
ing. They and the other Investors make this the best book I have seen on
selectingmoneymanagers.”
—DouglasSperryMakepeace,President
SperryFundManagementLLC
NewYorkCity
“AninsightfultouroftheHedgeFundWorld,withsomeofthemostexpe-
rienced guides that demystify a lot of the wrong ideas people have of this
industryanditsplayers.”
—MichelAmsellem
MemberoftheAdvisoryboardBanqueHeritage
“Given the importance that ‘hedge funds’ have gained in financial markets
it behooves all investors, not just professionals, to understand the under-
lying principles used by prominent hedge fund investors. Top Hedge Fund
Investors provides an interesting description of the investment philosophy
of some of the leading practitioners of this relatively unknown segment of
thefinancialmarkets,andhowtheyhaveorganizedtheirfirms.”
—CharlesFalcon
RetiredCorporateFinanceExecutive
Top Hedge
Fund Investors
Founded in 1807, John Wiley & Sons is the oldest independent publish-
ing company in the United States. With offices in North America, Europe,
Australia,andAsia,Wileyisgloballycommittedtodevelopingandmarket-
ingprintandelectronicproductsandservicesforourcustomers’professional
andpersonalknowledgeandunderstanding.
TheWileyFinanceseriescontainsbookswrittenspecificallyforfinance
and investment professionals as well as sophisticated individual investors
and their financial advisors. Book topics range from portfolio manage-
menttoe-commerce,riskmanagement,financialengineering,valuation,and
financialinstrumentanalysis,aswellasmuchmore.
Foralistofavailabletitles,visitourWebsiteatwww.WileyFinance.com.
Top Hedge
Fund Investors
Stories, Strategies, and Advice
CATHLEEN M. RITTEREISER
LAWRENCE E. KOCHARD,
PHD, CFA
John Wiley & Sons, Inc.
Copyright(cid:2)C 2010byCathleenM.RittereiserandLawrenceE.Kochard,Ph.D.,CFA.All
rightsreserved.
PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey.
PublishedsimultaneouslyinCanada.
Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmittedin
anyformorbyanymeans,electronic,mechanical,photocopying,recording,scanning,or
otherwise,exceptaspermittedunderSection107or108ofthe1976UnitedStatesCopyright
Act,withouteitherthepriorwrittenpermissionofthePublisher,orauthorizationthrough
paymentoftheappropriateper-copyfeetotheCopyrightClearanceCenter,Inc.,222
RosewoodDrive,Danvers,MA01923,[phone],fax[phone],orontheWeb
atwww.copyright.com.RequeststothePublisherforpermissionshouldbeaddressedtothe
PermissionsDepartment,JohnWiley&Sons,Inc.,111RiverStreet,Hoboken,NJ07030,
[phone],fax[phone],oronlineatwww.wiley.com/go/permissions.
LimitofLiability/DisclaimerofWarranty:Whilethepublisherandauthorhaveusedtheir
besteffortsinpreparingthisbook,theymakenorepresentationsorwarrantieswithrespectto
theaccuracyorcompletenessofthecontentsofthisbookandspecificallydisclaimanyimplied
warrantiesofmerchantabilityorfitnessforaparticularpurpose.Nowarrantymaybecreated
orextendedbysalesrepresentativesorwrittensalesmaterials.Theadviceandstrategies
containedhereinmaynotbesuitableforyoursituation.Youshouldconsultwitha
professionalwhereappropriate.Neitherthepublishernorauthorshallbeliableforanylossof
profitoranyothercommercialdamages,includingbutnotlimitedtospecial,incidental,
consequential,orotherdamages.
Forgeneralinformationonourotherproductsandservicesorfortechnicalsupport,please
contactourCustomerCareDepartmentwithintheUnitedStatesat(800)762-2974,outside
theUnitedStatesat(317)572-3993,orfax(317)572-4002.
Wileyalsopublishesitsbooksinavarietyofelectronicformats.Somecontentthatappearsin
printmaynotbeavailableinelectronicbooks.FormoreinformationaboutWileyproducts,
visitourWebsiteatwww.wiley.com.
LibraryofCongressCataloging-in-PublicationData:
Rittereiser,CathleenM.,1960–
Tophedgefundinvestors:stories,strategies,andadvice/CathleenM.
RittereiserLawrenceE.Kochard.
p.cm.–(Wileyfinanceseries)
Includesbibliographicalreferencesandindex.
ISBN978-0-470-50129-0(cloth)
1.Hedgefunds. 2.Mutualfunds. 3.Investmentadvisors. 4.Portfoliomanagement.
5.Investments. I.Kochard,LawrenceE.,1956- II.Title.
HG4530.R582010
332.64(cid:3)524–dc22
2009054065
PrintedintheUnitedStatesofAmerica
10 9 8 7 6 5 4 3 2 1
For
My father, Walter Kochard, for always listening when I
talked. Family dinner conversations when he was a broker at
E.F. Hutton in the 1970s inspired me to work in this exciting
business!
L.E.K.
My father, Bob Rittereiser, and uncle, Freddie Rittereiser, the
two top Wall Street leaders in my book
C.M.R.
Contents
Preface xi
Acknowledgments xv
AbouttheAuthors xvii
PARTONE
EvolutionoftheHedgeFundIndustryandInvesting 1
CHAPTER1
TheTruthaboutHedgeFunds:FromMisunderstood
InvestmentVehicletoHouseholdWord 3
CHAPTER2
TheInvestmentProcess:BestPracticesofSuccessful
HedgeFundInvestors 15
CHAPTER3
TheHedgeFundInvestmentLandscape:ASnapshotinTime 25
PARTTWO
TopHedgeFundInvestors:StoriesandStrategies 31
CHAPTER4
AuthoroftheHedgeFundInvestingStory:RichardElden,
FounderandFormerChairman,GrosvenorCapitalManagement 33
CHAPTER5
ThePredictiveValueofPerformance:FrankMeyer,Founder
andFormerChairman,GlenwoodCapitalInvestments 47
ix
x CONTENTS
CHAPTER6
TheBestQualitiesofLimestone:JamesR.Hodge,President
andChiefInvestmentOfficer,PermalAssetManagementInc. 69
CHAPTER7
AnAsymmetricalTalent:MarkJ.P.Anson,Managing
PartnerandChairoftheInvestmentCommittee,OakHill
InvestmentManagement 83
CHAPTER8
EarlyEndowmentCIOandEntrepreneur:LouisW.Moelchert,Jr.,
ManagingPartner,PrivateAdvisors,LLC 103
CHAPTER9
AnAmbassadoroftheHighestStandard:Christopher
Fawcett,Co-Founder,SeniorPartner,FauchierPartners 117
CHAPTER10
ARiskManagementMastermind:DeepakGurnani,Headof
HedgeFunds,Investcorp 137
CHAPTER11
ADriverofReturns:KathrynA.Hall,Chairman,Chief
ExecutiveOfficer,andChiefInvestmentOfficer,HallCapital
Partners 155
CHAPTER12
ABetterWay:TedSeides,Co-Founder,Prote´ge´ Partners 173
CHAPTER13
TheQualityofthePeople:AReviewandPreview 199
Notes 211
Index 215
Preface
F
oundationandEndowmentInvesting:PhilosophiesandStrategiesofTop
Investors and Institutions, the first book Larry Kochard and I wrote
together, profiles 12 well-regarded chief investment officers at leading uni-
versityendowmentsandfoundations.InspiredbyLarry’sfruitlesssearchfor
such a book when he became CIO of Georgetown University, Foundation
and Endowment Investing chronicles the investment philosophies, strate-
gies,andchallengesofleadingCIOsandsharestheirideasandadvicewith
investors.
ModeledonbookslikeMarketWizardsbyJackSchwager(Marketplace
Books, 2008) and Investment Gurus by Peter Tanous (Prentice Hall Press,
1999), and published by John Wiley & Sons in January 2008, Foundation
and Endowment Investing was reviewed in the July/August 2008 issue of
theFinancialAnalystsJournal:
The investment success of other educational institutions’ en-
dowments and of some foundations has made the workings of
endowments/foundations of growing interest. Kochard and Rit-
tereiser have produced a well-written, enlightening book on the
subject.
Thestoriesofsuchaccomplishedinvestors—mostknownonlywithina
segmentoftheinstitutionalinvestmentcommunity—providedreaderswith
valuable informationand ideas.Descriptions oftheirlong-terminvestment
process taught investors useful lessons about asset allocation, manager se-
lection,andalphageneration.Theiropinionsandadviceleftreaderswitha
betterunderstandingofthetopinvestormind-set.
Larry Kochard best describes the value of writing and reading about
successful investors in this excerpt from the conclusion of Foundation and
EndowmentInvesting:
Successful people in any field don’t stick their head in the sand—
they are always hoping to learn new ideas from other innovators
and leaders in any field. As investors we all want to do a better
jobestablishingadisciplinedandsuccessfulinvestmentprocessand
xi