Richard Perry, Leon Cooperman, Daniel Och, Edward Lampert.
These four are among a larger group of old-guard, veteran hedge fund managers who have run into some sort of trouble of late, whether legal problems, large asset losses, or lousy performance. One has already decided to quit the business altogether. Perry recently announced he is shutting down the hedge funds managed by his firm, Perry Capital; Och and his New York firm, Och-Ziff Capital Management Group, recently settled federal bribery charges and have faced billions of dollars of redemptions; Cooperman and his New York firm Omega Advisors were accused by the Securities and Exchange Commission of trading with insider information and other securities transgressions. Finally, Lampert’s ESL Investments has lost virtually all of its outside investors due to protracted losses from its ill-fated investment in Sears Holdings Corp.
Perry, Cooperman, Och, and Lampert have something else in common: They are all former employees or partners of the gilded investment bank Goldman Sachs.
At Goldman, Perry was a risk arbitrageur who worked on Robert Rubin’s famed desk and helped make several hires who also went on to hedge fund glory, including Och, Eric Mindich of New York-based Eton Park Capital Management, and Thomas Steyer, founder of Farallon Capital Management. Och worked at Goldman Sachs Group for more than 11 years, starting in risk arbitrage, then moving on to head proprietary trading in the equities division and later becoming co-head of U.S. equities trading.
Cooperman spent more than 25 years at Goldman, including serving as general partner of Goldman, Sachs & Co. and as chairman and chief executive officer of Goldman Sachs Asset Management, before launching Omega in 1991. Lampert worked for Rubin as a risk arbitrageur for nearly three years before leaving in 1988 to launch ESL.
These aren’t the only four former Goldman Sachs honchos to falter as hedge fund managers of late. Last year, Fortress Investment Group closed down its Fortress Macro Funds and Michael Novogratz, who founded the firm’s liquid markets business in 2002, said he would retire. The macro funds were down 17.49 percent in 2015 through September after dropping 1.6 percent the previous year.
Novogratz spent 11 years at Goldman Sachs, becoming a partner in 1998. During his time at the investment bank, he was president of Goldman Sachs Latin America.
Eric Mindich, founder of New York-based Eton Park Capital Management, is another Goldman alum who has had some rough spots, although to a lesser degree. The multistrategy manager was at one time the youngest-ever Goldman partner and raised a near record sum of $3.5 billion when he launched his hedge fund firm in 2004. However, performance has not exactly been stellar of late, and at the midway point this year, the firm, whose main fund was mired in the red at the time, saw assets stand at about $8.5 billion. This was down about 30 percent from $12 billion at the beginning of 2012.
So, what’s behind the rash of ex-Goldman stars stumbling of late? Most hedge funds experts insist this is merely a coincidence.
For example, two of them — Och and Cooperman — are embroiled in legal troubles that are unrelated to each other’s firms. Perry, Lampert, Novogratz, Cooperman and Mindich all have deployed very different strategies from one another.
However, one fund-of-funds manager does stress that most of these guys represent an older era of hedge fund managers who earned their reputations in an environment when it was easier to make money and many of their strategies were less competitive.
Another fund-of-funds manager says on one hand, this is a coincidental grouping of people with similar pedigrees. But he did stress that Goldman fostered an environment of risk taking. “The Goldman guys are pretty aggressive,” he asserts.
Coincidence? Probably. But a curious coincidence to watch as the hedge fund industry’s changing of leadership accelerates amid its most challenging period since the financial crisis.
