Investing in Hedge Funds Means ‘Betting on People’

As hedge funds continue to gain attention making millions—and billions—of dollars, it seems like everyone either wants to start one or invest in one. The two camps came together June 9 at the Mark Hotel in New York City, where the masterminds of four young hedge funds presented them to a panel of experienced investors in front of an audience of University of Chicago alumni.

The six panelists took turns playing potential investors, prodding the presenters about the strategy and structure of their funds, which had to be less than three years old with $250 million or less in assets. The panelists also offered listeners a glimpse into what they look for when assessing a fund, which has more to do with how the people work than with details about the fund.

“You’re ultimately betting on people, so you have to have a view of the strategies from top down,” said moderator Bill Johnson, ’88, a private investor and former president of Paloma Partners. Michael J. Jawor, ’86, chief investment officer at Glenwood Capital Investments, added, “I like to see someone who’s had an apprenticeship at a quality shop. I also want to see people who were portfolio managers. I don’t really care if they can’t show me an audited track record, as long as they managed a portfolio at their previous shop.

“There are two things we don’t like to invest in at our shop,” Jawor continued. “One of them is prop traders coming off of market-making desks at big investment and commercial banks, because in a lot of cases it’s the chair that makes the money, not the guy. The second thing that is really hard is guys who haven’t shorted before. You start them in a shorting program and even the smartest guy in the world, nine times out of ten, gets chewed up at some point in the beginning.”

The event was organized by the University of Chicago New York Regional Annual Giving Committee and sponsored by PlusFunds Group, Inc.

Presenters

Jay Feuerstein, ’80, managing partner, Xenon Capital Management

Greg Melconian, ’96, and Philip Summe, ’96, managing directors, Crossfields Capital Management

Jason Rapp, AB ’97, research analyst, Pierce Street Capital Partners

Nicholas Waltner, ’90, managing principal, Kulshan Capital Management.

Additional Panelists

Greg Howell, SM ’91, PhD ’94 (mathematics), managing director, Highbridge Capital, and senior portfolio manager, Statistical Arbitrage

Michael Linn, managing director, Quellos Capital Management

James Meisner, AB ’78, MBA ’79, managing director, alternative investments, Commonfund

Todd Petzel, AB ’73, AM ’73, PhD ’76 (economics), managing director and chief investment officer, Azimuth Trust

 Anthony Ruth