NEW YORK (
) -- I suspect that
the indictment of SAC Capital Advisors
is a bigger story than we think.
It's not the substance of the charges, or the personalities involved, that have me thinking that.
I just think that the era of the personality-driven hedge fund may be ending. Or this version of it, anyway.
It's been a great ride. Hedge funds have been around since the 1960s. Most of the early successes, such as Julian Robertson's
, were based on a specific strategy. (The Tiger Fund closed in 2000.)
What has changed in this century has been the rise of the personality-driven funds, like SAC. It's not the strategy that matters here, but the man in charge.
Hedge funds turned formerly mild-mannered mutual fund managers into masters of the universe. Steven Cohen himself is a good example. He looks like an accountant, but he has become a billionaire many times over, capable of making Fortune 500 CEOs quake in fear when he moves on them.
Guys like Cohen became billionaires, in part, through a quirk in the tax law. They get a piece of everything their companies earn, but it's all capital gains rather than salary. Carried interest and management fees can reach into the seven digits per year. Their tax rates are also lower than yours. And they have amassed the political power to protect that status.
I know: The government also thinks Cohen got rich through insider trading. Our Antoine Gara thinks losses in re-insurance, made in the search for yield,
could come back to bite the company.
There are lots of Cohens around now. They're on TV all the time. They're swashbucklers with lavish lifestyles, big men who make big bets. Smaller investors follow them like schools of fish after a shark. Guys like Bill Ackman of
Pershing Square Capital Management
and Daniel Loeb of
Third Point LLC
make news when they place their bets, and are treated like the financial equivalent of TMZ superstars.
But beyond the indictment, there are indications that the days of the big swinging hedge fund manager are fading into the past.
Moore Capital Management's
Greg Coffey, an Australian known as the "Wizard of Oz," retired last year at age 41. Many investors have found they can get better returns with funds based on software algorithms.