Coons Leaves Wall Street Associates to Launch Hedge Fund

His new firm will cater to high-net-worth individuals, endowments and some institutional money.
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Richard Coons, who made a name for himself as an early adopter among the Street's technology-focused money managers, has left small-cap investor

Wall Street Associates

to start a hedge fund.

Before joining Wall Street Associates in 1989, Coons was a top-ranked money manager for the

(ATEBX) - Get Report

Alliance Technology fund, getting an early jump on the technology boom fueling the latest bull market. His No. 1 semiconductor stock pick in 1987, according to a September

Fortune

magazine issue:

Intel

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.

Coons, who had worked at Wall Street Associates for 10 years alongside founders Kenneth McCain and William "Jeff" Jeffery, resigned last month. Vincent Stefano, who helped market the firm, left with Coons to open the new company catering to high-net-worth individuals, endowments and some institutional money. Coons' 25-year-old son, Mark, joins his father's new firm as a principal as well.

"We always knew Rich wanted to work with his kids," says McCain.

The departure of Coons, 51, shows that hedge funds, investment partnerships closed to all but the very wealthy, continue to brain-drain talent away from traditional money-management firms. For instance, Jon Jacobson, a star stock-picker, left

Harvard Management

last year to open his own hedge fund,

Highfield Capital

. And John Brennan and Chris Felipe left

MFS Investment Management

last month to set up a hedge fund, according to published reports.

Not only does the hedge fund format allow Coons and Stefano to break out from small-cap to "all-cap" investing, it could also allow them to make more money if the firm performs well. The new firm,

Viewpoint Investment Partners

, will charge the steep, but standard, hedge fund tithe of 1-and-20, or 1% management fees and 20% performance fees, Coons says.

Meanwhile, Jeffery and McCain are staying at Wall Street Associates, a micro- and small-cap growth manager they founded in 1987, 20 days before the stock market crashed. Wall Street Associates is a subadviser to the

SEI Investments

umbrella of funds. It also has its own hedge funds.

Wall Street Associates opened for business with about $50 million under management, and within two years, Coons joined the firm from Alliance. Wall Street Associates now manages about $1.2 billion, some for corporate pensions and advisers such as SEI and

Salomon Smith Barney

, and roughly $80 million in its two separate hedge funds, McCain says.

However, Wall Street Associates specializes in small-cap, emerging-growth companies, which have lagged in the market rush into blue-chips. Freed of those small-cap handcuffs, Coons and Stefano say their performance could be stronger.

"In a pure small-cap or micro-cap account, you have capitalization limits, and it's hard to find a good Internet company, for example, with a capitalization less than $1 billion. That's somewhat limiting," Coons says. "We'll focus less on just small-cap stocks, and probably with a more aggressive use of shorting," or making bets that certain stocks will fall.

When the Coons-McCain-Jeffery trio was still a trio, Wall Street Associates managed a 13% return last year. Investors pay premium prices for hedge-fund management, and in return, of course, they expect superior performance, which most of them didn't get in 1998. The average hedge fund returned 11% last year, while the benchmark

S&P 500

index returned 26%, leaving many investors scratching their heads over why they paid a 20% performance fee for mediocre returns.