What's in a name? Richard Breeden is about to find out.

Breeden, chairman of the Securities and Exchange between 1989 and 1993, is jumping on the activism bandwagon, prepping a new hedge fund for launch in January, according to industry sources.

Now that's a big name. But is a name enough to raise hedge fund money?

The traditional hedge fund crowd wants to see an investment track record when it comes to giving capital to a new manager. That explains how Eric Mindich, who ran Goldman Sachs' acclaimed risk-arbitrage desk, raised $3 billion at launch last year. It could also explain why Jack Meyer, the former chief investment officer of Harvard University, should have no problem with his new hedge fund. According to the newsletter Alternative Investment News, Meyer is expected to line up $4 billion to $6 billion at launch, making his start-up the biggest hedge fund launch ever. Both Mindich and Meyer are top-notch investors.

But Breeden?

He certainly has a strong pedigree in rehabilitating messy companies such as MCI ( MCIP) and Hollinger ( HLR), but some say that he has no track record as a manager and that will hurt his ability to raise money.

It may even hurt all the more after some -- like now infamous Samuel Israel III of Bayou Management -- relied a little bit too much on the apparent credibility of their name. Israel's grandfather was a legend on Wall Street and those who invested with him got burned badly; Israel and Bayou's former chief financial officer Daniel Marino each pled guilty to defrauding investors.

As a result of the Bayou mess, the "celebrity effect" may be on the wane.

"I don't get it! Here is somebody who has no investment experience. Why would people give him money,?" asks Phil Goldstein, who manages Opportunity Partners, an activist hedge fund that has posted a 16% annualized return over the past 12 years with not one down year. Goldstein may be one of the rare managers to be vocal against a former SEC top gun. "People are afraid of the SEC. I am not," says Goldstein, who is suing the Commission over its upcoming hedge fund registration rule. But the stigma of the lack of investing experience is there nevertheless.

"My guess is that he'll have trouble raising money without a managing background," says a manager at a special situations hedge fund who preferred to remain anonymous.

Breeden was traveling and did not return repeated calls seeking comment.

Having hedge fund experience is also important in garnering new capital. Breeden has no such experience. But neither did Carl Icahn when he launched his High River partnership last year. "Yes, but Icahn has an incredible track record managing his own money," says Goldstein. "He is one of the greatest investors and he's done it through activism."

Breeden's new fund, to be managed out of Greenwich, Conn., is called Breeden Partners, according to sources who have heard about the launch or been pitched the fund. It is an activist hedge fund looking at value stocks -- although the fund's unofficial marketing brochure says that the managers are "active, not activists."

But activism is how people who have been briefed on, or heard of, the startup perceive the fund's philosophy. And if there is any doubt, the document says that the fund will "seek superior returns" by investing in companies where:
  • management policies or performance have resulted in diminished enterprise value,
  • and the fund can serve as an effective catalyst for eliminating value-diminishing policies through active engagement in governance or other active measures.

    Moreover, the concentration of the portfolio (comprised of 6 to 12 companies) and the ownership percentage (up to 10%), should also help alleviate any ambiguity. The fund is also ambitious in its performance goals with a target gross rate of return of 50% for each investment.

    If it quacks like an activist fund, it probably is an activist fund.

    As hedge funds are reaching out for new ways to make returns, activism has recently been one of the most successful avenues. Unlike a global macro or long/short manager, activist shareholders need to be experts in merger and acquisitions, turnaround, bankruptcies and corporate governance. That's Breeden.

    His biggest achievement was to restore trust in MCI, as a corporate monitor appointed by a judge just a few days before MCI's predecessor, WorldCom, filed for bankruptcy three years ago.

    His marketing brochure reminds readers that Breeden's work as a corporate monitor contributed to a $10.4 billion increase in MCI enterprise value within two years of his appointment, or a 20 times increase compared to the initial estimated liquidation value. He also played an active role in repairing a messy Hollinger and restoring its stock value, as a monitor appointed by the SEC in 2003.

    In addition, three of his partners -- David Mimran, Steven Quamme and Faisal Hassan -- are M&A and private-equity specialists who worked at investment bank Milestone Merchant Partners.

    "A hedge fund is just a structure. It is a regulated structure that allows you to run money. What you do with it is very open-ended," says David Ikenberry, finance professor at University of Illinois. "He is Richard Breeden. That's not a flight-by-night name. People know him. I think he'll get funded in the first run. I'll be very surprised if he wouldn't."

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