Bruce Kovner, the billionaire co- founder of Caxton Associates LP, is retiring from the $10 billion hedge fund, ending a three-decade run during which he traded everything from soybeans to Japanese yen futures and returned twice as much as the Standard & Poor’s 500 Index.
Andrew Law, chief investment officer, will take over from Kovner as chairman and chief executive officer on Jan. 1, the New York-based firm said today in a letter to investors. Peter D’Angelo, 64, Caxton’s president and co-founder, will retire.
“After 34 years in the trading business and more than 28 years leading Caxton, the time has come to hand the leadership of the company to a new generation,” Kovner, 66, wrote in the letter. “I do so knowing that I will miss the adrenalin rush of confronting markets every day but also confident that new leadership will carry on the traditions, style and substance of Caxton’s successful history.”
Kovner is attempting a rare handover of power in the $2 trillion hedge-fund industry, where some of the most successful managers, including Stanley Druckenmiller and George Soros, chose to transform their firms into family offices rather than put another trader in charge. A family office usually oversees money for a wealthy individual and their relatives.
“In a lot of cases, the founder is the firm,” said Brad Alford, head of Alpha Capital Management LLC in Atlanta, who has invested in hedge funds for two decades. “All these guys say they have deep benches, but the founders are the glue that keeps these places together.”
Kovner declined to comment beyond the letter. He has been preparing for his exit since 2008, when he named Law, a 45-year- old former Goldman Sachs Group Inc. managing director, as CIO.
A one-time college instructor and New York City cab driver, Kovner opened Caxton in 1983, one of the first hedge-fund managers who sought to profit from macroeconomic trends by trading a variety of assets, including stock indexes, bonds, currencies and commodities. Among the best-known managers, only Druckenmiller, who turned his Duquesne Capital Management LLC into a family office in August 2010, and Soros, who followed suit this July with his New York-based Soros Fund Management LLC, had longer tenures at the helm of a macro fund.
Kovner’s main Caxton Global Investment fund has returned an average of 21 percent a year since inception, compared with an average gain of 11 percent including dividends by the Standard & Poor’s 500 Index. The $7 billion fund had one losing year, in 1994, when it fell 2.5 percent. Since 1983, the S&P has fallen in five calendar years, including a 37 percent decline in 2008. The top returns have helped Kovner amass a fortune estimated at $4.5 billion, according to Forbes magazine.
The fund over its lifetime has produced cumulative net gains for investors of more than $12 billion, according to Kovner’s letter and an estimate by LCH Investment NV, a money manager based in Curacao. That ranks Caxton at seventh among the industry’s most-profitable funds. Soros Fund Management LLC tops the list with gains of $35 billion through the end of last year, according LCH.
Unlike many top hedge-fund managers who started buying stocks while still in high school, Kovner took a roundabout route to trading.
After getting a bachelor’s degree from Harvard University in 1966, he started a Ph.D. program at its John F. Kennedy School of Government, only to give up four years later.
In the mid-1970s, he became interested in financial markets, according to “Market Wizards,” a 1989 book by Jack Schwager. He started trading, borrowing $3,000 on his MasterCard and turning it into $45,000 in a matter of months, before losing $23,000 of his nest egg on a disastrous soybean wager.
It was that bet that taught Kovner an important lesson. “When something happens to disturb my emotional equilibrium and my sense of what the world is like, I close out all positions related to that event,” he told Schwager.
A few months later, he answered an ad to be an assistant trader at Commodities Corp., a Princeton, New Jersey-based firm that traded everything from cocoa to corn to currencies. The head of firm, Helmut Weymar, was so impressed on his first meeting with Kovner that he made him a full trader instead. After six years at the firm, which was later bought by Goldman Sachs, Kovner opened Caxton.
When Kovner was asked by Schwager what made him a successful trader, Kovner said: “First, I have the ability to imagine configurations of the world different from today and really believe it can happen. I can imagine that soybean prices can double or that the dollar can fall to 100 yen. Second, I stay rational and disciplined under pressure.”
Law, who grew up in Cheshire, England, and earned an undergraduate degree in economics at the University of Sheffield, joined Caxton in 2003. He is based in London and spends a week out of each month in New York, a practice he said he will continue.
He previously worked at Chemical Bank, where he started at 23, and Goldman Sachs, where he rose to be head of proprietary trading in London.
At Caxton, Law manages about 20 percent of the assets of the flagship fund, including leverage, or about $3.5 billion. This year the fund is down about 1 percent, according to investors who asked not to be identified because the information is private, about the same as the Bloomberg macro hedge-fund index.
Learning to Listen
Law’s trading style has always been similar to Kovner’s, he said in an interview in his office on Park Avenue in Manhattan. Yet the older man drove home some important lessons.
“I’ve learned to listen to the markets more,” said Law, meaning that he pays close attention to how markets move relative to one another, and how they react to events. He depends on these observations, rather than what he calls “abstract fundamental preconceptions,” to forecast future price movements.
Law also embraces Kovner’s practice of cutting risk when he doesn’t understand what’s going on in markets, something that Law did in May and June of this year. “Bruce has done this many times in his career,” he said.
Starting next year, Law will institute an operating committee to run the day-to-day business of the firm. Its members will include Law; John Forbes, chief operating officer and chief financial officer; Mike Bolitho, who oversees back- office functions; and Scott Bernstein, general counsel. Caxton will limit the amount of money it will take from new investors, a step known as a “soft close.”
Kovner and D’Angelo will remain investors in the fund and will retain “substantial minority stakes” in the firm, Law said.
Kovner, who will keep an office at Caxton, will continue to pursue his many outside interests, including the arts, education and politics, according to his letter to investors. He is chairman of Juilliard’s board and vice chairman of Lincoln Center for the Performing Arts. He’s a managing director of the Metropolitan Opera and a trustee of the American Enterprise Institute.
A promoter of education reform, Kovner founded the School Choice Scholarships Foundation, which provides money to low- income students in New York City so they can attend the primary schools of their choice.
He will also continue to make investments in drug and medical-technology companies. He currently sits on the board of Lexington, Massachusetts-based Synta Pharmaceuticals Corp., which is developing drugs to fight cancer and diabetes.
“Most of all I look forward to spending more time on the simple pleasures of life with family and friends,” he wrote. “I may even be able to have a little more time at the piano!”
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