Wanted: Fund Manager, No Experience Necessary
Superfund's Christian Baha, a former policeman, has lots of company in the ranks of hedge managers with unconventional backgrounds. "The 'hotness' of this field certainly has attracted people whose pedigrees [suggest they are at] greater risk to fail than those who have, say, served a more typical apprenticeship at a large hedge fund," says Randy Shain. He's vice-president of First Advantage Corp. (FADV ), producer of the BackTrack Reports , which conducts background checks on fund managers. Over the past five years, Shain says, his staff has seen "an Olympic gold medalist, some former military folks, several ex-professional football players, and a professional arcade-game player."
The record of ex-Minnesota Viking Rick Fenney illustrates the worst-case scenario. A running back from 1987 to 1991, Fenney worked during the 1990s for Norwest Investment Services Inc. and then briefly for Merrill Lynch & Co. (MER ) in a San Diego suburb. In 2001 he opened a hedge fund operated by Fenney-McLean Capital Group Inc. He ran the fund until 2004 but didn't stay within bounds. Last Dec. 20 he pleaded guilty to wire fraud in federal court in San Diego, admitting he stole up to $2.5 million from the fund. Fenney agreed to make restitution and faces up to 20 years in prison.
No one compiles thorough statistics on hedge managers' backgrounds, but observers say a small but growing number of newcomers have little or no experience in jobs where fund managers have usually learned the ropes. Timothy Sykes, a 24-year-old New Yorker, started his $3.2 million Cilantro Fund Partners LP before graduating from Tulane University in May, 2003. He began with $100,000 from his parents and $900,000 of his own money. Sykes says he amassed his share from successful day trading during high school and college, having started at age 17 with $12,415 saved from bar mitzvah gifts. Trading, he says, "is basically like a video game for me."
To spread the word about Cilantro's reported gains of 20.4% in 2004 and 23.7% in 2005, Sykes paid $12,000 to post the fund's marketing materials last year on hedgefund.net, a site for investors with a net worth of $1 million-plus. The site publishes data on 5,450 hedge funds and other alternative investments. So far, Sykes says, he has received investments of $100,000 or more from three funds that invest in hedge funds and eight wealthy individuals.
There have always been hedge fund managers with unlikely résumés. Alfred Winslow Jones, who started the first hedge fund in 1949, was a financial journalist. Now some "activist" hedge funds, which buy stakes in companies and agitate for change, have begun hiring people with experience in the industries they are targeting, says Maureen Brille, managing director of executive-search firm Gerson Group. Several physicians run hedge funds today, including Dr. Richard W. Bank, a former gynecologist who started First-Tier Biotechnology Partners LP in 1995 in Los Angeles.
The assets of an Atlanta-based hedge fund firm whose principals include two anesthesiologists, International Management Associates, were frozen on Feb. 17 after a group of current and former NFL players who are investors filed suit in a Georgia state court, alleging forgery and fraud. A lawyer for the Atlanta firm didn't return phone calls seeking comment.
Some newcomers are keeping their day jobs. Jes Santaularia, manager of hedge fund Parrot Trading Partners LLC, is also the CEO of Diversified Concepts, a real estate development firm in Sarasota, Fla., which derives roughly half of its revenue from self-storage units. About 15 years ago, Santaularia started investing the cash his business generates in highly leveraged Standard & Poor's 500-stock index futures, which allow investors to bet on the direction of the stock index. "I was looking for ways to make better-than-money-market returns," he says. In April, 2004, he launched Parrot with $500,000 from friends, family, and business partners. The fund claims profits of 8% from Apr. 13 to Dec. 31, 2004, and 16% for all of 2005. It now has $4 million under management.
By Anne Tergesen