Hedge Funds Are a Job Now

There is a sense in which the main story of modern hedge funds is style drift. You start out doing convertible arbitrage or merger arb or relative-value structured-credit trades, you make a lot of money, you attract more investors, you gain in confidence at the same time that you reach the limits of your strategy’s capacity, you expand into other strategies, you make more money, you conclude that you are an all-purpose genius, you start going on television, your returns maybe suffer a bit but who cares, and you end up trying to influence national politics and/or mentoring Diddy.

Arguably this works best for your clients at the early stages, when you are making them a lot of money by focusing on your fairly specialized core skills. There is a long history of clients complaining that their hedge fund managers go on TV too much. But surely it works best for you at the later stages, when you are rich and hanging out with Diddy. Starting a hedge fund is not only a bet that, if you work hard and have lots of skill and get a bit lucky, you will make a lot of money and win the respect of your peers and the gratitude of your clients. Starting a hedge fund is also a bet that you might get famous.