Izzy Englander and the New Rules of Hedge Funds
The Millennium Management founder has joined the movement to make the once swashbuckling industry more like traditional asset managers but in a modern wrapper designed to appeal to conservative investors.
The hedge fund business is getting conservative.
Photographer: Stan Honda/AFP via Getty Images
Alfred Winslow Jones invented the modern hedge fund in 1949 and for the next half century most funds followed his lead. He put up most of the money for the fund himself and let outsiders in for a fee equal to 20% of the profit. He chose that number on the example of ancient Phoenician sea captains who took 20% of the profits of successful trading voyages. The fund’s out-of-pocket expenses were shared pro rata among investors.
This was a radical departure from the traditional asset manager model in which investors hired managers and paid them a fixed percentage of assets under management, out of which the manager paid most fund expenses. That model saw the manager as an employee or agent of the investor, while Jones set himself up as a partner.