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Hedge Funds Face Succession Challenge
(Bloomberg News) Bruce Kovner is betting he can pull off what eluded Stanley Druckenmiller and Julian Robertson: keeping his hedge fund alive after retiring from trading client money.
Kovner last month named chief investment officer Andrew Law, 45, to run his $10 billion Caxton Associates LP.
Kovner, 66, who started the New York-based firm in 1983, told clients in a letter that he will retire by the end of the year to pursue personal interests. Peter D'Angelo, 64, the firm's president and co-founder, will also step aside.
Caxton is confronting a difficult challenge for a growing number of hedge funds: managing succession in a business where success is built on the founders' trading skill and reputation. Unlike private-equity firms such as Blackstone Group LP, which transformed themselves from private investment partnerships into public, diversified asset managers, top hedge funds from Robertson's Tiger Management LLC to Druckenmiller's Duquesne Capital Management LLC returned investor money after the founders stepped back.
"Hedge funds haven't done a great job at succession planning," said Myron Kaplan, a partner at New York law firm Kleinberg, Kaplan, Wolff & Cohen PC who advises hedge funds. "The key is to institutionalize the firm and change investors' perceptions of the fund as a single guru's shop."
In the past year, at least three top hedge-fund managers ceased investing client money. George Soros, the 81-year-old billionaire, told investors in July that he would turn New York-based Soros Fund Management LLC into a family office. Chris Shumway, 45, founder of Shumway Capital Partners LLC in Greenwich, Conn., said in February that he would return capital to clients. Druckenmiller, 58, shuttered his New York hedge fund in August 2010.
Hedge-fund legends including Robertson, 79, and Michael Steinhardt, 70, returned client money in 2000 and 1995 respectively.
"It's a shame that franchise value is being dissipated and not realized by all the people involved, be it the founder, his employees and investors," said Kaplan. In contrast, the founders of the largest private-equity firms, many of whom are in their sixties, have diversified their businesses and sold shares to the public as part of their efforts to ensure the long-term survival of their companies.
Blackstone, the biggest private-equity firm, and Fortress Investment Group LLC went public in 2007. KKR & Co. gained a New York listing last year, and Apollo Global Management LLC did the same in March. Carlyle Group this month filed for an initial public offering.
At KKR in New York, co-chairmen Henry Kravis and George Roberts set up a management committee where they share oversight of the firm with younger executives who may one day run the business. Kravis, 67, said at the firm's investor day in March that succession is on his and Roberts' minds.