Drinks flowed as hedge fund titan Robert Mercer, dressed as Mandrake the Magician, partied with Donald Trump, dressed as, well, Donald Trump.
The occasion that early December evening was Mercer’s 2016 holiday costume party, an intimate gathering of 250 at his Long Island estate. This year’s theme: “Villains and Heroes.”
In Trump, Mercer and his fellow hedge funders had much to extol. Tapping into the wealth he amassed at his wildly profitable firm, Renaissance Technologies, Mercer and his daughter Rebekah (dressed that evening in Black Widow leather) had helped vault Trump to the American presidency. Trump, more than any other president-elect, has sought out hedge fund types, from Steven Mnuchin, his choice for Treasury, to David McCormick, a leading contender at Defense, heralding a new lucrative era for American finance.
But Trump or no Trump, this year marked the beginning of the end of hedge funds as we’ve known them. Their investors are joining a growing revolt, spurred by years in which fund managers grew rich while producing little in the way of returns. In 2016, big money clients finally decided to bail. “Let them sell their summer homes and jets and return those fees to investors,” one New York City official said in a nod to the populist wave that swept Trump into the presidency.
“There has been a massive blowback from public pension funds and private endowments,’’ said Craig Effron, who co-founded his Scoggin Capital Management nearly 30 years ago. An investor told him recently that many chief investment officers are so fed up that they would prefer to entrust their cash to a trader who charged no management fee, over one who did, even if they expected the latter to make them more money.
Public retirement plans from Kentucky to New York, New Jersey and Rhode Island have decided to pull money from hedge funds. So did a state university in Maryland and other endowments. MetLife Inc. and other insurers followed suit. Money-losing firms were forced to reduce their fees. Client withdrawals ($53 billion in the last four quarters) drove some managers out of business, including veteran Richard Perry, who until recently had managed one of the longest-standing and better-performing firms.
The comedown would have been unimaginable in 2007, when Tom Wolfe, who chronicled the lives of Wall Street bankers and their social X-ray wives in the go-go ’80s, proclaimed hedge funders the new Masters of the Universe, an aggressive and status-fixated group focused on pushing the old-money guard aside.
Reshaping City
In the ensuing years, the fleece-vest set did just that.
Their fortunes changed New York City -- their home and playground. Hedge fund money supported the Robin Hood Foundation and Harlem Children’s Zone. It helped pay for the lobby of the new Whitney Museum and backed charter schools. It pushed up prices on contemporary art, notably the red-hot quartet of Jeff Koons, Richard Prince, Andy Warhol and Damien Hirst.