The hedge fund industry needs a makeover
It is a difficult time to be proud of working in this sector, says Mary Childs
David Rubenstein, co-founder of Carlyle, the US asset manager, kicked off a lavish hedge fund conference in Las Vegas last month with a rallying cry: the industry has been under attack, and hedge fund managers must defend their occupation. “Be proud, not embarrassed,” he said.
That may be a tall order.
Lacklustre performance following the financial crisis has hurt the sector’s reputation, and the easy returns of the past seem to have disappeared. That has left some investors angry, feeling as if billionaire hedge fund managers have enriched themselves by taking high fees from pension fund clients while delivering mediocre returns.
That analysis is not necessarily fair, but it looks bad. Improving returns would certainly help win back support for an industry confused by its own unpopularity, but it should consider the face it presents to the world.
At the same conference, run by SkyBridge Capital, a company that invests in hedge funds, John Boehner, the former speaker of the US House of Representatives, put forward a solution: Wall Street and its cohorts simply needed a makeover.
“You look at what Wall Street does, what it means for job creation, economic growth . . . there’s a great story to tell. But if you don’t tell it, nobody else is.”
In fact, there are many great stories to tell about the hedge fund industry. It helps make capital markets more efficient and provides funding for educational initiatives, scientific and mathematical research, and philanthropic efforts such as the Robin Hood Foundation, an anti-poverty charity in New York. It is populated by professionals who generally work hard and are intelligent.
But the lone-wolf mentality of many hedge fund managers has inhibited the sector’s ability to self-police or guide how the public perceives it. Some suggest that the conference’s host, Anthony Scaramucci, the founder of SkyBridge, has taken Mr Boehner’s advice and is leading the charge to improve the industry’s image.
But in many respects, his conference has not helped.
T Boone Pickens, the billionaire hedge fund manager, said there that he agreed with Donald Trump, the Republican presidential nominee, on the benefits of banning Muslims from entering the US. “I would cut off the Muslims coming into the US until we can vet these people,” he said.
Mr Scaramucci, who publicly supports Mr Trump and used the conference to fundraise for the property magnate’s campaign, says he objects to Mr Pickens’ comments. “But I hope people who have attended the conference at least more than once won’t hold me or my staff accountable for [those comments], because we’re trying to create an open forum.”
The event also provided a platform for Karl Rove, the Republican political consultant, to tell Donna Brazile, a black political strategist: “I did you a great favour bringing you into politics in the 1860 campaign and this is how you repay me? We’re happy you got the right to vote but it wasn’t your current party that was responsible for it.”
The 1860 presidential election of Republican Abraham Lincoln sparked the American civil war, eventually bringing about the abolition of slavery. Ms Brazile good-naturedly volleyed back that due to her gender she could not have voted until 1920. But his comment was patronising and insensitive.
Of course Mr Rove and Ms Brazile are from the world of politics, not hedge funds. But the room felt like a safe space to say such a thing. It is worth noting that there were no black speakers or moderators from the industry, and women accounted for less than 15 per cent of the speaking or moderating slots.
The problem of tone-deaf comments in the industry is not limited to one conference. Leon Cooperman, founder of Omega Advisors, made a misogynistic slur against Hillary Clinton, the Democratic presidential candidate, at another gathering last month. “I have the greatest line for Trump, and he’s dumb enough to use it: ‘If you couldn’t satisfy your husband, how could you satisfy the country?’” he said, alluding to the Monica Lewinsky scandal of the Bill Clinton era.
The industry can do better. Not everyone shares these views, but these voices dominate when they are allowed the mic and the rest stay silent. As large investors increasingly reward fund companies that show a commitment to diversity, there is a financial incentive to avoid inflammatory and insensitive comments in public, or to endorse them. An industry comprised of risk takers is not doing enough to take some very easy stands. Pushing towards inclusion and against offensive statements might be an example of the rare trade that is low risk, high reward.