With more than $3 trillion in assets—and the freedom to invest opportunistically worldwide-hedge funds have become one of the most important market-moving forces of the last few decades. Yet it is no secret that the environment has become more competitive and challenging to generate alpha than ever before. This panel brings together leaders in the hedge-fund industry to discuss what it takes to survive and thrive. Strong returns are no longer enough to achieve scale, and scale itself is no guarantee of success. Panelists will discuss how to build an entity that is durable across resources, talent, and returns from the perspective of top founder, limited partner (LP), and headhunter.
Erik Schatzker, Editor-at-Large, Bloomberg Television
Gerald Beeson, Chief Operating Officer, Citadel
Eddie Fishman, Managing Director and Executive Committee Member, The D. E. Shaw Group
John McCormick, President and CEO, Hedge Fund Solutions Group, Blackstone Group
Jeremy Schiffman, Founder and Managing Partner, Palestra Capital Management
Ilana Weinstein, Founder and CEO, The IDW Group LLC
The Hedge-Fund Shakeout
Erik Schatzker: Many of you sitting in this audience are tuning in from around the world may think the key to hedge fund success is obvious the returns. Except that’s not really true. And it’s the first question for this panel. Why aren’t good returns enough. To survive. The hedge fund killing fields. Eddy lead off position.
Eddie Fishman: Ultimately what we’re all trying to achieve is to produce performance for our investors. But as Eric says. It isn’t enough and it isn’t enough because if you do it once. There’s no guarantee that you’ll do it again. That’s the legal disclaimer that you see on all of the legends that are on the materials that we all put out. But what would require what is required to keep going. To sustain yourself is to have a process by which you can keep doing it and that includes human capital. It includes lots of different things about running a firm that are not limited to the hedge fund industry but they certainly apply to the hedge fund industry and that that’s that’s a lot to do with people. But it’s also a lot to do with running an infrastructure and managing a technology organization or borrowing money or lots of different things and so ultimately it takes a variety of skills and a process of continuing to get better at each of those things in order to sustain yourself.
Ilana Weinstein: You know it’s interesting. Returns are obviously paramount but at the end of the day those returns are the sum total of the people behind them. And I am. Always surprised by the level of habitual underinvestment in human capital in this business. And I’m speaking broadly because there are 10000 hedge funds and three point three trillion dollars under management. But the reality is. I’m sorry to say most founders are just not great managers of people. It’s not the skill set that made them successful in the first place right. They were maybe great investors and a fund kind of grew up around them but now they’re managing something that’s more than happy. Now they’re managing a business and that means they’re managing people. Process and culture and there’s a lot of things that I think they should be paying more attention to. I think candidly these are questions that you know well Pete when ellipses do their due diligence they probably should be pushing on and asking and I wonder how much they do. Questions around what sort of clarity is there regarding how your people are measured. What kind of training and development How thoughtful are the performance reviews. And I think if if a if a founder is really doing a good job on that front he almost has to visualize himself as a doctor wearing a white lab coat with his stethoscope with respect to how he’s tinkering with improving his people things around recruiting structuring and building a team helping his people with that helping them better navigate within the investment process within the investment parameters that he set for them. You know if if some firms many of actually include including most of this panel all of this panel has done a great job. Some firms have done a great job of investing in infrastructure technology all the things that Eddie was just talking about and you want to help those people to better use those tools. And then finally as they become more senior as they become patterns or partners or sector heads help them with respect to portfolio construction which is really really difficult in this I in this suit sort of new paradigm how to diversify their book and how to size how to hedge how to manage volatility. I and I just think these are things that are so important and you know I don’t know that founders really focus on them as much as they should. But again in an environment of compressed returns because that’s what’s been going on over the last five years it’s so important. Or you’ll lose your best people and to the extent you do this well you create synergy with them where they feel they’re better for being at your firm. So anyway I just think it’s a really important point that’s often overlooked here.
I guess you use the word necessary or is it enough. I actually think of it a little differently which is the returns are table stakes at the end. There you have investors who have.