Why are so many big-name hedge fund managers so chatty lately?
There was a time not long ago when even well-known hedge fund captains – those with enviable portfolio returns, whispered-about personal wealth and reputations for flame-tempered investment brilliance – rarely spoke on the record or appeared publicly. The exclusive nature of their investment vehicles, open only to institutions and “qualified” wealthy individuals, allowed them to disclose little, and most took advantage of this prerogative.
Yet it’s been hard to watch a stretch of financial television in recent months without seeing one or another of these stewards of private capital holding forth on prospects for the world economy, Federal Reserve policy and their own favorite investment positions.
The shrill and sometimes nasty public battle waged on CNBC’s air between Bill Ackman and Carl Icahn over the merits and demerits of the once-obscure Herbalife Ltd. (HLF) has, of course, been the most attention-getting public display of private investors “talking their book” in public.
Ackman, of Pershing Square Capital, laid out a fervent argument contending Herbalife, a multi-level marketer of nutritional aids, is a fraud and its stock worthless. Icahn – more freelance investor and agitator than pure hedge-fund proprietor – bought Herbalife shares, seemingly as part of a simmering feud with Ackman over a corporate investment entered into years ago. When Icahn phoned CNBC while Ackman was being interviewed to engage in a sometimes profane, insult-inflected argument on the air last month, it was as close as financial TV gets to spat-staging reality programming.
Yet well before this clash surfaced, an increasing number of once-camera-shy investors had begun making more of a habit of opining for a broad audience. David Tepper, founder of the $16 billion Appaloosa Management, helped set off what became known as the Tepper Rally when he articulated the bullish case for stocks on CNBC in late 2010. He reprised this role in December on CNBC and Bloomberg television – in the latter appearance even singing a few bars of an old show tune.
David Einhorn, of Greenlight Capital, has been vocal on the air about Apple Inc. (AAPL), in turn asserting the stock is undervalued and setting out his case for why Apple should issue preferred shares to unlock some value from its cash trove.
Kyle Bass, of Hayman Capital, has shown described his concerns about an overleveraged world and his bearish take on Japanese government bonds on camera. Ray Dalio, something of a cult figure as head of Bridgewater Associates, the world’s largest hedge-fund firm, has in recent months laid out his macroeconomic outlook in magazines and on TV for an eager investing populace.
A new openness
What’s behind this relatively new willingness by some of the most successful hedge fund managers to open up to the media? Conversations with wealth advisers, traders and some hedge fund professionals themselves focused on on a handful of factors behind the trend.
- Old-fashioned ego and self-promotion. Performance-stalking professional investors have always competed through intelligence, judgment and trading reflexes. Becoming known in industry circles as one of the smartest allocators of capital, a plum guest at private "idea dinners," was probably always a coveted prize.
With the mainstreaming both of financial media and the hedge fund industry, aspirations to public renown have probably become more common. Some Wall Street veterans suggested that there has perhaps been a generational shift, with some younger managers more willing to invite attention than were the old guard.
There’s a good chance, too, that the years surrounding the crisis fed this impulse. Whether David Einhorn’s persistent – and profoundly vindicated – skepticism toward Lehman Brothers; John Paulson’s renowned efforts to short housing-related assets; or the aforementioned Tepper call to bet on a Fed-suppored market rebound, several defining macro trades became associated with one or a few individuals, glorified in the popular books The Big Short and The Greatest Trade Ever.
A crowded market
- Branding and marketing. Closely linked to the ego element, formal marketing has become more important for hedge fund managers, who now operate in a more crowded market given the thousands of funds vying for investor dollars.
There is a growing sense that private investors need to help define their own image and branding for their firms, or it will be done for them by the press. As one gatekeeper to funds of hedge funds put it, historically, intense press focus on hedge funds tended to arise over two topics: The personal wealth of the manager or the implosion of a fund.
With hedge funds having become a more central part of the investment business, they now garner more attention whether they want it or not. Even a few years ago, those few hedge funds that retained public-relations help did so mainly so the PR representative could leave “No comment” voicemails for reporters. A few months ago, Absolute Return magazine published its first ranking of PR agencies in the hedge fund sector, calculating that most of the billion-dollar-and-up firms have counsel.
One of the remaining secretive giants of the business, Seth Klarman’s 30-year-old, $26 billion Baupost Group, recently acknowledged the need to pay more attention to its public profile. In his year-end investor letter, Klarman wrote, “A licentious media and sometimes fact-free blogosphere nearly guarantee ongoing coverage of Baupost regardless of our best effors to stay out of the headlines.”
The JOBS factor
The JOBS Act, a law passed last year that eased some financial regulations, will allow direct advertising by hedge fund firms, so the race for assets will soon become more overt and public. The hunt for new money is important to some managers, in part because attaining critical mass could make them more attractive to larger institutions that have lately begun buying stakes in hedge fund shops. This allows for founders to liquefy their ownership and arrange for the next generation of managers to inherit the firm.
- Performance enhancement. Broadcasting one’s investment ideas can help gather market support for one view and push stock prices in the manager’s favor – legally. For years, some publications have used hedge fund managers as sources to highlight ripe investment ideas, usually without attribution. Managers often hid in the regulatory gray area that some interpreted as equating media quotation with prohibited public marketing.
This view has relaxed. When charity events such as the Ira Sohn conference began raising big money and attracting lots of buzz by featuring market-moving calls by usually inaccessible managers, the idea of speaking about one’s money-making ideas became more accepted.
Says Nick Colas, chief market strategist at BNY ConvergEx Group: “With so many hedgies out there, managers know they have to differentiate their ‘product’ from their competitors. Getting air time to explain their investment ideas is invaluable to making them stand out. The more controversial, the better.”
- Regulatory inoculation. While few managers would likely be upfront about it, speaking publicly can serve as a gesture of transparency at a time when the Securities and Exchange Commission and prosecutors have become more aggressive in targeting alleged insider trading at hedge funds. The prosecutions of managers at Galleon Group a couple years back, and the current inquiry involving analysts at Steve Cohen’s SAC Capital – one of the most successful and private big firms – have likely persuaded other managers that openness can serve as one signal of above-board investment practices.
There was a time when being reticent and assiduously keeping a low profile were the assumed mode of running a hedge fund. But today – with Cohen almost universally referred to as a “secretive billionaire investor,” as former colleagues are caught in legal trouble and many clients pull assets – this quiet approach has lost some appeal.