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By Barry Cohen

Michael Hintze: The market environment is fascinating intellectually
Michael Hintze: The market environment is fascinating intellectually   (photographs by Tony Law)

MICHAEL HINTZE DOES NOT PROJECT an intimidating persona. In contrast to many hedge fund titans, the amiable Hintze comes across more like an absent-minded professor than a hard-charging deal maker. The tall, white-haired Australian speaks like the excitable engineering geek he once was, firing off ideas and themes in a rapid-fire, staccato fashion, rarely finishing a sentence before he moves on to the next one. His delivery is so manic that one former employee likens it to "driving a golf ball around a tiled bathroom."

But Hintze's hyperactive speech patterns and affable nature belie serious investing acumen and business savvy: He is the founder and senior investment officer of CQS, a $10.5 billion hedge fund with headquarters in London and offices around the world. Over the past decade, CQS has evolved from a single-strategy business running a lone hedge fund out of one office into a global multiasset manager with 208 employees and additional offices in New York and Hong Kong, and regional offices in Sydney, the island of Jersey and Geneva. The firm now runs six hedge funds spanning numerous credit-related strategies, which collectively manage $6.3 billion in hedge funds and customized portfolios. It runs another $2.5 billion in long-only funds and related customized products and an additional $1.7 billion in collateralized loan obligations.

Getting to its current size and stature hasn't been a smooth ride, however. Before the financial crisis of 2008, CQS managed $9.5 billion, making it one of the largest hedge funds in Europe, and the firm had racked up numerous EuroHedge Awards for strong performance. But like many credit-focused firms, CQS took a serious hit during the meltdown in the convertible bond market, which pummeled CQS's then-largest fund. The CQS Convertible & Quantitative Strategies Fund, which at one time managed as much as $2.84 billion, lost 32.44% in 2008.

Still, Hintze made the decision not to impose any gates, suspensions or side pockets on his funds. His reward? Investors fled. The firm ended 2008 with $7.5 billion in assets, but many of the redemptions kicked in during the first two quarters of 2009 because the firm required investors to give 90 days' notice. Though few of CQS's other funds fared as badly as the main fund-its self-invested fund of funds lost a modest 7.12%-and performance bounced back strongly in 2009, the firm ultimately lost a third of its assets. CQS exited the crisis with $6 billion because of the unrestricted redemption run.

Fact File for CQS
Assets under management: $10.5 billion (March 31, 2011)

Flagship: CQS Directional Opportunities Fund

Founded: 1999

Performance: 24.4% annualized (through March 31, 2011)

Offices: London, New York, Hong Kong,

Geneva, Jersey, Sydney

Founder: Michael Hintze

"It all comes back to the ethos of doing the right thing by treating clients fairly and transparently, but it wasn't cost-free," says Hintze, seated in his central London boardroom overlooking the gardens of nearby Buckingham Palace. "If we had just locked the money down and said, 'I'll tell you when you will get your money back, and we'll see you in another year's time,' we would have been much better off."

While the decision not to slap a gate on investors cost the firm in the short term, Hintze acknowledges that it also had some benefits. Like other hedge funds that did not impose gates or side pockets during the crisis, the firm is finding it easier to attract new investors than other hedge funds that did are. "We're getting new clients, such as sovereign wealth money, which we wouldn't have done otherwise," he says.

Over the past two years, Hintze has worked to rebuild his roster of investors while continually revising the firm's investment process and its already significant operational and risk management platforms. That work has paid off. Today the firm manages more money than it ever has in its 11-year history, and performance has come back strongly. Nearly all the CQS funds followed 2008 with impressive returns in 2009-including CQS Directional Opportunities (56.31%), CQS ABS (28.53%) and CQS Convertible & Quantitative Strategies (31.26%). Last year the firm took home the coveted EuroHedge Fund of the Year award for CQS Directional Opportunities.

Michael Hintze: I was always keen to build my own business
Michael Hintze: I was always keen to build my own business

The story of how the slightly eccentric former engineer became one of the world's leading hedge fund managers began 57 years ago in Harbin, in northeastern China, where Hintze was born. His grandparents had fled there to escape the Russian Revolution of 1917. (Hintze remains a fluent Russian speaker.) His parents would repeat the pattern, becoming refugees a few decades later after they lost everything following Mao Tse-tung's rise to power in 1949. Because borders were closed and exit permits were difficult to obtain, the family managed to escape to Australia only in 1953, when Hintze was just three months old. These experiences foreshadowed Hintze's later political activities; he went on to become a passionate advocate of free markets and rejuvenate England's Tory party through significant donations.

Hintze was educated in Australia by the Christian Brothers, a Catholic lay order that runs schools and colleges. Hintze, who still describes himself as a religious person, was taught that the fortunate have an obligation to give something back to society-a lesson he took to heart, judging by his later philanthropic activities.

Despite his financial success, Hintze has eschewed many of the trappings of excess wealth and has maintained a modest lifestyle, at least compared with those of other hedge fund billionaires. He counts as the two luxuries in his life a 20-year-old Cartier watch and a Bentley car he bought six years ago, and instead of splashing out on yachts or flying around in private jets, he has invested in sheep farms in Australia. Hintze lives with wife and four children in Balham, south London, rather than in more upmarket hedge fund manager habitats like Chelsea or Notting Hill.

Initially, Hintze did not appear destined for a career in business. He earned a bachelor's degree in physics and pure mathematics and another in electrical engineering from the University of Sydney, and later earned a master's degree in acoustics from the University of New South Wales.

Hintze decided to enlist in the Australian army, partly to aid the country that had accepted his refugee family and provided him with educational opportunities. "I went into the army to give something back to the country that did so much for me, and also to travel the world and have fun," he says.

After his stint in the army, where he rose to the rank of captain in the Royal Australian Electrical and Mechanical Engineers, Hintze worked briefly as an electrical design engineer. In a radical departure, and to satisfy his growing interest in financial markets, Hintze moved to Boston to study for an MBA at Harvard Business School. While at Harvard he heard a speech by John Mack, then a managing director in Morgan Stanley's fixed-income division. That speech helped steer Hintze toward trading. Hintze once said: "At that time, it wasn't fashionable to go into securities trading; corporate finance was the place to be. Trading looked interesting and fun and a good challenge. I was fascinated to see how things in markets work."

After graduating in 1982, Hintze moved to New York to work as a fixed-income trader for Salomon Brothers, where he traded Yankee bonds (bonds that were denominated in U.S. dollars and issued in the U.S. by foreign banks and corporations) just as the great bull market in bonds was taking off.

In 1984, Hintze moved to London to join Goldman Sachs, where he spent 12 years and eventually became a managing director and the head of UK trading and European emerging markets trading. He also established the firm's European convertible bonds and warrants business.

Hintze left Goldman in 1996 to take the position of managing director and European head of convertibles and equity derivatives at what was then Credit Suisse First Boston. He eventually became a managing director in the leveraged funds group, where he began to establish a reputation as a top convertible bond investor. Three years later, he developed the strategy and management team for the CSFB Convertible & Quantitative Fund, a global convertible and equity arbitrage vehicle.

In 1999, Hintze decided that he was ready for another major career move-to strike out on his own and start a hedge fund firm. With $200 million of proprietary seed capital from CSFB and an additional $5 million from family and friends, the CQS Convertible & Quantitative Strategies Fund started trading in March 2000. (CSFB cashed out its investment in 2003, having earned $300 million.)

"I was always keen to build my own business, which seemed like an interesting and exciting thing to do," Hintze recalls. "It also became pretty clear to me that if you were excellent at operations and trading, you could do well."

But Hintze acknowledges the potential pitfalls of running his own shop. "Many people think it offers you a lot of freedom, but there are also enormous responsibilities. Unlike a prop trader, you have to manage your risk and your P&L by being very focused on your operations and liquidity management."

One of Hintze's main objectives at the time was to transform the business from a firm that concentrated almost exclusively on convertibles into a multistrategy firm, which would allow him to diversify away from the vagaries of the increasingly crowded and efficient convertibles market. The move was prescient: Though the environment for these securities was ripe at the time of the fund's launch, the ability to deliver bumper returns became increasingly problematic by 2005, when many dedicated convertible managers ran into trouble.

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