By Barry Cohen
|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
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|
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.
The market fell to earth that year, when several convertible bond funds posted losses for the first time, forcing many players to shut down. Many of those who survived tried to transform themselves into multistrategy shops, but few succeeded on the level of CQS, and at least one, Amaranth Advisors, failed spectacularly.
Hintze says the firm had always intended to expand beyond convertible bond arbitrage. “We are distinct from other firms that started as a convertible shop and then became a multistrategy fund,” says Hintze. “We have arrived at the same intellectual place but have used different structures.”
Hintze’s expertise in convertibles proved to be the perfect springboard for building a multistrategy shop. Understanding how to analyze a convertible bond—which involves evaluating the credit, equity, volatility, interest rates and currency components of the security—can provide the foundations for expanding into other related strategies, such as credit.
“Michael has a very granular, very fundamental view on convertibles, credit and equities, and he regards fundamental research as the bedrock in this process,” says Oliver Dobbs, chief investment officer of portfolio management at CQS. “The firm’s move into other strategies is a natural extension of starting off with a product that has both credit and equity components.”
The CQS Convertible & Quantitative Strategies Fund quickly attracted investors’ interest—undoubtedly based in part on the double-digit returns the fund generated during its first two years. By the time the firm’s association with CSFB ended, the fund held assets of $1.3 billion. Investors jumped on board.
“I was attracted by Michael’s convertible skills, and what also really excited me was the fact that he was spinning out of a big shop,” says Ken Kinsey-Quick, head of multialternatives at Thames River Capital, a fund of funds based in London, which has been an investor in CQS from its inception. “His prop trading background meant he knew how to protect his downside, compared to lots of equity long/short guys who were starting up in the 1990s with just long-only backgrounds.”
A round August 2005, CQS began rolling out a series of new strategies in rapid succession, most notably the CQS ABS Fund (credit), CQS Directional Opportunities Fund (multistrategy), CQS Asia Fund (convertible bond and equity arbitrage), CQS Diversified Fund (internal fund of CQS funds), CQS Distressed Value Opportunities Fund (distressed debt) and CQS Credit Long Short Fund.
Now the firm trades convertible securities, corporate credit, asset-backed securities, distressed debt, loans and multistrategy products. CQS employs a mix of quantitative models and fundamental research, but Hintze is not a big advocate of black box investing. “Models are a great place to start but a terrible place to finish,” he says.
As for leverage, the firm’s policy is strategy-specific. For example, the CQS ABS asset-backed fund runs a modest level of leverage, at approximately 0.8 times, because of the underlying liquidity and structure of its market. In contrast, current leverage in the CQS Convertible and Quantitative Strategies Fund is slightly above three times, a significant drop from five-times leverage in 2007.
While the firm employs 49 portfolio managers and traders and 19 research analysts to research and trade these asset classes, Hintze is still the heart of the investment team and projects an extraordinarily visceral passion for investing. He prefers to trade when most investment professionals are on vacation, and he says those periods are his busiest times. “I’m around most of August and most of Christmas because that’s often the time when great opportunities become available for producing alpha,” he says.
Hintze is directly responsible for the CQS Directional Opportunities Fund. Launched in September 2005, the $1.30 billion multistrategy fund, which runs a global, multiasset and concentrated portfolio of directional and relative strategies, has produced a 24.40% annualized return since inception.
One investor describes the fund as “Hintze’s best-ideas portfolio.” It fell modestly in 2008, compared with many other funds that year, posting a loss of 5.61%. But after bouncing back sharply in 2009, it went on to gain another 31.44% in 2010. In late 2010, CQS announced plans to soft close the high-performing fund to new investors. Although the fund’s capacity is estimated to range between $1 billion and $1.25 billion, Hintze wants to ensure that it continues to be nimble enough to maintain strong returns.
Thames River Capital says the fund is its largest holding, accounting for 15% of its portfolio. “We took that decision at the beginning of 2009, when we were trying to assess who was going to make big returns out of the 2008 carnage,” Kinsey-Quick says. “We took an unusually big bet on Michael, because we rarely let a manager get above 8% of the portfolio.”
Given Hintze’s educational background and career choices, he is known for his ability to integrate diverse areas of knowledge, including financial flows, central bank policies and politics. And various teams in CQS contribute to this, sharing their technical and market expertise across the firm—a practice Hintze has incorporated into the firm’s investment strategy.
“You start off with noise, then you hopefully get into data, followed by information and eventually knowledge,” says Hintze. “People enjoy being part of that process.”
Chief investment officer Dobbs agrees. “We hold daily investment meetings on the trading floor, in which all the senior portfolio managers share their views, with the participation of our New York and Hong Kong offices to help us gain a global perspective,” he says. “I’ve not seen that work so successfully in many other hedge funds or investment banks, where you tend to get a very silo-based approach.”
“I’m essentially a convertibles guy, but it’s very interesting to hear about the technical flows going on from a specialist credit fund,” Dobbs adds. “Over the last couple of years, for example, one of the largest areas of nominal risk has been in mortgage-related securities. Having the expertise in that area has really helped us to understand what is going on in that market. We also have a group that focuses on oil, gas and other resources.”
This collegial atmosphere is enhanced by seating the portfolio management and research teams together. “It’s partly about making each other more intelligent and partly about product creation,” says Grant Thompson, a former co-chief executive of CQS.
That broad vantage point has also helped CQS navigate the difficult markets of the past year. The firm’s big winner was its CQS Directional Opportunities Fund, which notched gains in most of its portfolios: short-dated long credit positions, distressed debt strategies in the U.S. and Europe, credit long/short trading, convertible bond strategies, long asset-backed securities positions and equities strategies.
The firm’s CQS ABS fund was another big winner in 2010, netting a 19.21% gain. The fund—started in October 2006 and managed by Ali Lumsden, the chief investment officer for ABS at the firm—has put up big numbers since its launch. It gained almost 73% in 2008 and earned another 28.54% in 2009. Lumsden says that the fund has experienced lower volatility since 2008, and returns have come down accordingly. The firm has told investors that the outsize gains of 2008 are not the norm, because that year’s investment environment was unique. “We’re getting a stable return profile, which is achievable by investing in this space with a hedged strategy,” he says.
As for the firm’s other funds, the CQS Diversified Fund gained 14.63% in 2010, while the CQS Asia Fund netted 10.74% and the CQS Credit Long Short Fund gained 8.41% over the same period. The CQS Convertible & Quantitative Strategies Fund was up 7.97% in 2010—below the index, which was up 8.72%.
THE MARKET CONDITIONS of 2010 proved tricky for even the most experienced investors, and Hintze believes today’s economic environment will continue to pose headwinds and pockets of turbulence. Still, he is fairly bullish on the opportunities the markets hold for savvy investors.
“The market environment is fascinating intellectually and full of opportunity for investors,” he says, adding that while the equity and credit markets have been challenging and difficult, “I am generally constructive about both.” That’s because the Fed’s quantitative easing is acting as a major stimulant for global markets, Hintze says. Balance sheets are being repaired, and emerging markets are experiencing sustainable growth. Yet a number of major issues worry Hintze, who regards the potential inflationary pressures arising from the second round of quantitative easing in the U.S. as one of the most pressing issues.
“The global inflationary issues cannot be underestimated,” Hintze wrote to investors earlier this year, adding that quantitative easing could have “serious potential unintended consequences.” He says that while the stimulus is boosting global markets, its effect in terms of stimulating Main Street in the U.S. has been slight.
Certain European exporters, of course, will benefit significantly from a weakening euro. Hintze is also optimistic about the geographic diversification of corporate revenues and the ability of many companies to tap capital markets for financing. For those reasons, Hintze expects to invest in companies that will be able to take advantage of growth in emerging markets.
Hintze urges other Western and developed countries to follow the UK’s lead in slashing their debt. In Europe, particularly, he argues, the danger of sovereign defaults in the peripheral countries could still trigger another major financial crisis. Meanwhile, Hintze will continue to make inflationary trades, which include going long commodities, such as gold and oil, via options structures.
Hintze thinks convertibles will continue to prosper. “The liquidity trade of 2009 has passed, and the value trade is now in effect,” Hintze wrote. “Whilst I am generally positive on the market, let’s not forget that not all balance sheets are created equal. This generates long/short credit opportunities as well as potential restructuring/distressed opportunities.”
CQS plans to take advantage of these increasingly global investment plays by building up its offices outside London. Over the past year, Hintze has put extra resources into CQS’s New York operation, which is registered with the U.S. Securities and Exchange Commission.
In mid-2010, CQS hired Jack Lindenbaum as chief executive and chief operating officer of CQS’s U.S. operations, where he will lead a team of 11 employees, who will be primarily involved in portfolio management and marketing. Lindenbaum, who previously worked at now-defunct Ivy Asset Management as managing director of product and corporate development, will focus on strengthening ties with U.S. institutional investors.
One major initiative to come out of the New York office so far has been the launch of the CQS Distressed Value Opportunities Fund, which started trading in June 2010 with initial capital of about $50 million from a handful of seed investors. Managed by Mark Unferth, who has been running the distressed strategy in the CQS Directional Opportunities Fund, the global strategy is focused on distressed debt opportunities in North America and Europe. Unferth thinks European banks are beginning to end what Hintze calls the “extend and pretend” process that allows banks to not write down bad loans. In the short period since inception, the fund has delivered a return of 18.99%.
In another major step for the firm, CQS branched out into the long-only world of energy and natural resources in September 2007 with the purchase of New City Investment Managers, a specialist in the natural-resources fund sector. New City, based in London, runs a series of mutual funds and listed funds. This acquisition followed the December 2006 launch of the CQS Rig Finance Fund, a closed-end oil rig financing vehicle, that is listed on London’s AIM exchange. Together, New City and the CQS Rig Finance Fund run approximately $940 million in assets. “The reason we brought these people on board was not to raise assets, but to raise alpha,” says Hintze. “These smart guys can cross-fertilize the rest of the firm with their expertise.”
Because of changing regulatory constraints—particularly the capital requirements introduced in Basel III, the latest international regulatory requirements for banks on capital adequacy and liquidity—many institutions find it difficult to invest in hedge funds. CQS has created new products to overcome these regulatory hurdles.
Most recently, in March the firm entered a partnership with global asset management company Schroders, when Schroders launched the Schroder GAIA CQS Credit fund on its UCITS platform. The fund is managed by the same team that runs the CQS Credit Long Short Fund, which launched in April 2009. Led by CQS’s chief investment officer for credit, Simon Finch, the fund invests across the investment-grade and high-yield markets in Europe and the U.S. However, the fund has different liquidity and risk limits than the main convertibles hedge fund because of the constraints associated with UCITS funds, which are comparable to mutual funds in the U.S.
In April 2010, CQS launched the J.P. Morgan Mansart Investments CQS Convertible Alpha Fund, a $178 million UCITS product. The fund sits on the J.P. Morgan Mansart platform, with that firm providing risk management and CQS acting as the fund’s subadviser.
In collaboration with Mercer consultants, CQS has also leveraged its in-house credit and convertibles expertise to develop a convertible long-only product, the Convertible Opportunities Fund. That fund, launched in June 2008, manages $300 million and is targeted for the pension market.
Following a path already carved out by other large European hedge fund firms like Brevan Howard Asset Management and BlueCrest Capital Management, who have created listed hedge fund products on the London Stock Exchange, CQS introduced an offering for shares in its CQS Diversified Fund Limited investment company in November. The publicly listed vehicle offers investors a tax-efficient way to gain exposure to a range of strategies in the $398 million Cayman Islands–domiciled CQS Diversified Fund, which invests in five major underlying CQS funds and has generated an annualized return of 10.62% since its inception in March 2007.
Thompson, the former co-CEO of CQS, thinks the firm’s strategy to evolve further as an asset management company is a wise policy. “It has enabled the firm to grow faster with new products, such as the UCITS fund,” he says.
It’s also a way for the firm to broaden its brand beyond Hintze. Although Hintze has surrounded himself with highly experienced veterans of the investment banking and asset management industries, he remains a driving force in formulating the firm’s global perspective, with his strong convictions about world markets and governmental policymaking.
Whenever a charismatic personality establishes and consistently leads a firm since its inception, investors and employees inevitably raise questions about key man risk. Hintze acknowledges the concern but says he thinks the issue is overblown, at least where CQS is concerned.
“CQS has a very strong investment process, which we have institutionalized, and a lot of our senior people each have over 20 years of experience in this business,” he says. “So if, God forbid, I fell under a bus, that process would continue to operate successfully. The majority of funds would carry on without missing a beat.”
Pat Trew, chief risk officer of CQS, says the firm maintains a highly comprehensive committee structure—with in-house committees set up to monitor various areas, including operational issues, risk management and investment activities—which would help to mitigate any unforeseen circumstances that could affect Hintze’s overall role. For example, Trew points to the executive committee, which is evenly split among four front-office portfolio managers—Hintze, Dobbs, Lumsden and Finch—as well as four members responsible for the infrastructure.
“In many firms there is a bias toward the portfolio management group, but here you have a very strong infrastructure representation,” Trew says. “Our structure is common within the investment banking industry but less pervasive in the alternative investment sector. Our firm is constructed as you would expect from an institution to give it the longevity that looks beyond any one individual.”
Nevertheless, the question remains whether the performance of the funds would suffer in the absence of Hintze. The impact would likely be minimal on the ABS fund, which he is not closely involved with. However, the bulk of the strategies, including the CQS Directional Opportunities Fund or the CQS Convertible & Quantitative Strategies Fund, would suffer more directly. One long-term investor remains relatively sanguine about the potential loss of Hintze at the helm of CQS.
“It doesn’t mean that we would redeem, because our firm wouldn’t take such a knee-jerk reaction,” he says. “Michael has been very careful to inculcate in the senior people running the investment business the way in which he thinks about risk. So, over time, you would have a bunch of mini-Michaels running CQS.” But the investor adds, “I don’t have any concerns that Michael is even thinking about quitting and going off to do something else.”
Hintze confirms this assessment. “I don’t have any plans to retire soon, because I very much enjoy my work, which greatly energizes me.”
STILL, HINTZE’S ACTIVITIES outside CQS suggest that he is working hard to build a legacy that encompasses more than just the firm he founded. He has become an active philanthropist, and his charitable activities have expanded in tandem with the growth in his personal wealth to make him one of the most public faces in UK philanthropy.
The Hintze Family Charitable Foundation—for which his wife, Dorothy, serves as chief executive—has supported about 150 charities and reportedly disbursed approximately £25 million ($40 million) since it was established in 2004. The foundation’s commitments encompass the arts, religious institutions, academia, hospitals and various charities associated with Prince Charles.
Because Hintze believes that a nation’s cultural heritage is of prime importance, notable beneficiaries have included the Victoria & Albert Museum (where the Dorothy and Michael Hintze Sculpture Gallery opened in 2006) and the Wandsworth Museum in London. Hintze has also made substantial donations to London’s venerable Old Vic Theatre, which is led by actor and artistic director Kevin Spacey. In early 2011, Hintze donated £2 million ($3.2 million) to the National Gallery to modernize the display rooms. He has also endowed the Michael Hintze Chair of International Security at his alma mater the University of Sydney. Following his contribution of $2.5 million for the restoration of Michelangelo’s frescoes in the Pauline Chapel at the Vatican, Pope Benedict XVI made Hintze a Knight Commander of the Order of Saint Gregory in 2005.
Hintze is also active in politics, having become a prominent supporter of the Conservative Party. His office even boasts a signed print of former British prime minister Margaret Thatcher, whom Hintze credits with having put Britain on the path to prosperity, not least for her efforts to roll back state intervention in the economy. He says the Conservatives best reflect his deeply held conviction of the primacy of free markets. “There is no question that market mechanisms are the best way to achieve fairness and opportunity for everybody,” Hintze says. “But in order to have a well-functioning market, there need to be rules, property rights and transparency.”
Surprisingly, Hintze describes his initial support for the party, in the late 1990s, as part of his charitable giving. At that time, the party, which had historically represented the British upper and middle classes, was effectively bankrupt.
Since then, he has loaned £2.5 million ($4 million) to the Conservatives and also contributed about £1.3 million ($2.1 million) to the campaigns of key Conservative politicians such as Prime Minister David Cameron and Boris Johnson, mayor of London. Hintze’s backing for Cameron’s leadership campaign in 2008 attracted negative publicity, however, as the press seized on the fact that Hintze had been one of the main short-sellers of the shares of British bank Bradford & Bingley during the global financial crisis.
Despite the PR flap, he remains a strong supporter of the party and has applied his free-market zeal to the topic of hedge fund regulation. Hintze is a key member of the Hedge Fund Standards Board, a self-regulatory panel of hedge fund managers and investors that asks its members to adhere to a code of best practices. He is also a vocal advocate of the value of greater transparency rather than increased regulation of the hedge fund industry. As part of that drive, Hintze strongly believes that managers must be extremely straightforward regarding investor relations.
“Shortly after the launch of the Directional Opportunities Fund, we visited Michael to see if we should invest in his new product,” says one early investor in CQS. “He basically told us that it probably wasn’t right for our strategy, and there aren’t many managers who are prepared to say that.”
Hintze also lived up to those standards of transparency during the crisis of 2008, communicating frequently with investors and avoiding actions that would have prevented them from accessing their own money. The firm, worried that the relatively easy liquidity terms of the CQS fund could encourage these redemptions, consulted its shareholders, who asked the firm to implement a nonpreferential automatic gate that would protect its investors and allow the fund to ride out the storm. CQS did so, but ultimately, the gate was never imposed, and the firm met all its redemption requests in full and on time.
One major fund-of-funds investor points out: “When we view a manager’s history, one crucial aspect in that process is witnessing their behavior in 2008 and how they treated investors. The fact that CQS didn’t gate shows that their big drop in assets occurred mainly because they honored those redemptions. It also reveals that they upheld a fiduciary and ethical contract with their investors while demonstrating an ability to run a liquid portfolio. Too many managers in 2008 suffered in the crisis due to their own poor liquidity management.”
In discussing the code of ethics by which he strives to run his business, Hintze—who has been known to quote the Bible in public speeches—refers back to a lesson he learned during his early Christian education.
“The Golden Rule applies to everyone—investors, employees or counterparties,” he says. “And it’s very much part of the firm’s ethos.”