Anyone’s Replaceable. Even Hedge Fund Founders.

Why hot-shot managers are so bad at succession — and what they can do about it.

Illustration by II; Stefan Wermuth/Bloomberg

Illustration by II; Stefan Wermuth/Bloomberg

Alternative investment firms have such a poor track record at changing leaders that investors have developed an elaborate contractual hedging system: key-man clauses.

Hugely successful hedge funds such as Och-Ziff Capital Management Group and Bridgewater Associates have publicly stumbled in handover attempts, airing their internal drama for all to see. Smaller operations often simply shut down when the founder retires.

Indeed, hedge funds are particularly bad at succession relative to other industries, according to executive coach and recruiter Sandy Gross of Pinetum Partners. She conducted a study as part of a certification program at Columbia Business School, and her unpublished paper is likely the first academic research specific to hedge fund succession.

“They forget that they are mere mortals,” Gross said in an interview with Institutional Investor. “These founders are really focused on what’s happening today, on generating revenue. It’s all about making money. And if they don’t reap benefits today, they have a hard time being focused on the future.” During her research, she said, “That attitude of ‘What’s in it for me?’ was pretty explicit.”

[II Deep Dive: When Succession Planning Goes Wrong]


Gross conducted structured interviews with eight senior hedge fund employees, including a CFO, COO, heads of human resources and investor relations, and portfolio managers.

Based on her analysis of these sessions, Gross concluded:

• “It is hard to recruit outside talent to succeed a founder”

• “It takes years to groom a successor or team to take on the day-to-day responsibilities of a founder so that comfort in carrying the firm forward is realized by the employees and investors”

• “Clients and investors do not want to be kept in the dark regarding the future of a firm when a founder is getting older and no successor has been named”

• “It can be viewed as a competitive edge for hedge funds that have developed and communicated a succession plan to their outside investors. This is also recognized as a retention tool for existing employees and investors since it takes out the guessing game of what happens next”

Similar to management consultants brought in during mergers, executive coaches can facilitate the planning process — or prod a reluctant founder into action. “At a senior level, across industries, the one person who never gets feedback is the CEO,” Gross said.

With hedge funds specifically, founders often run their funds into their geriatric years or avoid handing over control due to fear of underperformance and losing their identity. That’s where coaches come in.

“We deal with diminished self-worth, working with the founder and CEO to set boundaries and on time management,” Gross said. “People always say, ‘Oh you’re like Wendy Rhodes on Billions.’ Not quite.”

For many managers, running a portfolio “is what they’ve been doing their whole life — it feels like it is their life.” But some do get serious about succession eventually, she said, “because they want to leave something behind. This is about creating businesses, not just products.”

As for Bridgewater’s Ray Dalio? “He’s trying.”