This content is from: Portfolio

Eric Mindich Is Not Alone

The Eton Park founder, at one time the youngest Goldman partner ever, is the latest alumnus of the storied investment bank to face problems at a hedge fund business.

  • Stephen Taub

Some Goldman Sachs Group alumni may be enjoying great second careers working for President Donald Trump’s administration. But for those who chose to become hedge fund managers, these are tough times for many in the Goldman diaspora.

The latest example came on Thursday when Eric Mindich, once the youngest-ever Goldman partner, announced he is shutting down his $7 billion multistrategy hedge fund firm, Eton Park Capital Management, and returning all outside capital. It’s a stunning reversal of fortune for Mindich, who raised a whopping $3.5 billion when he launched his firm in 2004 and had produced years of solid gains. But his flagship hedge fund fell 9.4 percent in 2016 and eked out just a 0.5 percent gain in the first two months of this year. His assets today amount for half of what he was managing in mid-2011.

“Recently, a combination of industry headwinds, a difficult market environment and, importantly, our own disappointing 2016 results have challenged our ability to continue to maintain the scale and scope we believe necessary to pursue our investment program consistent with our founding principles,” Mindich, 49, told investors in a letter dated March 23. He plans to return 40 percent of all investors’ main portfolio balances by the end of April.

Mindich’s decision to shut down is somewhat surprising, given his age and the fact that last year’s performance came after several years of relatively decent gains. Eton Park returned 6 percent in both 2014 and 2015 after posting double-digit gains the two previous years.

Last year’s loss also was not so steep that it would have been very difficult to dig out from. In fact, sources say last year the firm had net capital inflows.

Eton Park’s main hedge funds focus on five strategies: equity long/short, event-oriented investments, credit/distressed debt, derivatives and market strategies, and portfolio protection.

At Goldman, Mindich worked on the bank’s legendary risk arbitrage desk, headed by former Treasury secretary Robert Rubin, which produced such hedge fund luminaries as Daniel Och and Richard Perry. But over the past year, Och, Perry and other Goldman alumni have run into turbulence.

For example, last year Richard Perry announced he planned to wind down his hedge fund firm, Perry Capital, after suffering protracted losses. At Goldman, he helped to hire several people who also went on to hedge fund stardom, including Mindich, Och, and Thomas Steyer, founder of Farallon Capital Management, who retired several years ago.

In 2015 Fortress Investment Group closed down its Fortress Macro funds, and Michael Novogratz, who founded the firm’s liquid markets business in 2002, said he would retire. He had spent 11 years at Goldman, becoming a partner in 1998. At one time during his tenure, Novogratz served as president of Goldman Sachs Latin America.

On Wednesday, Edward Lampert’s ESL Investments suffered a near-death blow when its biggest investment, Sears Holdings Corp., warned that the survival of its disastrous-performing Sears and Kmart stores is in doubt. ESL had already lost most of its outside investors because of its obsessive, ill-fated commitment to Sears, which undermined his hedge fund career and reputation. Lampert also worked on Rubin’s famed risk arbitrage desk.

Two ex–Goldman partners have run into legal trouble. Last year Och’s Och-Ziff Capital Management, whose OZ Africa Management subsidiary settled federal bribery charges in September, has suffered about $13 billion in redemptions in the past 13 months. Last September the multistrategy firm, including OZ Africa Management, agreed to pay $413 million to settle the charges. Och himself agreed to pay nearly $2.2 million for his role in causing violations of the Foreign Corrupt Practices Act.

Och worked at Goldman for more than 11 years, starting in risk arbitrage, then moving on to head proprietary trading in the equities division and eventually becoming co-head of U.S. equities trading.

Meanwhile, last year Leon Cooperman and his New York firm Omega Advisors were accused by the Securities and Exchange Commission of trading with insider information and other securities transgressions. His trial is scheduled for November.

Cooperman spent more than 25 years at Goldman, including serving as general partner of Goldman Sachs & Co. and as chairman and chief executive officer of Goldman Sachs Asset Management, before launching Omega in 1991.