Hedgies Come Up Double Losers

Considering how much money they make, hedge fund managers shouldn’t be too surprised if they arouse no sympathy for the money they lose, their own cash that is. When a firm like Amaranth Advisors or Vega Asset Management founders and flops, reports Financial News, its investors wallow in their own despair, hedgies’ misery is double.

Considering how much money they make, hedge fund managers shouldn’t be too surprised if they arouse no sympathy for the money they lose, their own cash that is. When a firm like Amaranth Advisors or Vega Asset Management founders and flops, reports Financial News, its investors wallow in their own despair, hedgies’ misery is double. For not only do they let down their customers, but they also lose their own often-large investments in the same funds they recommend to their clients. Nick Mauonis, Amaranth’s founder, put it this way in a letter to investors: “We lost a lot of our own money. We lost even more of yours. We feel bad about losing our own money. We feel much worse about losing yours.” Or look at partners at Vega who plunked down $600 million in the firm’s flagship funds – which enjoyed annual returns of 40% since inception 10 years ago – only to lose about 16.7% in 2006 as of Sept. 30. It’s not hard to understand why hedgies would find themselves in such a situation. After all, one would hope they would have enough confidence in their recommendations to put money in them. But more practically, HF managers get the fund rolling by investing their own money, often raising it by taking out mortgages on their homes, with the hope to attract more by demonstrating his success. When their efforts turn bad, it hurts – which is why investors, says FN, sometimes affectionately call it “hurt money.” And how it can hurt. Consider the plight of Pirate Capital founder Thomas Hudson, another HF down in the dumps, who told his firm’s investors: “My family and I have 90%-plus of our net worth invested in Pirate Capital.” Ouch.