Richard Elden, the founder of Grosvenor Capital Management and a hedge fund industry legend, has died at the age of 84.
Elden died in Chicago on June 27th of melanoma.
Grosvenor's roots go back to Beat the Market, a book by Edward Thorp and Sheen T. Kassouf that chronicled Thorp’s success in creating a strategy that produced better absolute and risk-adjusted returns than a stock portfolio. After reading the book, Elden quit his job as a securities analyst at investment bank A.G. Becker and started Grosvenor, which now has $50 billion in assets, in 1971 with $500,000. Elden’s aim was to identify and invest in a portfolio of managers that focused on warrant hedging and convertible bond hedging, the strategy that Thorp had used to produce annualized returns of 25 percent.
“My father‘s idea was to create a diversified portfolio of these market-neutral funds as an alternative to investing in the stock market,” says Elden's son Tom, who is founder and managing partner of alternative investment firm firm Origami Capital Partners. “He learned at the University of Chicago that diversification is the only free lunch in finance and applied that theory to hedge fund portfolios.”
The approach worked. During the bear market of 1973-1974, when the markets lost almost 40 percent, Elden's fund lost only three percent, according to the younger Elden.
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Although a fund of funds had been launched two years earlier by Georges Karlweis in Geneva, Elden had the field to himself in the U.S. in the ‘70s. When he left Grosvenor in 2005 at age 72, he had produced an exceptional long-term record. From 1971 through 2004, the Grosvenor Multi-Strategy Fund posted annualized returns of 13.5 percent. Elden left the reins of Grosvenor to Michael Sacks, who remains chairman and CEO.
Elden identified and was an early investor with many of the greatest hedge fund managers ever during his 34 years at Grosvenor. In 1977, he invested in Paul Singer, who was then launching Elliott Management. In the ‘80s, Grosvenor allocated capital to Julian Robertson’s Tiger Management. He was an early investor with global macro legends Bruce Kovner, Paul Tudor Jones, and Louis Bacon. In the 1990s, he invested with Appaloosa Management, Canyon Capital, Greenlight Capital, Lone Pine Capital, Perry Partners, and a long list of other notable managers.
“He had a real eye for talent. It was a combination of good research and good intuition,” says Tom Elden. “He had a good gut sense, but he also did tons of diligence. Let’s say a hedge fund manager owned a position in IBM. He would call IBM and ask who the company's smartest investors were and who really gets your business.”
Elden, who grew up on the north side of Chicago, attended Northwestern University and studied political science. In 1953, when he was still at Northwestern, he was one of a handful of college newspaper editors who got a visa to visit the Soviet Union. He took a three-week trip there and wrote for the International News Service. When he returned and graduated from Northwestern, he joined the City News Bureau of Chicago and the Chicago Sun-Times.
But Elden didn’t stay with journalism, instead earning his M.B.A. from the University of Chicago, where he met Frank Meyer.
Meyer, who seeded and mentored Citadel’s Ken Griffin, joined Grosvenor as a partnerin its early years and went on to found Glenwood Capital Investments.
Over the years, Grosvenor expanded into merger arbitrage, distressed credit, and long-short equity strategies.
Elden also started a multistrategy activist fund of funds with his son. After he retired from Grosvenor, Elden helped Carl Icahn launch a hedge fund in 2004. Among other passions, Elden had a lifelong interest in global politics and world affairs. As a member of the Council on Foreign Relations, he traveled to both Afghanistan and Iraq during the wars.