Drifting Hedge Fund Star Could Do With a New Co-Pilot

(Bloomberg Opinion) -- When the mojo starts to fade at a previously successful hedge fund, founders will often ask a colleague to run the overall business in order to concentrate on the trading opportunities that built the riches in the first place. But what if that road to redemption is compromised by a previous failed attempt to cede control? 

Billionaire Michael Hintze's hedge fund is down by 42.5% this year after losing a third of its value during the Covid-driven market turmoil in March, my Bloomberg News colleague Nishant Kumar reported earlier this month. Investments in structured credit, Hintze's specialty, were hammered amid concern the pandemic would trash the economy and spark a wave of debt defaults.

Recent departures at his firm CQS Asset Management Ltd., which managed $18.5 billion at the end of July, include Ivelina Green, the head of special situations investing, according to a Bloomberg News report on Tuesday. Martin Davies quit earlier this month after a decade with the company, and Steve Walters will retire in January after 15 years. The firm, which had more than 280 employees last year, cut at least 50 positions earlier this year in an effort to reduce costs.

It wasn't supposed to be like this. In January 2019 Hintze hired Xavier Rolet, the former chief executive officer of London Stock Exchange Group Plc, and gave him the top job to oversee an expansion of the business, including building an equity franchise, while Hintze would focus on trading. The aim, according to the Financial Times, was to grow the firm's assets to as much as $100 billion.

Rolet, though, lasted just a year, and his departure was swiftly followed by those of executives he'd brought in, including Serge Harry, who was deputy chief executive officer, and Ahmad Deek, head of data science and chief risk officer. In May, Hintze decided to spin off the fledgling equity unit.  

What looked like a smart move appears to have backfired. There's no way of knowing whether Hintze would have lost less money this year if he'd retained his replacement as CEO. But the distraction caused by unstitching the plans can't have helped. 

By contrast, the co-pilot strategy certainly seems to have worked for Alan Howard. A year ago, the billionaire founder of Brevan Howard Asset Management LLP ceded the role of chief executive officer to Aron Landy so that he could focus on trading. Several money-losing years in the past half-decade had seen the firm's assets shrink to about $6 billion from as high as $40 billion. Something needed to change, and it did.

The AH Master Fund, which Howard runs personally, delivered returns of 100% from the start of this year to the end of May. The firm's flagship $3.8 billion Brevan Howard Master Fund gained more than 21% in the first half of the year.

Landy, though, was a trusted lieutenant who'd been with Howard's firm for 17 years as its chief risk officer. Rolet was an outsider at CQS, which will have made his role much harder — no matter that his relationship with Hintze stretched back for more than three decades and that they used to sit next to each other as rookies at Goldman Sachs Group Inc.

Maybe Hintze, whose returns since his fund began in 2005 were previously triple the hedge fund industry average, can turn performance around. The $1.8 billion Directional Opportunities Fund, which he oversees personally, has gained for three consecutive months and was up by 1.3% in August. But it would surely be much easier if he had a co-pilot to depend on.  

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."

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