Hedge Fund Titans Face What's Next as They Pass Certain Age

(Bloomberg) -- Billionaire Ray Dalio, the sage of Bridgewater Associates, has a theory about organizations. When leaders hit 60, he says, it's time to start preparing the youngbloods to run the place.

Grizzled veterans in the investment industry are finding Dalio's advice easier said than done as they struggle to line up the next generation. Dalio, 67, announced this week the second shakeup within a year at the top ranks of his $160 billion firm, showing that succession planning is sometimes tougher than formulating an investment strategy.

“Are founders really wanting to let go?” said Myron Kaplan, a partner who specializes in hedge fund succession planning at law firm Kleinberg, Kaplan, Wolff & Cohen in New York. “The difficulty is that in many cases, the firms are still their baby and they still have ultimate control.”

Dalio isn't alone in wrestling with transition. Israel Englander, the 68-year-old founder of Millennium Management, was caught off guard in January when his one-time potential successor abruptly resigned with plans to start a competitor. The same month, billionaire George Soros, the former hedge fund manager who now runs his own fortune, picked a new investment chief -- his seventh since 2000 -- while Seth Klarman is taking another stab at elevating a deputy at Baupost Group.

Even Warren Buffett, 86, has yet to publicly name the next leader of Berkshire Hathaway Inc., though he says his board knows who the secret successor is.

For more on the Bridgewater shakeup, click here

It can be challenging to groom the next generation when success is built on a founder's skill and reputation. Obstacles include the proper amount of equity sharing and the pace of the transition. Some top investors, such as Stanley Druckenmiller, never relinquished control. Instead, he returned money to investors and now manages his own capital.

Dalio, who started Westport, Connecticut-based Bridgewater more than four decades ago, told investors Wednesday that he's stepping down as interim co-chief executive officer and that his star hire, Jon Rubinstein, a longtime deputy of Steve Jobs, left after just 10 months as co-CEO. Dalio said they had mutually agreed that Rubinstein wasn't a “cultural fit” at Bridgewater, a firm known for its unorthodox workplace.

Transferring Ownership

Dalio, who said his succession plan would take a decade, kicked off the hand-over in 2010. Since 2012, when Dalio and his family trusts sold about one-fifth of their Bridgewater stake to key employees, the shared CEO role has been a carousel. In the latest shuffle, David McCormick, who was president and just a couple of months ago considered for a post in the Trump administration, will be co-CEO, sharing the title with Eileen Murray. Dalio will continue his role as co-CIO with Greg Jensen and Bob Prince.

“There's a lot of musical chairs going on, which often sends the signal of a lack of stability,” Kaplan said. “Are the CEOs really CEOs or in reality functioning like chief operating officers?”

Likely Lieutenant

At Millennium, Englander previously told clients and employees that his bond chief, Michael Gelband, was the most likely lieutenant to run the firm in his absence. Gelband resigned in January after he and Englander disagreed about his future role at the firm.

Englander, who has said he expects to be in the business at least until he's 80 years old, hasn't appointed a successor. He formed a trustee group in 2015 that would nominate someone to run Millennium in his absence, and last year hired Bob Jain from Credit Suisse Group AG as co-CIO.

Even the most famous investors haven't been immune to turnover. Soros tapped UBS Asset Management's Dawn Fitzpatrick to oversee his $25 billion family office, replacing Ted Burdick a year after he stepped into the role. The move marked the seventh time the billionaire philanthropist has picked a new CIO since the departures of Druckenmiller and Nicholas Roditi in 2000. Early last year, Burdick replaced Scott Bessent, who ran investments for four years before leaving at the end of 2015 to start his own hedge fund.

Co-Portfolio Manager

At Baupost, CEO Klarman, 59, has made steps toward succession planning before. Herb Wagner was appointed co-portfolio manager alongside Klarman, but left the firm in 2012 to start his own fund. Klarman told clients in a 2016 year-end letter that he handed over some of his responsibilities to public-investments head Jim Mooney as part of a succession. Mooney, 49, is now president. Baupost, which was started in 1982, said Klarman has no plans to step down any time soon.

Buffett has said his son Howard Buffett could replace him as leader of Berkshire Hathaway's board, and that money managers Todd Combs and Ted Weschler could handle the company's investments.

Some transitions have ended in disaster. Chris Shumway was prompted to close his hedge fund in 2011 after clients pulled their money when he told them of his plan to step down.

Two veterans of the hedge fund industry, Louis M. Bacon and Paul Tudor Jones, haven't announced succession plans. Bacon, the 60-year-old founder of Moore Capital Management, has no plans to retire and so succession planning isn't a priority for him, a person with knowledge of his thinking said. Jones, the 62-year-old founder of Tudor Investment Corp., started a fund in 2012 based on multiple teams of managers to help with succession planning. It has yet to yield a standout manager.

So far, some transitions have gone smoothly. Fifteen years ago, David Shaw handed the running of his D.E. Shaw & Co. to a committee, while Thomas Steyer stepped away from Farallon Capital Management in 2012 after a quarter century, leaving Andrew Spokes as the sole managing partner. James Simons turned over the management of Renaissance Technologies in 2009 to Bob Mercer and Peter Brown.

Spokespeople for the firms declined to comment.

--With assistance from Sabrina Willmer and Katherine Burton

To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net.

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Bob Ivry