Bailout

How to choose a hedge fund manager

By Felix Salmon

You’ve heard by now about Steve Cohen’s appearance on a UK daytime talk show in 1992. The Post seems to think that the story is that he was sleeping with both of his wives at the same time; the first reaction from the rest of us was sheer astonishment that he went on a talk show at all.

But buried in the story is another interesting nugget: 1992 was the year that Cohen launched SAC Capital, and began a hedge-fund career that would rank among the greatest of all time.

Now, if you had the opportunity to invest with Cohen in 1992, then clearly, with hindsight, you should have put every last penny into his fund. But at the time he was being excoriated by his wife on a show called “Cristina”, after its eponymous bleach-blonde host. The obvious thing to do would be to run very far in the opposite direction. Which just goes to show the advantages of being contrarian — and the difficulties of picking a fund manager.

That said, I’m pretty sure that at this point a strategy of “invest with any hedge fund manager who appears on a daytime talk show while raising money for his first fund” has performed extremely well. Maybe other hopefuls should try to go down the same route, to see if they can capitalize on the momentum trade.

Update: It was an English-language talk show, not an English talk show. It broadcast in the US, not the UK.

Full post as published by Macroprudential on December 22, 2009 (boomark / email).