At least in contemporary finance culture (is there such a thing?) the interplay between money and fame is most glaringly apparent in the world of hedge funds. Be this as it may, some recent incidents have caused me to wonder to myself if this dynamic, like many in contemporary finance culture (if there is such a thing), isn't more complex than it first appears. Incentive fees (and management fees) being what they are, there are strong incentives for hedge funds to grow assets at (nearly) any expense. There are some noted exceptions to these rules (I can think of an activist or two who have returned rather large sums to investors when they have been unable to, in good faith, place the funds in sufficiently worthy investments) but these are few and far between. Getting the word out, and pushing the hype is, as with any financial product, part of the fundraising game.
Of course, technically hedge funds aren't supposed to be engaged in "general solicitation." That is covered by Rule 502(c) which provides in part:
Except as provided in Rule 504(b)(1), neither the issuer nor any person acting on its behalf shall offer or sell the securities by any form of general solicitation or general advertising, including, but not limited to, the following:
(1) Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio; and
(2) Any seminar or meeting whose attendees have been invited by any general solicitation or general advertising;
Hedge fund managers who are prone to quoting returns and figures in publications, or chatting too liberally with members of the press are likely to get something of a spanking from the SEC. We must, after all, protect non-accredited investors from themselves (though I suspect this bit of nanny-statism is preferable to a legislative unwinding transactions between consenting parties because they are judged "unfair" after the fact and in the context of a shift in markets to something other than permabull dynamics).
Fame, then, would seem a shortcut, even a loophole, to such restrictions. Many managers court such publicity actively. This is, to the extent this term has any meaning whatsoever, "marketing."
It amuses me then when such managers are described as "secretive," "publicity shy," "reclusive," or "intensely private." It is hard to take, for instance, Bloomberg very seriously when they "speculate" on the "ever secretive Renaissance." Apparently, Renaissance wasn't so secretive that its founder the "reclusive" James Simons couldn't be persuaded to give Bloomberg an exclusive interview (or three), pan his life story and sit for an extensive Bloomberg photo shoot. Of course, Bloomberg tries to maintain the illusion of hard hitting investigative financial journalism with lines sprinkled with breezy comments like "...according to Bloomberg calculations," and "...though Simons dislikes talking about it...." Ah, yes. Of course he does. But not so much that he won't talk about it. Guess the hard hitting investigative reported had a nice pair. ("Of what," is the question- but then I think Simons' smile in the picture might be a clue there).
Any number of hedge fund mangers or private equity firms have found themselves in warmer-than-comfortable water with the SEC after a puff-piece appeared on Bloomberg under the "Bloomberg.com: Exclusive" banner. And Bloomberg, by the way, is particularly guilty of such sins. This should be enough to land them in Going Private's Maxwell Smart category by itself, but their ethical lapses are not limited to managers cast from the publicity hound mold.
Rare are the managers who are, in fact, "secretive," whatever Bloomberg may try to sell you- but they do exist here and there. Not that Bloomberg has much regard for such privacy in the rare instance that they encounter it among the rolls of professional managers.
Recently, a good friend of Going Private pointed me to a Bloomberg profile on a number of hedge fund managers, including his boss, the head of a rather successful family of funds which have made him quite wealthy by almost any standards one would care to articulate. In the course of reading the article I managed effortlessly to determine:
1. His street address
2. The price of his house
3. His daily exercise habits and, thereby, his daily whereabouts
4. The school his two minor children attend
5. His performance and management fees for the year
6. His wife's habits
I could go on, but time forbids me.
Ah well, I thought, another ego-driven hedgie who's publicist managed to score a puff on Bloomberg. *yawn* Yeah, except not.
Turns out that the subject of the article had nothing to do with it, refused to comment and asked Bloomberg not to print it. Forgive me my cynicism, but I wonder if the classic journalistic threat (Want a favorable piece? Give us access.) wasn't at work here. If so, and this is just my speculation, it borders on criminal in my opinion.
Suffice it to say, if I was running an international kidnapping cartel, my arrival in New York would be followed immediately by a visit to the most anonymous internet cafe I could find (or some wireless wardriving perhaps) and several Bloomberg searches. (Law and Order had a totally cool episode about a hedge fund manager kidnapped by his employees recently, so you just know that I'm current).
Still, some hedgies, and other professional "money runners," do get some use out of publicity. For some, this is merely an ego gratification. (You people know who you are). Indeed, publicity hounds in this category are, at least in my view, violating at least the spirit of Rule 502(c), and the hedgies I respect avoid rather than court publicity. Still, it can be useful in some circumstances. For instance:
Your investment vehicle is going public. I don't know that anyone would make the argument that Steve Schwartzman's stock suffered when the over-the-topness of his birthday parts became (and by this I mean, was encouraged to become) public. Sure, Congress might be pissed off, but a few dollars in share price buys a metric ass-ton of lobbyists.
You are an activist. Before you ever get to the point where you are soliciting shareholders for your proxy fight, the pure intimidation factor your name lends to the initial discussion with management can keep campaigns simple, quick and effective because you are a "credible threat," (Dan Loeb filed a 13D? Go to threat level RED: severe risk of activist campaign!) This helps even more if management decides to fight and you need to go to street for support. So here, well, I'm more sympathetic.
As for the rest? Really, let your performance do the talking. Or my hedge fund friend would say:
"Just because you have $10.00 and everyone knows about it doesn't make it $11.00."
But then, he gets mad when investors leak their (outstanding) performance figures to the press- so he's a rare bird. Think, dear hedgies, about the company you keep:
In America, I find, it's fame, rather than money. Now, after all this unpleasantness, I always get the best table.
- Klaus von Bulow