(Repeats story published earlier on Monday)
By Svea Herbst-Bayliss and Lawrence Delevingne
BOSTON/NEW YORK, March 27 Learning to invest on
Goldman Sachs' risk arbitrage desk, made famous by leader
Robert Rubin, was once seen as a fast track to fortune. But the
band of hedge fund protégés who mastered their trade under the
former Wall Street star and U.S. Treasury Secretary have
stumbled in recent years.
The latest to falter is Eric Mindich, who announced on
Thursday that he would shut his hedge fund firm Eton Park
Capital Management LP following a 9 percent loss in 2016 and a
sharp decline in assets.
Mindich is one of several ex-Goldman traders who worked on
the bank's 'risk arb' desk, pioneered by Rubin in the 1970s and
1980s, who have fallen on hard times. Others include Richard
Perry, who six months ago decided to shutter his 28-year-old
enterprise, as well as Eddie Lampert, Daniel Och and Dinakar
Singh, whose own firms have lost billions of dollars in assets.
Their struggles are part of a broader dip in the hedge fund
industry, marked by a slew of fund closures due to poor
performance, controversies and fee pressure from investors.
But they also represent the end of an era: Goldman, for
decades Wall Street's pre-eminent investment bank, no longer
breeds such hedge fund scions because regulations brought in
after the 2008 financial crisis - chiefly designed to reduce
risk - have inhibited the type of trading it can do.
Shakil Riaz, global chief investment officer for Rothschild
Asset Management, said the faltering of Rubin acolytes is
symptomatic of trends that have taken hold after the crisis.
"The old ways of hedge funds taking money out of the markets
just are not as effective anymore," said Riaz, a three-decade
veteran of the industry. "It really is an evolve-or-die world."
More investors chasing the same set of limited
opportunities, persistently low interest rates and the rise of
low-cost index funds delivering solid returns have combined to
make it hard for Goldman's former stars to stand out.
Rubin, now 78, joined Goldman in 1966 and spent 26 years
there, eventually co-managing the whole bank. He left in 1992
and went on to be U.S. Treasury Secretary between 1995 and 1999
under President Bill Clinton.
On his way up the ladder, he turned the risk arb desk —
which placed bets with Goldman's own money on the likelihood
that corporate actions, like mergers, would occur — into a
Goldman is known for putting as much power into the hands of
risk managers - who keep a tight rein on the bank's exposures -
as much as the traders making the bets, a rare situation on Wall
Street, which tends to breed more balanced, rounded investors.
Working at Goldman also helped members of the risk arb desk
forge connections with investors and line up financing and
clearing services, which every fund needs.
But over the past several years, some of the savviest and
best-connected hedge fund managers have hit hard times.
The former Goldman arbitrage traders have been unable to
successfully navigate the post-crisis financial world because
they became too fixated on certain investments or simply did not
want to deal with tougher fund-raising conditions and being more
accountable to investors, longtime associates and observers told
"They were such big, sought-after names at the time and
everyone was romanced by the Goldman-Rubin pedigree," said
Michael Hennessy, co-founder of investment firm Morgan Creek
Capital Management LLC. "But the markets have radically changed
from that prior environment. Post-crisis, a lot of these people
Goldman declined to comment. Spokespeople for Rubin and the
hedge fund managers either declined to comment or did not
respond to requests.
Mindich worked on Rubin's desk in the late 1980s and in 1994
became the youngest person to ever be named a partner at
Goldman, at age 27.
A decade later, he levered what he learned at Goldman to
launch Eton Park with a record $3.5 billion. Its assets peaked
at $14 billion in 2011, but now it manages about half of that.
Perry's firm closed similarly, after assets declined from a
peak of $15 billion in 2007 to about $4 billion in September
2016. Perry attributed the closure to broad challenges in
managing a hedge fund today.
Singh's TPG-Axon Capital Management LP had just $1.6 billion
as of July 2016, a fraction of the $13 billion it managed in
early 2008, because of market bets that went the wrong way.
Singh was part of the Goldman risk arb operation after Rubin as
co-head of the bank's principal strategies investment unit.
Lampert saw most of his outside investors exit years ago
when he concentrated bets on troubled retailer Sears Holdings.
At the end of December 2015, his ESL Investments listed $2.8
billion in assets, down from $15 billion at its peak.
A number of pension funds have exited Och's Och-Ziff Capital
Management Group LLC after modest returns and a criminal
investigation that ended with last year's guilty plea by a
subsidiary to conspiracy to commit bribery in Africa. Its
overall assets have shrunk by 30 percent to $33.6 billion over
the last two years.
Defenders of the Goldman risk arb tribe point to the success
of Farallon Capital Management LLC, launched in 1986 by Rubin
protégé Thomas Steyer. Although Steyer retired in 2012, Farallon
is now run by another Goldman alumnus, Andrew Spokes, and is
performing well, with $22.1 billion under management at the end
Gregg Hymowitz, chief executive of hedge fund investor
EnTrustPermal Management LLC, said Rubin and his former
employees are "some of the smartest investors of our time."
"It's a mistake to extrapolate from recent disappointing
performance their investment prowess," said Hymowitz, who also
worked at Goldman and has invested with Och and has known
Mindich and Singh for years. "I wouldn't bet against any of
(Reporting by Svea Herbst-Bayliss and Lawrence Delevingne;
Editing by Lauren Tara LaCapra and Bill Rigby)