By Saijel Kishan June 9 (Bloomberg) — Steven A. Cohen , the 53-year-old founder of SAC Capital Advisors LLP, picked four of his best people earlier this year to help select investments for the $2 billion he personally oversees at the hedge-fund firm. Louis Bacon , 53, bolstered the ranks at his Moore Capital Management LP by recruiting four senior managers in the past 20 months, while Thomas Steyer , 52, designated Andrew Spokes as his likely successor in the event he leaves Farallon Capital Management LLC, which he started in 1986. The appointments show how some of the most successful hedge-fund managers are preparing for the time when they scale back their roles or retire. They are surrounding themselves with experienced traders in an effort to keep clients from pulling out after they are no longer running the funds. “There’s an evolution in the hedge-fund industry where the baby boomers are handing over more and more responsibilities to a younger generation,” said Matias Ringel , head of research in New York at CMA North America, which provides research and advice to investors. “They’re in their fifties now and likely thinking more seriously about retirement.” An earlier cohort of hedge-fund entrepreneurs, including Julian Robertson and Michael Steinhardt , shut their firms after deciding they no longer wanted to invest money for clients. Robertson, 77, who returned an average of 25 percent annually over two decades, closed Tiger Management LLC in 2000 after losses and investor withdrawals cut assets to $6 billion from $22 billion two years earlier. Steinhardt, 69, shut his business in 1995 following a 28-year run in which he posted average annual gains of 24 percent. Founder’s Role Hedge funds are built on the reputations of their founders, and persuading investors to stay after they depart will be a challenge, according to Jean Keller , chief executive officer of Geneva-based 3A SA. “Most of them are intrinsically linked to their charismatic and entrepreneurial founders,” said Keller, whose firm has $2.2 billion invested in the private partnerships on behalf of clients. “Few hedge funds will succeed in a management transition.” John Horseman , 51, who started Horseman Capital Management LP in 2000, told clients in November that he would step down this year, leaving fund managers Russell Clark and John-Paul Burke at the helm. Assets in Horseman Global, the London-based firm’s biggest fund, fell to $444 million last month from $3.67 billion in October, mainly on client withdrawals, according to an investor. Carol Brown, a spokeswoman for Horseman Capital, which oversees about $1 billion, declined to comment. Willingness to Change Cohen started SAC Capital — the name is derived from his initials — in 1992 with $25 million, and the Stamford, Connecticut-based firm now oversees $12 billion. Adding the four senior traders will allow him to focus on fewer investments, mentor employees on portfolios and manage risk, according to an April 28 letter sent to investors. “I have always felt that one of the keys to the firm’s success over the years has been our ability and willingness to change the organization,” Cohen, who turns 54 on June 11, said in the letter. The traders selected by Cohen each has responsibility for an industry — energy, technology, media and health care — and for discussing investments with the rest of the firm’s managers and analysts, according to the letter. The sector heads, whom the letter didn’t name, will also continue to run their own portfolios. Concern for Investors “There’s no positive spin on him bringing in people to help on his portfolio,” said Peter Rup , chief investment officer at Artemis Wealth Advisors LLC, a New York-based firm that allocates money to hedge funds for clients. “It suggests that he is stepping back, managing less capital over time, and that’s not exactly in the best interests of his investors.” Cohen, in an interview in next month’s edition of Vanity Fair magazine, said, “I don’t have to sit at the desk. Seriously, I’ve got nothing left to prove.” Jonathan Gasthalter , a spokesman for SAC Capital, declined to comment. Bacon, who started Moore Capital in 1989, hired Greg Coffey in November 2008 as co-chief investment officer of his European business, a new position. Coffey, 39, was a top-performing emerging-markets trader at GLG Partners Inc. whose resignation triggered $2.2 billion in withdrawal requests. In January 2010, Bacon added Jean-Philippe Blochet , 46, a co-founder of London- based Brevan Howard Asset Management LLP, as a senior fund manager. Brevan Howard is Europe’s largest hedge-fund firm. Matthew Carpenter , 43, who ran a unit at Citigroup Inc. that traded U.S. stocks with more than $1 billion of the bank’s own money, joined in May as Bacon’s head of equity trading, a post that had been empty since Stanley Shopkorn gave it up in 2000. Carpenter’s deputy at New York-based Citigroup, Matthew Newton , 40, also joined Moore, which oversees $14 billion. ‘Key Man’ Shawn Pattison , a spokesman for New York-based Moore, declined to comment. At Farallon, co-managing partner Spokes was named the firm’s second so-called key man at the start of the year. That means investors have the right to withdraw their money if either manager leaves the San Francisco-based firm. Its hedge funds would be liquidated if both Spokes, 45, and Steyer stepped down. Mary Beth Grover , a spokeswoman for the $20.7 billion firm, declined to comment. The hedge-fund industry has seen assets rise more than 10- fold to $1.55 trillion since 1994, according to New York-based Credit Suisse Tremont Index LLC. Firms that once employed a couple dozen people now employ hundreds. SAC Capital, which started with nine people, now has about 800 employees. Preserving the DNA “Hedge funds are growing up and have been transitioning from a one-man, talent-based business to something more institutional,” said Jaeson Dubrovay , partner at Aksia LLC, a New York-based firm that advises clients on hedge-fund investments. “If the founder selects and trains four or five lieutenants by steeping them in the culture of the firm, then his DNA will continue. It’s a 5- or 10-year process, but it can work.” Firms that have expanded their senior ranks include Bruce Kovner ’s Caxton Associates LLC and Israel Englander ’s Millennium Management LLC. Kovner, 65, promoted Andrew Law in 2008 to the new post of chief investment officer of the $8.6 billion firm. Law, 43, who is based in London, has worked at New York-based Caxton since 2003. Englander, whose firm manages $7.4 billion, hired Michael Gelband two years ago from Lehman Brothers Holdings Inc. as head of fixed income. Gelband, 51, joins Chief Risk Officer David Nolan , 61, and Jonathan Larkin , 35, head of equities, in helping Englander allocate money and set risk limits for the firm’s 120 trading teams. Difficulty Retaining Talent Englander, 61, started New York-based Millennium in 1989 and stepped away from directly trading money after five years. Kathy Lacey, a spokeswoman for Caxton, and Tripp Kyle , a spokesman for Millennium, declined to comment. Developing senior management is difficult at hedge funds because successful traders often want to build their own firms, reputations and legacies, according to Ellen Schubert , chief adviser to consultant Deloitte LP’s asset-management services practice in New York. “It’s hard to keep good portfolio managers in the stable,” she said. Simons, Shaw James Simons and David Shaw are examples of big-name hedge fund founders who engineered their own exits without shutting their companies. Simons , the 72-year-old mathematician who started Renaissance Technologies Corp. after leaving academia in 1977, retired at the end of last year and turned over responsibility for the firm to former co-presidents Bob Mercer , 63, and Peter Brown , 55. Renaissance, based in East Setauket, New York, oversees $15 billion. Shaw, who started New York-based D.E. Shaw & Co. in 1988, ceded oversight of his firm to a six-person committee in 2002, when client assets were $2.36 billion. The firm has grown to $22 billion, according to its website. Shaw, 59, who has a doctorate from Stanford University, spends most of his time as a chief scientist at D.E. Shaw Research , which conducts research in computational biochemistry. Both Renaissance and D.E. Shaw use computer models to trade, a style known as quantitative investing. Spokesmen for the firms declined to comment. Easier for Quants “It’s easier for the founders of the quant firms to pass on the reins since their businesses are mainly model-driven,” said Guido Bolliger, Paris-based chief investment officer of Olympia Capital Management, which invests $2.7 billion in hedge funds for clients. “But for most of the macro funds and some of the stock-pickers, it will be more difficult.” Macro fund-managers seek to profit from broad economic trends by trading everything from bonds to commodities. “It’s good that veteran managers are thinking about deepening the benches but it’s not going to be easy,” Bolliger said. “While there are a lot of smart people in the hedge-fund world, there are not that many geniuses. The proof will be in the pudding in terms of performance.” To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net ;
