Succession Planning at Hedge Funds and Long Only Funds
Does anyone have any anecdotes or knowledge of hedge funds or other public equities funds that have survived the founder retiring? I am trying to figure out if there is a chance that the fund has any persistence once the principal inevitably steps down or whether we will necessarily unwind. Obviously, PE funds have navigated this successfully but you hardly ever hear about a hedge fund succeeding.
For context, I'm a second year analyst at a $1-5bn, hedge fund. The principal of the fund is 50-60 with a 20 year track record of great returns. The co-founder is similar age. I'm not concerned about them stepping down anytime soon as we're still printing $10's of millions of fees per year which mostly go to them but they do seem to be getting a little saddle sore. Besides them, on the investment team there are a handful of analysts in our late 20's to late 30's. The average analyst tenure is ~5 years. We don't hire frequently and no one leaves.
In all these years, I have only seen two outcomes, both of which penalized anyone outside the founder/s. Either the firm was shut down or turned into a family office (despite false promises to the next gen and PMs), often to rescue legacy returns and founders having made enough cash. Or, in rare cases, the business was sold. Latter outcome has become way more difficult for obvious industry trends. I am often surprised how naive even experienced PMs are when it comes to succession “plans”. Founder/s are usually after their own interests despite all the sugar coating.
There are definitely brand name SMs the past few years where the founder gets an earn-out and called it a day, leaving everything intact for the successor.
Do your own research.
Och Ziff, Bridgewater, Odey, Fortress, GLG, DE Shaw. Plenty of examples at both ends of the spectrum
Wow bro really, Bridgewater? Didn't think of that. they're a super relevant precedent for my fund as well. Thanks for the killer comment.
Soros
You at scopia?
Have seen a few funds i know "handed down" in the ways of inviting the LPs to invest with the succeeding PM. Usually not everyone sticks around and it can materially impact the AUM, and usually requires the new guy hire some new personnel and whatnot. Then the old PM sticks around as an advisor and probably has some kind of small equity slice in the new fund. But most of the time though it just turns into a family office. especially if the fund named multiple senior partners, the prior founder might just rather shut it all down than cause political chaos. In that case, most of the older senior partners just retire or start funds themselves, usually with the prior founder seeding them a bit.
At super large funds with a lot of PMs running slices (platform-like) like Soros, the succession is probably somewhat simpler since it just needs someone to succeed in a CEO or CIO manner. As in, someone there more for the business than necessarily investing. At least, it's much more likely the franchise survives than the smaller ones where the original LPs kind of invested mainly for the PM rather than the business as a whole.
For the "handed down" examples (which I have speculated is plausible but don't have direct, first hand knowledge of), where do the successor PMs come from? Does the most senior analyst or best regarded usually step up or do hedge funds recruit PMs from other platforms?
I can't think of any somewhat prominent true SM HFs that have successfully done this - I am sure they exist, but none come to mind at the moment. Feel like the issue is generally a founder becomes so wealthy and/or market paradigms change and returns eventually suffer, and for the most part these funds transition to internal AUM/ family office, vs. ever even having the opportunity for "true" succession planning in the first place. In all successful cases across all HFs, either the entire fund's strategy isn't reliant on 1-2 key decisions makers, and/or the fund grew into a platform of sorts (multiple sector heads and new CIOs), and it was a slow + gradual change over a decade time period. But when you have 1-2 key decision makers who have always been responsible for everything, it seems to be difficult.
One interesting side note is maybe you do see it more often in the mutual fund universe - I'm thinking of a few legacy fund names that are no longer run by the original founders. Not just referring to an entire company persisting like T Rowe Price, but there are a few LO mutual funds that come to mind (Tweedy Browne, RCG - although I know we all love to rip on RCG recently.... maybe that's it for now....)
RCG is a group of children who were picked on in HS and tried to overcompensate by going to Ivies and trying to gain max prestige. Their returns are in the pooper and having spoken to several of them, they are so ridiculously naive on investing it's actually kind of sad
Farallon has successfully transitioned to the next generation. Viking has always been fairly decentralized with limited involvement from the founder at least from the outside. ValueAct is going to be on its 3rd generation of leaders soon and they are still relevant despite a drop in assets from the peak. A few others that come to mind include Jana Partners, Magnetar Capital, AKO Capital, and Lone Pine. Obviously some have experienced tough performance recently, but for the most part, they all transitioned and remain around today.
Interesting on Lone Pine - didn't realize Mandel had stepped back that much at this point.
Quis labore voluptas facilis rem sint ea at. Et neque explicabo rerum labore.
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