For Hedge Funds, a Billion-Dollar Image Problem

Date: Monday, April 30, 2007
Author: Dealbook

“Obviously what we make is absolutely obscene,” said Marc Lasry, founder and managing partner of Avenue Capital Group, speaking about his fellow hedge fund managers a recent panel sponsored by the Milken Institute. “I’m not saying it’s wrong, trust me, but it’s still obscene,” he said, according to the Associated Press. And the eye-popping sums earned by hedge fund managers could work against the industry as it tries to burnish its image and avoid greater regulation from Washington.

The A.P. reports that some of the largest hedge funds — those with more than $10 billion in assets — want to be seen differently from the smaller ones: more stable, more professional. The membership of the industry’s main lobbying group, the Managed Futures Association, is too disparate, according to Paul Roth, a partner with the law firm Schulte Roth & Zabel. So he says he’s organizing a new lobbying group.

About 241 of the approximately 10,000 hedge funds in the United States control about 80 percent of the industry’s invested capital, the A.P. said.

Part of the image problem for the larger funds is that “obsceneâ€� — in Mr. Lasry’s words — amount of money their top managers make. It’s easy for regulation-minded politicians to make their case by simply ticking off numbers. Just this week, Institutional Investor’s Alpha Magazine estimated that three hedge fund managers — James H. Simons of Renaissance Capital, Kenneth C. Griffin of Citadel Investment Group and ESL’s Edward S. Lampert — surpassed $1 billion in earnings last year.

These are the kinds of numbers that shock even Mr. Lasry’s father, according to an anecdote from the younger Mr. Lasry:

When he told his father 10 years ago how much he had made in the first year or two of running Avenue, his parent responded that he was hurrying off to a synagogue. If you’re making that much money, his father told him, you must be doing something illegal.