Confessions of a Fallen Hedge-Fund Prince

Date: Wednesday, October 31, 2007
Author: Business New Haven

When most of his high school classmates were worrying about SATs and prom dates, Orange native Timothy Sykes was skipping class to trade stocks in the school library. And when most of his college friends were planning keg parties, Sykes was setting up a hedge fund.

And now, when many of his peers are just embarking on their professional lives, the 26-year-old Sykes is looking back on a wild ride on Wall Street and launching a second career as a writer and publisher.

"Trader or writer, I will always be a scrapper," writes Sykes in his new book, An American Hedge Fund. Sykes' brief foray into the world of hedge funds - high-risk investment instruments for the wealthy - cost him hundreds of thousands but has now inspired him to take on the Wall Street establishment in print.

"I thought it was my entrance into the big time. I was wrong big-time," Sykes says of his company, Cilantro Fund Partners, which closed earlier this year after three years in business. Sykes is now living in Hamden with his parents and marketing his book, the first offering of his new publishing company, Bullship Press.

His fund's closing has left him free to discuss the inner workings of hedge funds and his adventures in day trading, which earned him profits of up to $120,000 a day during the tech bubble. U.S. Securities & Exchange Commission (SEC) rules have kept most investors from crucial information about how hedge funds work, Sykes argues, to the detriment of the economy as a whole.

"The general public has so little information about this stuff," Sykes says, adding that hedge funds are playing an increasing role in the capital markets. "Right now there's no learning - everyone's an amateur economist. I talk about all my gains and losses."



The son of the former owner of the local Sykes-Libby jewelry store chain, Sykes was raised around business but he says he didn't take an interest in Wall Street until an injury forced him to quit competitive tennis during his senior year at Amity High School.

Sykes applied the intensity and drive he acquired as an athlete to parlay a $12,000 bar mitzvah fund into $37,000 by graduation in 1999. His technique was simple but required round-the-clock attention to the drift of the Dow and access to a high-speed Internet connection. He describes jumping from computer to computer in the school library to keep track of all his trades and skipping class to tend to his fledgling business.

The behind-the-scenes machinations of "pump-and-dump" boiler rooms may also have helped him capitalize on the rise in penny stocks, Sykes acknowledges.

He makes direct reference to the financial underworld in his book's acknowledgements: "I would like to thank the thousands of inept corporate management teams, shaky brokers, boiler rooms, pump-and-dumpers, stock promoters, market manipulators...for your endless scheming and undying greed, without which my fortune would never have been possible."

Entering college, Sykes started shorting stocks and reaping outsized profits, boosting his account into the million-dollar range. In the book he discusses his strategy and individual trades in detail, recording each profit and loss as he edges closer to the financial big leagues.

Sykes' exuberance on the page is infectious, even as he bluntly recounts his missteps and increasing arrogance as his bank account ballooned. First at Tufts University, then Tulane, his obsession with trading grew.

"I made $700,000 my freshman year. It screws up your mind a little bit - it's just surreal," Sykes says.

After graduation from Tulane, Sykes formed Cilantro and hit his first serious roadblock: SEC rules requiring that hedge-fund investors have at least $1 million in net worth. The government also prevents hedge funds from openly seeking new investors because of the risks involved in many hedge-fund strategies.



Without big-money contacts and access to capital, Sykes' fund stalled at around $3 million, far from the $10 million threshold he figured he needed to attract attention. Then he made his most serious mistake - sinking a major chunk of his earnings into a Florida startup company that foundered.

"I threw my rules out the window because I really wanted the big time," Sykes says. "You have to have patience and let the opportunities come to you."

Cilantro started losing money just as Sykes caught the eye of the New York financial media. He was featured on CNBC and on the reality show Wall Street Warriors even as his bank balance withered.

His fund lost 20 percent in its first three months. "It was a very interesting period," Sykes says. "It was pretty much over before it began."

Now, working from a condo just off Hamden's Skiff Street, Sykes hopes to turn his hard-won lessons into profits in the publishing world. He says a publishing house offered him a $35,000 for his story, but he'd rather make the profits himself through a self-publishing house.

Since the book came out earlier this month, An American Hedge Fund has moved up the Amazon.com charts and garnered dozens of reviews in the financial press - not all of them complimentary.

But Sykes seems to relish his hard-won notoriety, even posting a link on his Web page to a story from the New York Post's Page Six with the headline, "Party's Over for Hedge Fund King."

It's a lesson he seems to have learned from his bubble-era trading days - any publicity is better than no publicity at all.

Sykes says he's looking for an office in Hamden to house Bullship Press and more authors to write books under its imprint.

Publishing appeals to him, Sykes says, because sales can only go in one direction: up. "That's why I like this book thing - I can never go backwards," he says.



Hedge funds, which manage at least $2 trillion in assets worldwide, have a major impact on the economic health of the nation and need more scrutiny from the public, Sykes says.

Locally, Yale University sinks at least 20 percent of its endowment into hedge funds and has reaped outsized profits (BNH, October 1), but may face increased risk.

SEC rules and underfunded enforcement efforts are effectively shielding the funds from scrutiny even as they account for up to 40 percent of the daily trading volume on major exchanges, Sykes argues.

"Even if you don't agree with the strategy you should take the time to learn about it," Sykes says. "There's no transparency going on here."

Even though Cilantro never managed a significant amount of money, Sykes says his story can help ordinary investors understand the mechanisms behind the market and a trader's mentality.

"What I lack in earnings, I make up for with brutal honesty," Sykes says.