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Hedge fund star Greg Coffey astounds City

Date: Monday, November 10, 2008
Author: Kate Walsh, Timesonline.co.uk

Greg Coffey has decided not to strike out on his own despite having walked out on $250m.

When Greg Coffey phoned his mother last Sunday to tell her about his new job, it was not the news she was expecting.

“What the hell are you doing?” she said. “I wanted to see your name over the door.”

Her reaction was reasonable and was shared by many in the City. In April when the star hedge-fund trader had walked out of his £150m-a-year job at GLG, one of Britain’s biggest hedge funds, it was widely assumed he would set up his own firm. It was the assumption too of the 12 GLG traders who resigned with Coffey to follow him to pastures new.

Instead, the 37-year-old Australian, who had made billions for GLG trading in emerging markets, was joining one of GLG’s rivals, Moore Capital - which has offices in the same building in Curzon Street in London’s Mayfair.

Coffey had been bound to silence by a confidentiality agreement with his new employer until last week, when he explained his motives in an exclusive interview with The Sunday Times.

“When I left I had the intention of launching my own fund,” he said. “I didn’t take this leap just to sit in an office four floors above my former employer. But this is different – Moore is a completely different kettle of fish.”

When Coffey stunned the hedge-fund industry by walking out of GLG – and turning his back on $250m (£160m) in bonuses and share options – it was thought he would create a new firm in his own vision.

Investment banks were looking to fund him in exchange for a stake in his new fund, large investors were lining up to back him, and rival hedge funds were suggesting ways they could work with him.

Everyone wanted a piece of the star trader whose decision to leave GLG had caused its share price to plunge by 15%. Coffey was flattered but his mind was made up: he wanted to strike out on his own.

So his decision to join Moore Capital prompts a question. Is the real reason for his move that he simply couldn’t raise the money to go it alone?

Coffey strongly refutes the idea. “When I resigned from GLG I had significant interest from both existing and new clients looking to be seed investors,” he said.

However, analysts said that with investor appetite for hedge funds at its lowest ever and the credit markets paralysed, Coffey would not have been able to raise as much as he had planned.

One hedge-fund analyst said: “The market expected him to raise about $5 billion but in reality he was probably looking at launching with $2-3 billion. Of course, this is a respectable amount but then ego comes into it: what will people say?”

The analyst added that the option of waiting for the market to improve was viable but impractical. “Coffey could not afford to do nothing - out of loyalty to his team. Unlike him, they are not multimillionaires who could take a year out to redecorate their houses.”

So how did the surprise move come about?

Shortly after resigning, Coffey bumped into Louis Bacon, founder of Moore Capital, in the underground car park of One Curzon Street. The pair had known each other for years and the exchange was casual.

The 51-year-old American said to Coffey: “Hey, Greg, you resigned. What are you going to do now?” Coffey replied: “I want to do what you do.”

More conversations followed, but there was no hard sell - none was needed.

Coffey had admired Bacon since he started working as a trader in 1994. Bacon is known as the King of Macro because of his success in macro trading, which involves making bets on interest rates, currencies and stock indexes.

In many ways, the Australian had modelled himself on Bacon. Both are obsessive traders. Before Bacon travels to any of his residences, here or in America, a photograph is taken of the desk he is working at and everything – from computers to documents – is arranged in exactly the same way at the desk he will be using next.

Coffey’s approach is less fastidious, though his homes in London and Australia are wired up for trading and on any trips elsewhere he has screens shipped out before he leaves.

With a job proposal from Bacon on the table, Coffey spoke to his closest confidants, including his wife, Ania, a former financial analyst with Credit Suisse.

Together the couple would have discussed his new pay packet. At GLG he reportedly earned a bonus of $300m last year alone.

Although Coffey cannot disclose details of his new package, Moore is regarded as a very generous employer – it is highly unlikely he took a pay cut.

One industry source said: “Bacon would have said to him I can pay you what you would make at your own hedge fund.”

Coffey next consulted his investors. They told him they did not care whether he launched his own fund or joined an existing one - as long as he made the most money for them. However, they did expect his new environment to have the best operational infrastructure - meaning risk management and compliance functions – in the industry.

Moore, like GLG, is a large hedge fund with about $20 billion of assets under management. Moore’s operational platforms are highly regarded but Coffey said the firm’s culture was the clincher.

In his view, Moore operates in a way that a hedge fund should be run. As it is not publicly listed, its focus is purely on making money for investors rather than asset-gathering in order to improve returns for shareholders.

Coffey said: “I joined Moore because I could offer existing and new investors the same opportunities as I could on my own, with the added advantage of sitting next to Louis Bacon at Moore, an institution with a 20-year battle-tested risk-management infrastructure.”

Another hedge-fund manager said: “At Moore there is a bias to constraining returns both on the up and the down. In a good year he will be up 20% and in a bad year he will be down 2%-3% but performance never falls radically.”

Joining such a steady ship also held its appeal in these uncertain times.

Coffey is candid about the state of the market: “The amount of risk capital available will be lower, and the money that is available will avoid strategies requiring leverage funding from prime brokers.”

In his new role, Coffey’s trading activity will be as frenetic as ever. He works 20-hour days, trading the Asian markets in the early hours from home. After that he travels into the office in time for the opening bell in London and works until New York closes at 10pm.

At Moore he will share an office with Bacon though he will also sit on the trading floor with his team. Initially, he and Bacon will manage funds together but in time Coffey and his team are expected to launch their own fund.

Had Coffey set up his own company, his time would have been consumed with managing the operational side and dealing with investors. At Moore, apart from handling relationships with a number of his long-term investors, he will be cocooned in an environment where his only concern will be trading and his only objective making money for investors.

In that respect the pressure is on. When Coffey left GLG the combined return over five years from the three funds he managed stood at 42%. However, his largest fund, the emerging-markets fund, is down 30% for the year and last weekend the firm limited the amount investors can withdraw because some of the assets are too illiquid to sell.

His was not the only emerging-markets fund that was hammered by stock-market chaos in countries such as Russia, but Coffey knows that he is not in a relative game.