management can lead to extraordinary wealth. But only a few succeed. Managers need the proper skill set, team, investors, strategy, and market conditions to achieve their goals. Moreover, a little luck doesn’t hurt. In the rare circumstance that all of these factors come together simultaneously, everyone benefits—both investors and managers. In extreme cases, top managers earn billions. Some even reach this target year after year. According to the latest Forbes Billionaire listings, the single largest industry category is Finance, with more than 40 mem- bers boasting investment management as their primary occupation. Luminaries such as George Soros, James Simons, Steve Cohen, John Paulson, William Ackman, and David Tepper, among others, grace this list. Exhibit 3 shows the top 10 hedge fund managers of 2015. But the annual list is no surprise. Compensation is far from a well-kept secret in the investment industry. Industry regulations require managers to disclose their compensa- tion; the popular press displays top wages prominently akin to a baseball player’s batting average. Winners and losers are showcased for all to see. Winners gather more assets and speaking engagements, while losers quietly exit the business to shame and scorn. It is not an industry for the fainthearted. But because of the potential for an extraordi- narily lucrative livelihood, managers continue to f low into the industry in unprecedented waves. Would-be emerging managers, f lush with theoretical back-tested strategies, no longer depend on requisite ivy MBAs to
engage in the money management profession. They f lock to Wall Street in ways heretofore unseen. Many come without any formal business education or direct investment experience. This includes medical doctors, lawyers, computer engineers, mathematicians, astro- physicists, and virtually all-imaginable skills and aca- demic backgrounds. They descend on Wall Street from every possible country in the world in hopes of winning a financial lottery. From a naïve perspective, barriers to entry appear low; many believe they can compete with a mere laptop and idea. Most don’t get beyond the hobby stage, scraping together their personal savings or investments from of a handful of friends and relatives. But on occasion, some build a credible track record and break through into the professional ranks. All engage in a common mis- sion to provide quality, risk-adjusted performance for their clients. Occasionally, new entrants do bring a unique twist to money management. No longer beholden to the traditional rules set forth by Graham and Dodd, new-age managers seek their own logic and methods for gauging security valuation and outperforming key benchmarks. They may pursue a quantitative approach, high-frequency trading arbitrage, or some other novel method. Of course, they also set out on the traditional path of money management secure in the belief that they can provide fundamental investing in a more efficient, effective manner. Regardless of the endeavor, constant information f lows, disruptive technological breakthroughs, new investment offerings, evolving academic research, and unanticipated market shocks all create opportunities for emerging managers to enter the marketplace and gen- erate profit. Most emerging managers are confident in their ability to manage a portfolio. Whether it’s garnered from prior experience or gleaned from independent research, emerging managers enter their business with self-assurance that they can successfully invest funds. Unfortunately, they often don’t consider the entrepre- neurial, business, and managerial experience necessary to fully achieve success. Individuals working within a large corporate office, accustomed to secretarial, sales, MANAGING MONEY AND A BUSINESS—GETTING STARTED
E X H I B I T 3 2015 Rich List
Source: 2015 Rich List, Institutional Investors Alpha. See http://www. institutionalinvestorsalpha.com/Article/3450284/The-2015-Rich-List- The-Highest-Earning-Hedge-Fund-Managers-of-the-Past-Year.html.
4 T HE E PHEMERAL L IFE OF AN E MERGING F UND M ANAGER
W INTER 2015
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