On the Black Edge

Fiscal Cliff

Topic: Investments, Wealth Planning

Alexandra Jemetz CIM

April 17, 2018

Image used with permission: iStock/DNY59


Print & Share

Print

On the Black Edge

Being fortunate enough to have a blog due not long after a relaxing March break, I didn’t have to look far for a topic to write about. Not intending to keep picking on hedge funds, alerting our dear readers to the book Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street, by Sheelah Kolhatkar, was just too tempting.

Similar to well-known plots such as Bonfire of the VanitiesWall Street and the Wolf of Wall StreetBlack Edge was written not so much for investment professionals as to engage the non-financial masses. And, also like the above, it has all the intrigue of brazen fraudsters, massive deception and hemorrhaging of money to captivate readers. If you’ve ever watched Showtime’s drama Billions, the story will be familiar.

Unlike the others, however, it’s 100% non-fiction.

Sheelah Kolhatkar has an interesting background herself. A native Torontonian, she fell into the world of finance after graduating with a media studies degree from Stanford and started her career as a hedge fund analyst. The 1990s was the wild west in the burgeoning hedge fund industry, and there was no shortage of content for a budding author. Kolhatkar’s ability to write, and the detail of the account, make this story simply irresistible.

Black Edge delves deep into the insider trading scandal which brought down S.A.C. Capital, and along with it (at least temporarily), it’s owner, billionaire and “Hedge Fund King” Stephen Cohen. Cohen came from humble beginnings, but he knew he liked money at an early age. He parlayed his sharp skills and grit into membership in the Three-Comma Club, with a net worth of $14 billion (USD). One of the reasons hedge funds – and their billionaire managers – are more often discredited than their plain vanilla, boring, long-only peers, perhaps is best reflected by this insight offered by Kolhatkar:

“The economics of hedge funds are extremely favorable to the people running them, largely due to the exorbitant fee structure that they employ. Cohen made the decision early on to exploit this as much as he could. If investors wanted the best—him—they were going to have to pay for it. SAC was doing so well that he was able to charge higher fees than almost any other fund, keeping 50 percent of the profits at the end of the year. Most hedge funds charged 20 percent. But Cohen’s investors did not complain. In fact, they fought to get in.”

For an “average” Nexus client who pays less than 1% in management fees – with no sharing of the profit – a hedge fund’s typical 2% management fee and 20% cut of the profits seems a bit selfish. Taking 50% of the profit, as Cohen did, seems downright egregious.

So, as you prepare your reading lists for your spring or summer vacations, Black Edge is an absolute must to include. And, if you, as I, followed along with the headlines as it was all “going down”, you know how this story ended. <SPOILER ALERT> If you’re currently in the market for a hedge fund manager, you also might be interested to know that Cohen’s back in business after a two-year ban imposed by the Securities and Exchange Commission. However, his name, once again, is in the negative spotlight. This time, his new firm, Point72, is being sued for rampant sexism and gender discrimination. As I mentioned at the start of this blog, we’re not deliberately “out to get” hedge funds. But so many of their managers are the bad boys of the finance world. And, who doesn’t like a good bad boy story? There always seems to be one in the making. AOJ

More Like This...

See another CRM2 blog post that may be of interest to you.

CRM2: The Nexus Approach to our CRM2 Reports

Topic:
CRM2
Excerpt:
With changing securities regulations coming into effect, investment firms are now required to provide individual investors with specific additional in

More Like This...

See another Foundations & Endowments blog post that may be of interest to you.

Charitable Giving Made Easier

Topic:
Foundations & Endowments
Excerpt:
Giving to charities and supporting our community are important to us at Nexus. We donate a portion of our management fees back to the charities and

More Like This...

See another Human Interest blog post that may be of interest to you.

To Insure Promptitude

Topic:
Human Interest
Excerpt:
Historically, tips were a monetary translation of either “thank you” or “sorry”.

More Like This...

See another Inside Nexus blog post that may be of interest to you.

Au Revoir

Topic:
Inside Nexus
Excerpt:
As you may be aware, my time at Nexus is coming to a close. Over the last number of months, I have been working closely with others at the firm to

More Like This...

See another Investments blog post that may be of interest to you.

Same As Ever

Topic:
Investments
Excerpt:
At Nexus, we are big fans of journalist and best-selling author, Morgan Housel.

More Like This...

See another Pearls of Wisdom blog post that may be of interest to you.

The Joy of Doing Nothing Together!

Topic:
Pearls of Wisdom
Excerpt:
Life seems to be a never-ending balancing act, doesn't it?

More Like This...

See another Tax Planning blog post that may be of interest to you.

You May Have a Trust and Not Even Know It

Topic:
Tax Planning
Excerpt:
There is a significant change this tax season as additional reporting requirements have been introduced for trusts and bare trusts.

More Like This...

See another Wealth Planning blog post that may be of interest to you.

The Case for An Annual Family Roundtable

Topic:
Wealth Planning
Excerpt:
Not long after I joined Nexus, Bill Berghuis imparted some good advice that has stuck with me

On a Side Note…

See another CRM2 Nexus Notes Quarterly article that may be of interest to you.

No posts found.

On a Side Note…

See another Foundations & Endowments Nexus Notes Quarterly article that may be of interest to you.

Charitable Giving Made Easier

Topic:
Foundations & Endowments
Excerpt:
Giving to charities and supporting our community are important to us at Nexus. We donate a portion of our management fees back to the charities and

On a Side Note…

See another Human Interest Nexus Notes Quarterly article that may be of interest to you.

Worth 1,000 Words

Topic:
Human Interest
Excerpt:
A little humour makes the world a better place.

On a Side Note…

See another Inside Nexus Nexus Notes Quarterly article that may be of interest to you.

Where Have All the Boutiques Gone?

Topic:
Inside Nexus
Excerpt:
Many small, once independently managed, firms have fallen into the clutches of larger organizations such as banks, institutional money managers and

On a Side Note…

See another Investments Nexus Notes Quarterly article that may be of interest to you.

Drowning in Liquidity and Greasing Growth Stocks

Topic:
Investments
Excerpt:
Now, we find ourselves in “unusual” economic circumstances and an atypical equity market – maybe we live in interesting times?

On a Side Note…

See another Pearls of Wisdom Nexus Notes Quarterly article that may be of interest to you.

The Joy of Doing Nothing Together!

Topic:
Pearls of Wisdom
Excerpt:
Life seems to be a never-ending balancing act, doesn't it?

On a Side Note…

See another Tax Planning Nexus Notes Quarterly article that may be of interest to you.

You May Have a Trust and Not Even Know It

Topic:
Tax Planning
Excerpt:
There is a significant change this tax season as additional reporting requirements have been introduced for trusts and bare trusts.

On a Side Note…

See another Wealth Planning Nexus Notes Quarterly article that may be of interest to you.

The Case for An Annual Family Roundtable

Topic:
Wealth Planning
Excerpt:
Not long after I joined Nexus, Bill Berghuis imparted some good advice that has stuck with me