Institutional Investor's Alpha Magazine - February 2008 - (Page 50)

Top Analysts annual compensation for sell-side equity analysts with less than ﬁve years’ experience was $195,000 in 2006. Three main factors determine compensation at hedge funds: assets under management, investment performance and a formula for sharing proﬁts. Individual analyst compensation is often determined by the partners and senior management of a ﬁrm, but many bigger ﬁrms, such as $9 billion Greenwich, Connecticut–based Lone Pine Capital, rely on a combination of individual contributions and a fund’s overall performance. “Analysts at a lot of hedge funds are effectively acting as port folio managers; the day-to-day job is very much coming up with investment ideas,” says Maureen Brille, a managing director at Gerson Group, a New York–based executive search ﬁrm that works with hedge funds. The difﬁculty in ﬁnding analysts who can succeed at hedge funds, she adds, is another reason ﬁrms are willing to pay so handsomely. To do well, Brille says, individuals must be nimble, well rounded, insightful and interested in the markets, and have good gut instincts. “Judgment is the most important thing, and it’s the hardest thing to try to test for,” she explains. For Chicago-based UBS O’Connor’s Paul Chambers, the ability to identify short-selling opportunities, a staple of hedge funds, is a major contributor to his No. 1 standing in Energy. Among his impressive 2007 calls, Chambers shorted New Orleans–based Tidewater — a company that supplies support ser vices and vessels to the offshore energy industry for exploration, development and production — in July. At the time, Tidewater was trading in the $75 to $80 range. By November its shares had fallen below $50, as the company’s proﬁts for the quarter ended June 30 fell short of analyst estimates because of higher-than-expected maintenance costs. Hedge fund analysts’ tendencies to focus on individual stocks do not preclude big-picture analysis of the markets and speciﬁc industries. To strengthen their own market coverage, many hedge fund analysts rely on relationships with their sell-side peers and often contribute their own ideas on the sectors they cover, to foster the ongoing exchange of information. “I try to partner with the sell side in a give-and-take relationship,” says Citadel’s Jim Hoeg, No. 3 in Consumer. Adds his colleague Simon, “I learn a lot from bouncing ideas off people, and if they like what you have to say and what you think, it encourages more dialogue.” For Berney, No. 2 in Media, making a successful transition to hedge funds from the sell side ﬁrst meant convincing Citadel of his keen sense of entrepreneurship and willingness to take smart risks and then proving his claims by delivering strong, proﬁtable stock picks. “On the sell side I evaluated companies more than I evaluated stocks,” he says, noting that many of the sell side’s top analysts can’t pick stocks. “But on the buy side, the most important trait we need to have is to be good stock pickers. That’s how we generate returns.” Ted Orenstein • SAC Capital Advisors Capital Goods/Industrials T ED ORENSTEIN GOES AGAINST THE GRAIN — a quality that not only helps him identify investment opportunities others often miss but that has earned him respect among sell-siders and sets him apart from other hedge fund analysts. “He has a nose for the nonconsensus view of stocks,” says one sell-side analyst, adding that Orenstein has a high regard for his investment bank counterparts. Before his 2003 arrival at Stamford, Connecticut–based SAC Capital Advisors — where he is responsible for tracking a group of roughly 200 primar ily U.S.- based multi-industry conglomerates — Orenstein spent seven years at Boston-based Fidelity Investments. During his time there he worked as an analyst and even tually a portfolio manager, heading up the ﬁrm’s then $17.7 million Fidelity Select Industrial Equipment Port folio until his decision to move into the hedge fund industry. Orenstein, 36, who holds an MBA from the University of Pennsylvania’s Wharton School, is described by sell-side analysts as unemotional and egoless in his investment approach. But his stock-picking skills and ability to identify unique opportunities, sell-siders say, ultimately separate him from other hedge fund analysts covering Capital Goods/Industrials. “He has one of the best success records of any hedge fund industrials analyst I know,” says one sell-side analyst, noting that in past turbulent markets Orenstein has often turned to steadier European markets for investment opportunities. 50 • INSTITUTIONAL INVESTOR’S ALPHA • FEBRUARY 2008

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - February 2008

Institutional Investor's Alpha Magazine - February 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Alternative Perspective The Good Guys: A Simple Plan Cover Story: Energy and Commodities: Fueling Opportunity Regulation: Energy Trading: The Brawl on the Hill Interview: Master of Values Regulation: Hedge Fund Registration: Way Out West Research Center: Top Hedge Fund Analysts Alpha Bytes: Rocket Man Unhedged: Commentary: Structured for Success

Institutional Investor's Alpha Magazine - February 2008

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