Institutional Investor's Alpha Magazine - July/August 2008 - (Page 39)

Capital Management, a ﬁ rm started by Eric Mindich, another Goldman Sachs alumnus. (In a testament to the value of size, Eton Park, which launched in 2004 with $3.5 billion in assets and now manages more than $10 billion, was up 30 percent in 2007.) In a letter to investors, Rosenberg touched on what he called his time-tested bond with Mindich, illustrating how small the world of hedge funds is, another reason little ones are routinely absorbed by big ones. “Eric and I have known each other for over 15 years, have invested capital jointly and have sat on numerous committees together while we were at Goldman Sachs,” Rosenberg wrote in announcing the merger. “We have dealt with success together and, more important, have navigated as partners through adversity. Eric and I trust one another completely.” Rosenberg was on to something other managers have discovered. Rather than closing down a hedge fund because of poor, or even mediocre, performance, partnering with a fund possessing a similar strategy can make sense. THOUSANDS OF WALL STREET professionals have joined the hedge fund industry since the late 1990s, lured by the giddy promise of independence and wealth. But as the number of start-ups has grown, so have the liquidations. From 2005 to 2007 nearly 5,000 hedge funds were created, according to Hedge Fund Research in Chicago. During that time more than 40 percent of all hedge funds closed, a sharp increase over the previous ten years, when almost 6,000 funds launched and 20 percent were liquidated. Among those who fled the corporate world during this spate of openings was Alex Sacerdote, who after six years at Fidelity Investments — ﬁ rst as an analyst and then as a sector portfolio manager covering technology, media, telecommunications and consumer stocks — resigned in March 2006. Three months later, with the help of his father, Peter, he launched Whale Rock Capital Management, which focuses on the areas Alex covered at Fidelity. “It’s a better mousetrap if you are conﬁdent in your ability to generate alpha,” says Alex, who argues that there is simply more opportunity in hedge funds than elsewhere. “If you are a good stock picker, the gains on the long side are ampliﬁed [with prudent leverage] and you can generate alpha on the short side — all while exposing the overall fund to [signiﬁcantly] less market risk.” Sacerdote seems to have made the crossing largely unscathed. By the end of 2007, the $120 million that Whale Rock started out with had grown to more than $550 million, of which $200 million came from gains and $350 million from capital (the fund was up 39 percent in 2007, and 54 percent since inception). Then came January, when Whale Rock’s four biggest positions — Apple, Google, Nokia Corp. and Research in Motion — were crushed, as investors ﬂed the equity markets in the wake of the subprime-mortgage market meltdown and problems at major financial institutions. Whale Rock was Photo by Brad DeCecco for Alpha down about 20 percent for the month but lived to tell about it — in part because the Sacerdotes were able to project enough conﬁdence to keep investors from jumping ship. “We were down double digits, but that was after six very positive quarters,” Sacerdote says, adding that Whale Rock has since recovered substantially. “We have a good group of investors who know us and understand us,” says Peter Sacerdote, who worked for 41 years at Goldman Sachs, most recently as chairman of the ﬁrm’s private equity committee. Investors include Sanford Robertson, founding partner of San Francisco–based Francisco Partners; Russell Carson, co-founder of New York–based private equity ﬁrm Welsh, Carson, Anderson & Stowe; and family wealth management ofﬁces like Athena Capital Advisors, based in Lincoln, Massachusetts. Although the Sacerdotes are well connected and well funded, there are lots of hedge fund Cinderella stories of unlikely success from less auspicious beginnings. Take Full Circle Capital, which Blum and partner John Stuart launched in September 2005 with less than $9 million in capital cobbled together from their own assets and those of a handful of investors — “family types who didn’t need a quick pop,” Blum says. Like Aravali, Full Circle has done well in a niche market — returning about 15 percent a year by providing senior secured asset-based loans to small and mediumsize businesses. Stuart and Blum met at Oppenheimer & Co., where the former began his career in 1988 as an in- John Stuart (left) and Robert Blum, co-founders of $70 million Full Circle Capital, specialize in making loans to small and midsize businesses. JULY/AUGUST 2008 • INSTITUTIONAL INVESTOR’S ALPHA • 39

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

Institutional Investor's Alpha Magazine - July/August 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Mr. Big Goes Small The Good Guys: Adopt This School! Interview: Man's Great Hope Cover Story: The Gentleman Activist Strategies: The New Bankers Profile: Staying Alive Research Center: The Best of the East The Asian Sensations Alpha Bytes: Into the Light Unhedged: Commentary: Speculating on Washington

Institutional Investor's Alpha Magazine - July/August 2008

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