Institutional Investor's Alpha Magazine - November 2007 - (Page 33)

quote from 19th-century British author Samuel Smiles about learning from failure, Ainslie wrote, “Our security selection was terrible — our shorts were actually up more than our longs for only the second time in our history.” Ainslie’s own history began in Alexandria, Virginia. There he attended the private Episcopal High School, where his father was headmaster and where he formed some exceptional school ties. Ainslie’s contemporaries at EHS included Winston Holt, who would eventually head client relations at Tiger and later take a similar role at Maverick, and Lee Hobson, who would also join Tiger before becoming one of Ainslie’s ﬁrst hires at Maverick. Julian Robertson is also an EHS alumnus. Ainslie, who has a BS degree in engineering from the University of Virginia, met Robertson while studying for his MBA at the University of North Carolina, the Tiger founder’s alma mater. Ainslie worked on a project for the UNC board of trustees, of which Robertson was a member, and the two would talk about stocks. In 1990, after graduation, Ainslie joined Tiger as an analyst. The ﬁrm had $700 million in assets and eight investment professionals. Ainslie fit the Tiger mold. He was young, smart and athletic. (Robertson prized jocks’ competitiveness.) “Most of Julian’s analysts were barely shaving,” says Ted Caldwell, founder of Lookout Mountain Capital, a money management ﬁrm based in Lookout Mountain, Tennessee, and an early hedge fund investor. At Tiger, Ainslie worked closely with Mandel, who would leave the firm in 1998 to found Lone Pine. “Steve is one of the ﬁnest analysts ever to set foot on the planet,” says Robertson. “I think Lee got a lot out of that relationship.” Tiger began as a pure fundamental longshort equity shop, but by the time Ainslie arrived, Robertson had started to add other strategies. In the early 1990s, global macro was king, and managers like George Soros were minting money by making big bets on bonds and currencies. At Tiger, large macro bets came to dominate performance — much of its 73 percent return in 1993 was from shorting European currencies. Adding global macro strategies helped Tiger grow. But as Robertson moved more of his ﬁrm’s assets into bonds and currencies, several of his star equity analysts left to run their own businesses. Ainslie was among the first of the so-called Tiger cubs to leave, moving to Dallas in August 1993 to manage the stock investments for a hedge fund being started by entrepreneur Sam Wyly. The Wyly brothers, Sam and Charles, made their fortune founding several companies, including Michaels Stores and Sterling Software, and formed Maverick Capital in 1990 as a family ofﬁce. After a couple of years of impressive returns — Maverick was up more than 100 percent in 1991, thanks in part to a well-timed wager on junk bonds by Sam Wyly, who managed the entire portfolio himself — they decided to open Maverick to outside investors and recruited Ainslie. Under Wyly, Maverick had lived up to its name, betting on everything from French interest rates to emergingmarkets debt. Ainslie’s vision for the firm was very different. To his mind, hedge funds are meant to be a relatively conservative investment vehicle, created to both preserve and grow capital, as practiced by Jones and by Tiger in its early days. By March 1995 the Wylys had given Ainslie complete authority over all investing-related activities. The next year Maverick Fund USA was up 44.5 percent, after fees, even though its net market exposure — its longs minus its shorts — averaged about 45 percent. The firm, which began with $35 million in seed money from the Wyly family, had grown to more than $700 million by the start of 1997. Maverick consumer sector head Brian Zied remembers just how unique Ainslie’s vision was at the time. “Early in 1998 Lee invited me to lunch,” recalls Zied, 38, who was working as a retail analyst for Leon Cooperman at Omega Advisors in New York. “I was very impressed with the way Lee thought about building a business and his approach to investing. Most hedge funds were taking huge risk to generate returns, such as macro risk in Russia, and I just thought that was a really bad idea.” Zied, who began his career as an investment banker at Bear, Stearns & Co. in 1991 before moving to Omega in “At times it felt like we were zigging when we should have been zagging,” says health care sector head Steven Kapp. NOVEMBER 2007 • INSTITUTIONAL INVESTOR’S ALPHA • 33

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - November 2007

Institutional Investor's Alpha Magazine - November 2007 Contents Letter from the Editor Longs & Shorts Pension Corner: Patriot State The Good Guys: College Connection Interview: Currency of Change Cover Story: Comeback Kid Strategies: Masters of Art Research Center: Alpha Awards: Top Technology Providers Top Analysts Alpha Bytes: Critical Choice Unhedged: Commentary: Banking on a Bubble

Institutional Investor's Alpha Magazine - November 2007

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