Institutional Investor's Alpha Magazine - November 2008 - (Page 26)

Cover Story Daniel Zwirn Agonyof The D After battling for nearly two years to keep his once–$6 billion hedge fund empire alive, Daniel Zwirn is now fighting to have any investment future at all. aniel Zwirn was on top of the world. It was the summer of 2006, and Zwirn, just 35, was hedge fund royalty. In ﬁve short years he had built D.B. Zwirn & Co., a New York–based ﬁrm specializing in making loans to small and midsize companies, from nothing into a $5 billion empire with 260 employees spread among 16 ofﬁces from San Francisco to Singapore. The secret: good, consistent, noncorrelated low-doubledigit annual returns — and even better connections. Life was grand for the fast-rising manager. Through DBZ’s management company Zwirn had purchased a $17.5 million Gulfstream 400 jet the previous year, and he and his wife, Monica Keany, were buying a $15 million apartment at the Ritz-Carlton Hotel, just a short walk from DBZ’s Fifth Avenue headquarters. He had joined the leadership council of Robin Hood, the hedge fund–heavy charity founded by Tudor Investment Corp. head Paul Tudor Jones II to ﬁght poverty in New York, and was weighing in on economic policy issues with former Treasury secretary Robert Rubin as a member of the Hamilton Project Advisory Council at the Brookings Institution in Washington. They were heady times for Zwirn, the product of a middle-class neighborhood outside blue-collar Pittsburgh. Fresh from his 1998 graduation from Harvard Business School, he had earned a reputation as a savvy investor, ﬁrst at hedge fund Davidson Kempner Partners and then at MSD Capital, the private investment ﬁrm of computer pioneer Michael Dell. It was at MSD that he had gotten his big break, when he caught the eye of Glenn Dubin, co-founder of multistrategy giant Highbridge Capital Management, which agreed to stake him in 2001 with $150 million. Thanks to the imprimatur of Highbridge, Zwirn attracted a glittering roster of inﬂuential investors, such as Duquesne Capital Management founder Stanley Druckenmiller and billionaire money manager Jeffrey Epstein. He did deals alongside hedge fund heavyweights like Fortress Investment Group co-president Peter Briger, formed more than 70 joint ventures with outside funds and started seeding other managers. So keen was his ambition that by 2006 — only two years after spinning off from Highbridge — Zwirn had begun discussions with investment bankers about doing an initial public offering, which could have made him a billionaire. Then his world began to unravel. In October 2006, Zwirn told investors that accounting irregularities had been discovered at the ﬁrm and that DBZ’s chief ﬁnancial ofﬁcer had left. A year earlier DBZ had borrowed $3.8 million from one of its funds and a managed account to cover the deposit on the Gulfstream 26 • INSTITUTIONAL INVESTOR’S ALPHA • NOVEMBER 2008

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

Institutional Investor's Alpha Magazine - November 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Risk Rewarded The Good Guys: In the Here and Now Interview: Minister of Finance Cover Story: The Agony of Dan Zwirn Strategies: The Early Birds Are Awake Strategies: The Call of Shari’a Profile: Sweet Home Chicago Research Center: What Stampede? Alpha Bytes: Centralize the Data Unhedged: Commentary: Learning from the Wreckage

Institutional Investor's Alpha Magazine - November 2008

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