The key to managing a successful hedge fund is simple in theory: Produce a healthy return for investors.
Getting there, though, is massively complex; otherwise, everyone would excel.
S. Donald Sussman, a longtime hedge fund investor through his Greenwich-Conn.-based firm Paloma Partners, has distinguished himself as an elite investor not just for being successful. He also was one of the early pioneers of the industry “seeding model,” said Amanda Cantrell, managing editor of Institutional Investor’s Alpha, a trade publication that covers the global hedge fund industry. Essentially, Cantrell said, he recognized the value of investing in people and their ideas.
“He gave some of the biggest managers in the business their start,” Cantrell said Monday.
Sussman’s impact on the industry is the reason he was chosen, along with six others, for induction Monday into the Institutional Investor’s Alpha Hedge Fund Hall of Fame. Sussman, who lives part time in Portland, is majority shareholder of the Portland Press Herald/Maine Sunday Telegram and is married to U.S. Rep. Chellie Pingree, D-Maine.
The other six inductees are: Leon Cooperman, a veteran of Goldman Sachs and founder of Omega Advisors; Raymond Dalio of Bridgewater Associates; Israel Englander of Millennium Management; David Shaw of D.E. Shaw; Paul Singer of Elliott Management Corp.; and David Tepper of Appaloosa Management.
Institutional Investor’s Alpha established its Hedge Fund Hall of Fame in 2008 with 14 inductees, including financing legends George Soros and James Simons.
All of the inductees have been successful, and Sussman is no exception. From October 1981 through July of this year, his firm generated a 12.7 percent annual return for its investors. If that sounds small, consider that Sussman’s firm manages $2 billion in assets. Then consider that 12.7 percent of $2 billion is $254 million.
A hedge fund, by definition, is a limited partnership of investors that uses high-risk methods, such as investing with borrowed money, in hopes of realizing large capital gains. Hedge funds are not offered to the general public and typically include only accredited private investors, which makes them exempt from most regulations, although that changed a bit in 2008 after the economic crisis.
Sussman has a connection to another 2013 inductee. In the early 1980s, not long after he launched Paloma Partners, he met Shaw, who was then a professor of supercomputing at Columbia University. During a sailing trip, Sussman persuaded Shaw to shelve his plans to join Goldman Sachs, arguably the most prominent financial firm in the country, and take backing from Paloma Partners instead.
By joining Sussman, Shaw retained ownership of his own business, which – with Sussman’s help – has since become one of the most successful hedge fund firms.