Once golden, Robert Rubin's hedge fund proteges lose some luster

Mon Mar 27, 2017 9:29am EDT
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By Svea Herbst-Bayliss and Lawrence Delevingne

BOSTON/NEW YORK (Reuters) - Learning to invest on Goldman Sachs' GS.N risk arbitrage desk, made famous by leader Robert Rubin, was once seen as a fast track to fortune. But the band of hedge fund protégés who mastered their trade under the former Wall Street star and U.S. Treasury Secretary have stumbled in recent years.

The latest to falter is Eric Mindich, who announced on Thursday that he would shut his hedge fund firm Eton Park Capital Management LP following a 9 percent loss in 2016 and a sharp decline in assets.

Mindich is one of several ex-Goldman traders who worked on the bank's 'risk arb' desk, pioneered by Rubin in the 1970s and 1980s, who have fallen on hard times. Others include Richard Perry, who six months ago decided to shutter his 28-year-old enterprise, as well as Eddie Lampert, Daniel Och and Dinakar Singh, whose own firms have lost billions of dollars in assets.

Their struggles are part of a broader dip in the hedge fund industry, marked by a slew of fund closures due to poor performance, controversies and fee pressure from investors.

But they also represent the end of an era: Goldman, for decades Wall Street's pre-eminent investment bank, no longer breeds such hedge fund scions because regulations brought in after the 2008 financial crisis - chiefly designed to reduce risk - have inhibited the type of trading it can do.

Shakil Riaz, global chief investment officer for Rothschild Asset Management, said the faltering of Rubin acolytes is symptomatic of trends that have taken hold after the crisis.

"The old ways of hedge funds taking money out of the markets just are not as effective anymore," said Riaz, a three-decade veteran of the industry. "It really is an evolve-or-die world."

More investors chasing the same set of limited opportunities, persistently low interest rates and the rise of low-cost index funds delivering solid returns have combined to make it hard for Goldman's former stars to stand out.   Continued...

Eric Mindich, Founder and CEO of Eton Park Capital Management attends a session at the World Economic Forum (WEF) in Davos January 29, 2010.  REUTERS/Christian Hartmann