In Las Vegas this week, hedge fund investors rubbed shoulders with big-name managers, Hollywood heavies and political swells against a Bellagio hotel backdrop of glitz and gambling.
For the fifth straight year, private jets dropped off billionaire managers to schmooze clients and share success recipes with legions of hedge fund faithful who came on commercial airliners for the SkyBridge Alternatives Conference, which ran from Tuesday evening through Friday.
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Anthony Scaramucci, founder of conference sponsor SkyBridge Capital and affectionately known as "the Mooch," played host to Daniel Loeb, one of the few managers producing big returns this year; Al Pacino; former French President Nicolas Sarkozy; and former U.S. Defense Secretary Leon Panetta.
For many of the people attending what has become the $2.25 trillion industry's biggest annual event, the caliber of the panelists (including Jane Buchan who runs PAAMCO and Leon Cooperman who runs Omega Advisors) and the chance of discovering even one new or unusual investment idea were the main drawing cards, followed by a concert by Grammy Award-winning band Train, blackjack and cocktails by the pools.
Clayton Cheek, a managing director at hedge fund Onex Credit, has attended the conference for four years, believing that what he learns here enables him to stay competitive by networking with contacts and hearing about hot-button topics: "If you stop evolving in this industry, the Darwin effect diminishes your business very quickly."
Behind the scenes, investors jockeyed to find the next star manager - this generation's George Soros or Stanley Druckenmiller. John Paulson was one of a handful of top-tier speakers who headlined the event, though according to people who saw him he flew commercial after two years of heavy losses.
Investors with the power to write multimillion-dollar checks groused about recent sluggish returns. The average hedge fund gained 4.6 percent through April, according to eVestment, while the S&P 500 Index rose 12 percent.
The industry's white-hot appeal has also been cooled by ongoing regulatory probes. This week Philip Falcone, who headlined here last year, agreed to a two-year industry ban to settle fraud charges with the Securities and Exchange Commission. Steven A. Cohen, who spoke two years ago, extended his investors' redemption deadline as his SAC Capital Advisors scrambled to keep clients in the midst of the government's insider trading probe. Neither Cohen nor SAC has been accused of wrongdoing.
"I'm not here to be a critic of hedge fund managers," said Frank Caprio, Rhode Island's former state treasurer who is running for the job again next year. "But any alternative investment has to be justified by superior long-term returns." He added that if hedge funds don't deliver, "There is no place for them under my watch."
Caprio, who oversaw the state's $7 billion pension fund from 2007 to 2011, wasn't alone in his blunt assessment.
Jim Berardo, who invests for a wealthy family and is based in Houston, turned his back on hedge funds several years ago. Still, he wanted to participate and maybe find new talent. "We've done so well everywhere else since then, we've felt no need" to put money back into hedge funds, he said, adding that the high fees many hedge funds charge for mediocre performance were "ridiculous."
What irritates investors most are the dull ideas, several attendees said, with too many managers talking the same talk.
"There was a panel on investment opportunities in credit, and all of the panelists sounded the same," said one investor. Berardo said he wanted to see if "anybody out there not following the herd."
As more people chase fewer good ideas and making money is becoming harder, investors are firing the underperformers more quickly. The conference was witness to their skepticism.
Philip Weingord's $2 billion Seer Capital Management gained 26 percent last year, far more than many bigger and more prominent names. His fund, which invests in debt, drew interested inquiries at Bellagio.
"The level of sophistication among investors is far more advanced now, and they are asking very good and detailed questions."
(Reporting by Svea Herbst-Bayliss; editing by Prudence Crowther)