On the Black Edge

Fiscal Cliff

Topic: Investments, Wealth Planning

Alexandra Jemetz CIM

April 17, 2018

Image used with permission: iStock/DNY59


Print & Share

Print

On the Black Edge

Being fortunate enough to have a blog due not long after a relaxing March break, I didn’t have to look far for a topic to write about. Not intending to keep picking on hedge funds, alerting our dear readers to the book Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street, by Sheelah Kolhatkar, was just too tempting.

Similar to well-known plots such as Bonfire of the VanitiesWall Street and the Wolf of Wall StreetBlack Edge was written not so much for investment professionals as to engage the non-financial masses. And, also like the above, it has all the intrigue of brazen fraudsters, massive deception and hemorrhaging of money to captivate readers. If you’ve ever watched Showtime’s drama Billions, the story will be familiar.

Unlike the others, however, it’s 100% non-fiction.

Sheelah Kolhatkar has an interesting background herself. A native Torontonian, she fell into the world of finance after graduating with a media studies degree from Stanford and started her career as a hedge fund analyst. The 1990s was the wild west in the burgeoning hedge fund industry, and there was no shortage of content for a budding author. Kolhatkar’s ability to write, and the detail of the account, make this story simply irresistible.

Black Edge delves deep into the insider trading scandal which brought down S.A.C. Capital, and along with it (at least temporarily), it’s owner, billionaire and “Hedge Fund King” Stephen Cohen. Cohen came from humble beginnings, but he knew he liked money at an early age. He parlayed his sharp skills and grit into membership in the Three-Comma Club, with a net worth of $14 billion (USD). One of the reasons hedge funds – and their billionaire managers – are more often discredited than their plain vanilla, boring, long-only peers, perhaps is best reflected by this insight offered by Kolhatkar:

“The economics of hedge funds are extremely favorable to the people running them, largely due to the exorbitant fee structure that they employ. Cohen made the decision early on to exploit this as much as he could. If investors wanted the best—him—they were going to have to pay for it. SAC was doing so well that he was able to charge higher fees than almost any other fund, keeping 50 percent of the profits at the end of the year. Most hedge funds charged 20 percent. But Cohen’s investors did not complain. In fact, they fought to get in.”

For an “average” Nexus client who pays less than 1% in management fees – with no sharing of the profit – a hedge fund’s typical 2% management fee and 20% cut of the profits seems a bit selfish. Taking 50% of the profit, as Cohen did, seems downright egregious.

So, as you prepare your reading lists for your spring or summer vacations, Black Edge is an absolute must to include. And, if you, as I, followed along with the headlines as it was all “going down”, you know how this story ended. <SPOILER ALERT> If you’re currently in the market for a hedge fund manager, you also might be interested to know that Cohen’s back in business after a two-year ban imposed by the Securities and Exchange Commission. However, his name, once again, is in the negative spotlight. This time, his new firm, Point72, is being sued for rampant sexism and gender discrimination. As I mentioned at the start of this blog, we’re not deliberately “out to get” hedge funds. But so many of their managers are the bad boys of the finance world. And, who doesn’t like a good bad boy story? There always seems to be one in the making. AOJ

More Like This...

See another CRM2 blog post that may be of interest to you.

CRM2: The Nexus Approach to our CRM2 Reports

Topic:
CRM2
Excerpt:
With changing securities regulations coming into effect, investment firms are now required to provide individual investors with specific additional in

More Like This...

See another Foundations & Endowments blog post that may be of interest to you.

Increasing the Charitable Disbursement Quota – Well Meaning, but Wrong

Topic:
Foundations & Endowments
Excerpt:
Most Canadians have probably been focused on the recent Federal election. So, it wouldn’t be surprising if some missed an important consultation that

More Like This...

See another Human Interest blog post that may be of interest to you.

COVID: An Uneven – and Unequal – Recovery

Topic:
Human Interest
Excerpt:
Canadians have had enough of the lockdown. Here we are 18 months after you first heard of the then mysterious Wuhan flu. Today, but for any curve ball

More Like This...

See another Inside Nexus blog post that may be of interest to you.

The Nexus IT Crowd

Topic:
Inside Nexus
Excerpt:
We are happy to announce Ian Ligertwood as the newest member of our team. As Vice President, Operations & Technology, Ian will be responsible for

More Like This...

See another Investments blog post that may be of interest to you.

The Future of Money: a Digital Currency Primer

Topic:
Investments
Excerpt:
As a bottom-up investment management firm, we spend a lot of time looking at specific companies. But keeping an eye on evolving industry trends can be

More Like This...

See another Pearls of Wisdom blog post that may be of interest to you.

“Work, Work, Work, Work, Work, Work”

Topic:
Pearls of Wisdom
Excerpt:
This has been a busy year. I’ve had lots happening on the home front (a wedding!) and lots going on at the office (too long to list!) Managing work

More Like This...

See another Tax Planning blog post that may be of interest to you.

The Great Transition – A Tax Efficient Withdrawal Strategy

Topic:
Tax Planning
Excerpt:
The change from “saver” to “spender” is what I call the great retirement transition. Figuring out how to draw on your retirement savings to meet your

More Like This...

See another Wealth Planning blog post that may be of interest to you.

Living to 100… Is 100 the New 80?

Topic:
Wealth Planning
Excerpt:
It’s a common saying that there are two certainties in life, death and taxes. While we have a pretty good idea when we get taxed, which feels like all

On a Side Note…

See another CRM2 Nexus Notes Quarterly article that may be of interest to you.

No posts found.

On a Side Note…

See another Foundations & Endowments Nexus Notes Quarterly article that may be of interest to you.

No posts found.

On a Side Note…

See another Human Interest Nexus Notes Quarterly article that may be of interest to you.

COVID: An Uneven – and Unequal – Recovery

Topic:
Human Interest
Excerpt:
Canadians have had enough of the lockdown. Here we are 18 months after you first heard of the then mysterious Wuhan flu. Today, but for any curve ball

On a Side Note…

See another Inside Nexus Nexus Notes Quarterly article that may be of interest to you.

The Nexus IT Crowd

Topic:
Inside Nexus
Excerpt:
We are happy to announce Ian Ligertwood as the newest member of our team. As Vice President, Operations & Technology, Ian will be responsible for

On a Side Note…

See another Investments Nexus Notes Quarterly article that may be of interest to you.

The Future of Money: a Digital Currency Primer

Topic:
Investments
Excerpt:
As a bottom-up investment management firm, we spend a lot of time looking at specific companies. But keeping an eye on evolving industry trends can be

On a Side Note…

See another Pearls of Wisdom Nexus Notes Quarterly article that may be of interest to you.

A Table for None, Please; Working From Home on the Rise

Topic:
Pearls of Wisdom
Excerpt:
Reading is one of the principal occupations in our profession. As we digest a wide range of material, interesting ideas and surprising facts – some

On a Side Note…

See another Tax Planning Nexus Notes Quarterly article that may be of interest to you.

The Great Transition – A Tax Efficient Withdrawal Strategy

Topic:
Tax Planning
Excerpt:
The change from “saver” to “spender” is what I call the great retirement transition. Figuring out how to draw on your retirement savings to meet your

On a Side Note…

See another Wealth Planning Nexus Notes Quarterly article that may be of interest to you.

Living to 100… Is 100 the New 80?

Topic:
Wealth Planning
Excerpt:
It’s a common saying that there are two certainties in life, death and taxes. While we have a pretty good idea when we get taxed, which feels like all