WSJ lists major hedge fund milestones

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Hedge-Fund Milestones
July 27, 2006 11:32 a.m.

Hedge funds, lightly regulated investment vehicles for the wealthy, have proliferated in recent years. When Long Term Capital Management collapsed in 1998, the industry had about $240 billion under management. In contrast, Securities and Exchange Commission Chairman Christopher Cox this week estimated there are now about 8,800 hedge funds world-wide, with about $1.2 trillion in assets. Though they control just 5% of all U.S. assets under management, they account for about 30% of all U.S. stock-trading volume. But the industry's rise hasn't always been smooth. Review key milestones for hedge funds since 1995.

June 1995-- Highlighting the difficulties faced by many hedge funds in the mid-1990s, Bruce Kovner, a prominent currency and commodities speculator, disbands his U.S. fund and returns about two-thirds of the $1.8 billion he managed at Caxton Corp., founded in 1983. Caxton had averaged annual returns of at least 30% for most of its existence, but lost money in 1994 and was struggling again in 1995. Caxton's troubles weren't unique: Hedge funds' total assets under management shrank for the first time ever in 1994, The Wall Street Journal reported. Analysts said the industry's unwieldy size after a growth spurt from 1991-93, along with rising interest rates, were to blame.

October 1995-- An even more shocking closure follows a few months later, when Michael Steinhardt shuts down his $2.6 billion investment partnerships. Mr. Steinhardt's decision came despite the fact that he had enjoyed good returns in 1995 after a disastrous 1994. Mr. Steinhardt, known for his aggressive, short-term trading and big, risky market bets, started his fund in 1967 and was a pioneer of the industry. His average annual returns of 30% or more helped his assets under management balloon to $4.4 billion at their peak.

June 1997 -- Another legendary manager, Julian Robertson Jr., hoping to profit from the rising prices of mutual-fund and asset-management companies, puts a chunk of his Tiger Management Co. on the block.

September 1997 -- George Soros, founder of Soros Fund Management LLC, one of the world's largest hedge funds with $11.5 billion in assets, is accused by Malaysian Prime Minister Mahathir bin Mohamad of bringing down the Malaysian currency, the ringgit, during the Asian financial crisis.

September 1998 -- After spectacular early success, Long Term Capital Management, a fund founded in 1994 by John Meriwether, the former head of bond trading at Salomon Brothers, faces a cash and credit crunch after a series of bad investments. The fund nearly collapses, but a consortium of Wall Street firms, including Goldman Sachs & Co., puts up $3.6 billion for a bailout.

October 1998 -- Hedge-fund operator Everest Capital Ltd., headed by Marko Dimitrijevic, loses nearly half of its $2.7 billion under management. Several college endowments, including those of Yale and Brown universities, are effected.

December 1998 -- Figures at the end of the year indicate the difficulty hedge funds faced in 1998. The industry shrank by more than $35 billion world-wide, and market losses were a factor in pushing down hedge-fund assets 15% to an estimated $204 billion at the end of December from a peak of $240 billion in July.

March 2000 -- Tiger Management LLC, a $6 billion hedge-fund, announces it will close down most of its operations and liquidate its investments. Mr. Robertson, Tiger's chief, blames the stock market's rush to Internet stocks. Meanwhile, throughout the year, Soros Fund Management struggles with losses as its attempt to venture into tech stocks fails and several people quit, including chief investment officer Stanley Druckenmiller. Mr. Soros vows to stick to more conservative investments.

October 2001-- Charles Schwab Corp., the top U.S. online and discount broker, announces plans to start offering hedge funds to its clients in the next year.

December 2001 -- Though hedge funds now control more than $500 billion in assets, most saw mediocre results for the year, with average returns of 3.2%. The Sept. 11 attacks, a vacillating stock market and a lack of deal-making are key reasons for the weak returns.

March 2002 -- In the midst of a slew of hedge-fund fraud cases, the SEC says it is actively monitoring developments in the industry. In the past 18 months, the SEC has prosecuted Michael Berger for covering up $400 million in losses from investors in his Manhattan Investment Fund and fined Mark Yagalla for plundering Ashbury Capital Partners.

January 2003 -- A new breed of hedge funds, which have a reduced minimum investment requirement, are gaining popularity. Most traditional hedge funds require investments of $250,000; but new funds such as Oppenheimer Tremont allow affluent individuals to invest as little as $25,000.

May 2003 -- The research firm Strategic Financial Solutions LLC estimates that there are about 4,100 hedge funds in existence, with about $450 billion in assets.

September 2003 -- The SEC recommends regulations for the hedge-fund industry, including a requirement that managers register as investment advisers and be subject to occasional audits.

July 2004 -- Hedge funds, looking for other places to put their money, are increasingly competing with private-equity funds to provide capital to ailing companies. Perry Capital, an $8 billion hedge fund, gave $100 million revolving line of credit to the energy company, Xcel Energy Inc. Hedge funds are also becoming prominent in acquisitions. A group of a dozen hedge funds make it into the final round of bidding for the Texas Genco Holdings Inc. unit of CenterPoint Energy Inc., but loses out to two big-name private equity funds: Blackstone Group and Kohlberg Kravis & Roberts.

November 2004 -- Assets under management by hedge funds reach a record $1 trillion. They have grown 20% a year, on average, since 1990.

May 2005 -- Citigroup Inc. announces it is forming a joint venture with Pacific Alternative Asset Management Co. to offer hedge-fund portfolio-management services to its wealthiest clients.

August 2005 -- Greenwich, Conn. becomes the unofficial hedge-fund capital with more than 100 funds. Greenwich-based hedge funds collectively manage more than $100 billion, about a 10th of the total invested in hedge funds world-wide.

August 2005 -- Bayou Management LLC, a $440 million hedge fund based in Stamford, Conn., closes down without returning investor money. The founder, Sam Israel III, is accused of overstating gains and understating losses.

February 2006 -- The SEC's registration requirement takes effect.

June 2006 -- Amid a tumultuous stock market, a slew of hedge funds shut down, including KBC Alternative Investment Management, which drops from $5.3 billion in assets to less than a $1 billion in 18 months.

June 2006 -- The Court of Appeals for the District of Columbia Circuit vacates the SEC rule requiring hedge-find advisers to register with the agency, calling it "arbitrary." The decision is a major victory for the $1.2 trillion hedge-fund industry and forces the SEC to find another way to monitor it.

--Compiled by Shivani Vora