Hedge funds talk about what comes after managers go

Hedge fund managers may feel invincible in private, but in public some are talking about what will happen to their firms after they are gone.

I am one of 16 partners at Maverick and if I should get hit by a bus, then they will elect my successor, said Lee Ainslie, who founded Maverick Capital in 1993, at the SkyBridge Alternatives Conference here.

The words succession planning are taking on new urgency in the $2 trillion hedge fund industry as pension funds, endowments and wealthy investors worry who will guard their millions when the industry's biggest and best investors -- mostly men in their 40s and 50s -- move on.

At York Capital Management, we started thinking about succession planning about five years ago, James Dinan, the firm's founder and chief executive, told conference attendees, adding that he expects to have another five years to fine tune his planning.

Dinan said he believes investing is a young man's game because people become more risk averse as they age.

And when the day comes for him to move on, Dinan said he expects another top executive at the firm, who is eight years his junior, to handle matters.

For years, hedge funds have received poor marks for succession planning and many have preferred to simply shut their firms down instead of putting someone else in charge.

Within the last year, industry icons Stanley Druckenmiller and Chris Shumway both closed their businesses.

Indeed some people believe this may be the most prudent way to proceed, arguing that it is often impossible to succeed a legend and keep his magic going.

In most cases one name is attached to the fund, so no matter who you have as a strong backup often that does not resonate with investors, said Israel Englander, who runs hedge fund Millennium Management.

Daniel Loeb, who runs Third Point LLC, likes a hybrid model between shutting down and finding someone else for the job. According to people who heard him speak at the conference, Loeb said he likes the Druckenmiller model where the manager raised talented newcomers and then gave them the keys to set up their own firms. Loeb prohibited the media to quote him directly.

As some firms wrestle with succession planning, a small number have flirted with selling shares to the public. But that plan, too, has its drawbacks.

What we do is very difficult and to compound that by having the world look over your shoulder is not very appealing, Maverick's Ainslie said. So going public is never a very long discussion.

As firms grapple with the issue, some investors take comfort that their managers say they plan to stick with it.

Steven Cohen, who runs $13 billion SAC Capital Advisors, underscored his determination to stay put -- for now -- by telling the estimated 1,700 conference attendees that he has just lost 20 pounds, works out religiously, and plans to keep going. I'm going to continue to do what I'm doing.

(Editing by Steve Orlofsky)