Analysis: Hedge fund managers wonder if it's still worth it

NEW YORK (Reuters) - For some hedge fund managers it appears the thrill is gone.

Stanley Druckenmiller is seen in a 2000 file photo. REUTERS/File

The surprise decision by Stanley Druckenmiller to throw in the towel and shutter his $12 billion Duquesne Capital Management could be the start of a new trend of billionaire money-managers deciding to take a break from the fast-money trading game.

Industry analysts said other successful hedge managers may opt to close their funds in the face of increased regulatory scrutiny, higher taxes on profits, an uncertain economy and growing demands from their wealthy investors for greater openness.

“It’s highly stressful, the demand on managers has increased and it will going forward,” said Henry Bregstein, global chair of the financial services practice at law firm Katten Muchin Rosenman LLP in New York.

Hedge fund managers who have made millions or billions over the course of their career are saying, “Maybe I’ve made so much money, why do I have to bother?” Bregstein said.

For Druckenmiller, it appears the decision to step away was more motivated by sheer burnout than anything else after amassing a net worth that Forbes recently put at $2.8 billion.

In a letter to his investors on Wednesday, he expressed frustration with being unable to outsmart the direction of the markets.

“For me the disappointment of each interim drawdown over the years has taken a cumulative toll that I cannot continue to sustain,” Druckenmiller said in his letter to investors.

While billionaire hedge fund managers like Paulson & Co.’s John Paulson and Pershing Square Capital Management’s William Ackman may just be hitting their stride, others who have already made their fortune, may be wondering if it is time to step back from their day-to-day duties to pursue new passions, work with charities or simply focus on their golf game.

Renaissance Technologies’ billionaire founder Jim Simons retired last year, and Highfields Capital co-founder Richard Grubman, told his colleagues and investors last week that he plans to exit his firm to focus more on personal matters.

The sour economy and long recovery from the worst financial crisis since the Great Depression also may be tempting some highly-successful managers to call it quits.

“Many people are frustrated with the economy and are reexamining their lifestyle and the opportunity of making the same amount of money that they had in the recent past,” said Ron Geffner, who works with hedge funds as a partner at law firm Sadis & Goldberg.

Funds are also facing more scrutiny from investors, regulators, and even employees after the credit crisis.

“Based upon performance, employees are no longer receiving the same compensation they once had and employers are at risk of flight of key employees,” he added.

Most hedge funds have seen relatively flat returns this year, and despite a strong 2009, many managers are still weary after harsh losses in 2008. But, flat returns also mean smaller paychecks for hedge fund managers who typically get a 2 percent management fee and 20 percent fee based on performance.

The frustration among managers has been palpable at industry gatherings over the past few months, as many have found it a challenge to navigate constant regulatory changes, and find good trading ideas.

“It’s a difficult business, we’re in a very volatile world that is not exactly the most rational political environment,” said a fund of funds manager who declined to be named because he wasn’t authorized to speak to the media.

It’s not the first time some well-known managers have decided to take a step back.

David Shaw, the billionaire founder of quantitative hedge fund D.E. Shaw, stepped back from his firm after the tech bubble burst in 2001, and now spends his time working on supercomputers that do scientific research on proteins.

And after 2008, many managers talked about taking more time for themselves. Daniel Benton, who earned a reputation for picking technology stock winners, told clients two years ago that after 24 years in the business he planned to spend more time with his family, having grown weary of managing other people’s money.

Andrew Lahde, a hedge fund founder whose small fund saw an 870 percent gain in 2007 on bets against U.S. subprime loans, called it quits in 2008, thanking “stupid” traders for making him rich.

After often delivering 30 percent annual returns, Druckenmiller is going out on a high note. But some managers in the past few years have “retired” as a graceful way to exit after poor performances.

Still, other high-profile managers, like Druckenmiller’s former boss George Soros -- who Forbes estimates has accumulated a net worth of $14 billion -- may be unlikely to ever throw in the towel voluntarily.

And just because a manager steps aside today, doesn’t mean he or she won’t make a return down the road. The hedge fund industry is famous for managers with second and third acts.

“At that stage, it’s who you are,” Geffner said. “When your job transcends money then it becomes part of your identity.”

Reporting by Emily Chasan; additional reporting by Jennifer Ablan in New York and Svea Herbst in Boston; Editing by Bernard Orr