Wednesday, September 29, 2010

"How to Start a Hedge Fund" and "Budding Gordon Gekkos Get Tips on Ponzi Scams in 'History of Greed'"

First up, Vanity Fair:
Financial regulatory reform cramping your style? Go rogue with’s step-by-step action plan.
If you’ve spent the last 5, 10, or 20 years enjoying the fruits of a blissfully unregulated financial system that created wealth for its adepts but nothing for the American people, then surely you’re steamed at the big regulatory overhaul that passed in Congress this summer. But there’s still something you can do: move over from the stringently monitored world of banking to the somewhat less monitored world of hedge funds. We spoke to an actual big-shot hedge-fund manager to pick up tips on how you too can start the rogue finance shop of your dreams.

Step 1: Create a hedge-fund team!

The bare essentials to get your new fund going: two junior analysts, a junior trader, and a chief financial officer. When you “spin off” from your current bank, it’s crucial to steal away some crack subordinates. A big selling point to potential investors is that you have a well-oiled, cohesive unit with a history of “crushing it.”

Actual big-shot hedge-fund manager’s tip: “Choose people who have a nose for ferreting out opportunities, but who are not willing to cut your guts out and try to replace you. You need junior-level people.”

Step 2. Name your fund!

Let’s face it: aggressive, testosterone-redolent names (e.g., Hungry Wolf Capital, Thor Hammer Fund, Tomahawk Capital Management) are as passé as Meatpacking District mega-restaurants and conspicuous luxury boxes at the stadium. Come off as attuned to the times with something gentle and/or arboreal (e.g., Sassafras Group, Bending Birch Asset Management, Larchwood Partners).

Actual big-shot hedge-fund manager’s tip:“The goal is to project sturdiness without rapaciousness. You don’t want to be Three-Headed-Dog-Guarding-the-Gates-of-Hades Capital. And you don’t want to use your own name. Typically, guys use streets and towns from their childhoods. Or a tree, to convey strength and deep roots.”

Step 3. Hire a law firm!

You’ll need a good firm to incorporate your fund—first in Delaware, and then offshore in either the Caymans or the British Virgin Islands. But beware of big, sprawling, white-shoe corporate law firms that overcharge. Instead, go with the specialists who do this thing all the time.

Actual big-shot hedge-fund manager’s tip:“The Coke and Pepsi of the business are Schulte, Roth & Zabel and Akin, Gump, Strauss, Hauer & Feld. Avoid the high-tone and really big firms. They are too expensive and they don’t know what they’re talking about with funds. They’re too busy billing Pfizer millions upon millions to file their 10-K forms.”...MORE
HT: DealBook
If it turns out that your aptitudes don't lie in that field, Bloomberg has:
David Sarna’s “History of Greed” exposes the swinish side of finance. Will it also, like Gordon Gekko, inspire impressionable college kids to get up to no good?

The mere thought may repulse Sarna, a management consultant and former high-tech executive who remains passionate about the uses and abuses of markets.

“Capitalism is not about stealing, swindling or screwing the little guy,” he writes in this uneven yet handy compendium of frauds and scams. “It is about the individual improving his or her own situation by producing something of worth that improves the lives of others.”

We can only hope that his text doesn’t succumb to the law of unintended consequences. Witness how Oliver Stone’s assault on barbarians-at-the-gate capitalism in the original “Wall Street” turned many an MBA student into a trader or investment banker.

Contrary to his title, Sarna’s book isn’t a history. The great financial scandals of old -- John Law’s Mississippi Company and the South Sea Bubble, for instance -- are just briefly summarized in one chapter. In place of a continuous chronicle, Sarna offers up a series of sometimes dense case studies on fraud in its myriad forms, especially those practiced in the U.S. in recent decades.

Drawing on court records, news reports and his own unpleasant run-ins with flim-flam artists, Sarna takes us on a tour of the sleazy back alleys of markets. He lucidly explains how some unscrupulous operators manipulate shell companies while others pump up stocks they later dump at inflated prices. If you’re bent on becoming the next Bernie Madoff, these profiles in greed form a veritable guidebook on how to build your own financial weapon of mass destruction....MORE