The Great Scaramucci

From aiCIO's June issue: Editor-in-Chief Kip McDaniel goes all the way to Vegas, only to find a character from 1920's New York City.

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Anthony Scaramucci as Jay Gatsby: The comparison is too perfect to dismiss. The men are, in many senses, not at all similar—one, a Harvard Law School graduate, hedge fund manager, and conference impresario, the other a fictional bootlegger—but the larger parallels are uncanny. Open F. Scott Fitzgerald’s classic, and befitting quotes pour off the page…

“If personality is an unbroken series of successful gestures, then there was something gorgeous about him…”

“It was one of those rare smiles with a quality of eternal reassurance in it that you may come across four or five times in life…”

“But young men didn’t—at least in my provincial inexperience, I believed they didn’t—drift coolly out of nowhere and buy a palace on Long Island Sound…”

I could go on. Like Gatsby, Scaramucci’s unyielding charisma and ambition have created, at minimum, a great party: The SkyBridge Alternatives Conference—aka SALT—that is held every year in Las Vegas and is profiled in this month’s cover story. It’s a boondoggle, but it’s a damn good one, and Scaramucci’s star justifiably keeps rising. With his ability to attract nearly 1,000 hedge fund managers to the Bellagio hotel, Scaramucci’s personal influence far outpaces that of his moderately-sized fund-of-funds. What he’ll do with this influence in the future is anyone’s guess—mine is, politics—but the fact remains that he, and his conference, are the new face of the hedge fund industry.

Yet I worry that “the green light” being chased by those who attend Scaramucci’s brainchild is the wrong beacon to pursue.

In a book of collected works published after his death in 1940, Fitzgerald wrote of New York City in his youth: “The tempo of the city had changed sharply. The uncertainties of 1920 were drowned in a steady golden roar and many of our friends had grown wealthy. But the restlessness of New York in 1927 approached hysteria. The parties were bigger… the buildings were higher, the morals were looser and the liquor was cheaper.” That could have been written about 2007. It quite possibly could be about 2013, as well.

This isn’t moralizing about money; I have absolutely no problem with people making billions managing money for others—indeed, count me among those who wouldn’t mind being a billionaire. This isn’t even about debauchery—because, Lord knows, I have no right to judge in that respect. It’s about a misalignment of interests with the end users of the asset management industry—the retirees, universities, and other capital owners whose money fuels the machine.

I asked a few of my closest industry confidantes about these misalignments. “[Hedge funds] collect fees upfront even if performance is purely by luck,” one told me. “They don’t share in the losses,” another added. “Management fees should cover expenses, not compensation—and, in terms of common sense, cost should fall as assets under management increase,” said another. But the status quo will persist, one pension CIO told me, “until investment managers see their ox gored.”

Interestingly, no one would cite a specific manager that had entirely eliminated these conflicts—although one source noted that “many do it right—you just haven’t heard of them.” Whether any of these funds attended SALT was up for debate.

When all is said and done, there’s nothing wrong with a good party in the desert (“…And I like large parties. They’re so intimate. At small parties there isn’t any privacy…“). I’m just not sure how they help asset owners in the slightest.

 Kip McDaniel, Editor-in-Chief