The Myth About Money Managers and Divorce – Wall Street Journal

Kenneth Griffin, the billionaire founder and CEO of the hedge fund Citadel, has been in the news a lot lately. Sadly, not because of his firm’s impressive performance, but because of his divorce proceedings, which gossip columnists seem to think will attract readers.

In theory, this shouldn’t bode well for Citadel, since there is a tacit investment principle on Wall Street that one should never bet on a money manager going through a divorce. In 2013 Paul Tudor Jones, another hedge-fund guru, said one of his rules is to “redeem immediately” his money when he learns that a manager is in divorce proceedings. Conventional wisdom and “experts” agree that divorce may negatively affect one’s work performance, whatever the job.

I think a pretty strong case can be made against this cliché. High-profile hedge-fund or mutual-fund managers are an interesting group to examine, since their private lives are often made public, for better or worse, and their work performance basically comes down to one number at the end of each year: their fund’s total return. So what do the data show?

Let’s start with George Soros, arguably the most successful hedge-fund manager ever. His second marriage ended in 2005, a year in which Quantum, Mr. Soros’s now-closed hedge fund, achieved a performance of 12.3%, crushing both the S&P 500 equity index and the HFRX global hedge-fund index (respectively up 4.91% and 2.72%).

Paul Singer, of Elliott Management Corp., another respected hedge-fund veteran, has been divorced since 1996. That year, his fund returned 19.1% to its investors, a number Elliott has surpassed only three times in the past 20 years.

Kenneth Griffin, founder and CEO of Citadel LLC
ENLARGE

Kenneth Griffin, founder and CEO of Citadel LLC


Photo:

Bloomberg

Citadel’s Mr. Griffin filed for divorce last July, after separating from his wife in 2012. To add to his troubles, the past three years have been challenging for hedge funds, most of which have grossly underperformed the U.S. stock market. Mr. Griffin’s $12 billion flagship fund hasn’t. From 2012 to 2014 it delivered a compounded return of more than 73%, making it one of the very few hedge funds to match the S&P 500’s stellar performance.

Chris Hohn, the founder and head of London-based TCI Fund Management, filed for divorce in 2012 before an English court ordered him, in 2014, to pay a record £337 million ($532 million at the time) to his wife in one of the largest divorce settlements in U.K. history. That didn’t prevent Mr. Hohn’s fund from delivering spectacular returns, making its investors 105% richer over the past three years.

Finally, consider famous bond trader Jeffrey Gundlach. His wife filed for divorce in February 2010, and a few weeks before that he was fired by his former employer, the investment management firm TCW. During that chaotic period, Mr. Gundlach established DoubleLine, which has since grown into one of America’s most successful fixed-income mutual funds.

These examples don’t prove (nor are they meant to) that divorce makes one more productive, but they certainly weaken the opposite thesis. In a profession in which the ability to focus is paramount, and one’s performance can be easily and objectively tracked, going through a divorce doesn’t appear to be a drag on competitiveness.

There are pretty rational reasons for this. First, a divorce isn’t necessarily a distraction from work, as it is commonly perceived, but can instead make you want to focus more on your career. Work can become the distraction from an otherwise grim situation. Having gone through a divorce myself—which will make me a qualified observer to some, or biased to others—I have personally experienced that need to concentrate more on my work, which my divorced friends have confirmed is more pattern than exception.

Second, divorce has a cost. If you are the financially stronger spouse, your net worth gets dented. If you are the financially weaker one, you usually lose some degree of security. Some feel the need to compensate for this financial misfortune, which may translate into increased professional motivation.

Finally, divorce is often a time of self-reappraisal. Watching your life change in such a dramatic fashion takes you out of your comfort zone and challenges your complacency, which may lead to personal improvements beyond private life. So while divorce has many sad and negative aspects, a loss of productivity or competitiveness isn’t necessarily one of them.

Mr. Hatchuel is managing partner of Square Advisors LLC, a New York-based asset-management firm.


Source: Divorce Money

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