Fans of Michael Lewis's The Big Short regard hedge-fund analyst Steve Eisman as a genius, a cranky yet brilliant soothsayer who recognized the gross excesses in the subprime markets and was brave enough to be against it. The wager he made earned his hedge fund, FrontPoint partners, around $1.5 billion. Lately, Eisman's been leading a similar crusade against for-profit colleges, which he called "subprime goes to college" at the Ira Sohn Conference this past May. But now, Morgan Stanley, which purchased FrontPoint for $400 million in 2006, is trying to spin off the fund. Sources tell the Journal they're doing it because of the Volcker Rule, the part of the financial-regulation bill that prohibits large banks from owning their own hedge funds. But that rule won't actually go into effect for a few years, if ever. So what are the real reasons?
Apparently, Eisman's legendary outspokenness — his own wife describes him as "sincerely rude" in The Big Short — has caused some internal awkwardness. According to the Journal, at the Ira Sohn conference:
Some of the firms he criticized, and shorted by FrontPoint, were clients of Morgan Stanley. They complained to investment bankers who passed along those concerns inside Morgan Stanley, a person familiar with the discussions said.
And ironically, according to Business Insider, FrontPoint is itself a little excessive:
The office spends $10,000 per year on flowers, mostly orchids, refreshed weekly, says someone who works for the fund. The kitchen pantry is fully stocked with fresh sushi, fruit, sandwich meats, yogurt, candy, chips.
"Everything you could imagine, we have it," a person who works for the fund tells us. "There are about 20 different varieties of K-cup coffee flavors."
And even though there's an amazing pantry, employees are allowed to order whatever they want for lunch.
"I sometimes even order dinner because no one checks my budget. I could spend $60 and no one would say anything," a person who works for the fund tells us.
We guess when it comes to his own fund, The Big Short's main character might be a little short-sighted.