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The frustration occurs when the bet, the one you are convinced will come good, is stacked high, if only the stock price would move. Waiting isn’t easy. Every dollar ticks with pressure. You report to investors every month. You earn bonuses every year. “I have to make money every day,” says one hedge-fund guy.

You’d like a catalyst, or you’d like to create one. Carvin says, “We can create the event,” the one that will unlock shareholder value. That’s the supercapitalist spirit. Few hedge funds would make that claim so boldly (though, clearly, that’s what Loeb, with his green tea and his scorching letters, tries do do). Carvin once bought a Brazilian telephone company, then arranged to have its stock listed on an American exchange. Word of the move leaked out; the stock jumped. It took another year to actually get the stock listed, and then, as Carvin says, “it was a dud.” By that time, though, Carvin was on to other opportunities.

Even young Zachary may have successfully given events a nudge. Harry Phillips announced last week that after one year as CEO of Cornell Companies, he was stepping down, not that he credited Pirate’s initiative, which frosted Zach. Harry is staying on as chairman. “Ridiculous,” says Zach, who’s thinking of running for the board of directors himself.

Of course, as every hedge manager knows, the more you load up, the greater the risk. That means that some percentage of the time, things go wrong. “Inevitable,” says Loeb. Indeed, hedge-fund managers like to say that losses are significant mostly as a test. You have to be able to handle it, which mainly means handling the pain. “You have to forget how good your education is and how well you did in finance,” says Loeb. “You have to take it.” If you can survive, fund and will intact, then you get to remark, in a nonchalant tone, how losing a fortune in a few hours is really good for the character.

In October 2002, Loeb watched $60 million disappear in one swing. He was shorting technology, hoping for a final sell-off. He had visions of the legendary hedge-fund manager Paul Tudor Jones II, who was said to have perfectly timed the crash of 1987. Unfortunately, Loeb’s timing was off. He’d caught the bottom. “Fuck! Idiot!” he’d yelled at himself.

The stock market is rational, every hedge-fund guy believes, but only in the long term. Short term, you’d better get a grip. “I have trained myself to not get emotional about making or losing money,” says one manager. Emotion can be your undoing. Especially fear. Fear mobilizes ordinary investors, whom hedge-fund managers sometimes think of as tourists. A tourist caught in a falling stock has only one goal: pain relief. He runs for the exits, puking up his holdings. To make himself feel better.

Loeb knew what it was to be “sick to my stomach from losses.” The $60 million swing would cause his only negative year, down 7 percent. Still, of lasting importance was that he’d unwound the position, made it out. And, having endured that test, he could face others. When, last month, the emotional sellers puked up Leap, Loeb lost a quick $20 million in an afternoon. “An inflection point,” he called it, almost medically. It required “intense reflection,” he said, but not panic. He thought about why he’d bought the stock in the first place. He looked at the company’s competitors. He saw nothing but upside. Loeb bought more shares—bought them on the puke, as the expression goes.

In Loeb’s lobby one day, an incongruous visitor appears. It’s Loeb’s rabbi. He’s the one with the velvet yarmulke and the cell phone to his ear. He motions at the Richard Prince photo of the bare-breasted girl. “You should cover her up a little,” he says, then follows Loeb into his office for a weekly Torah lesson.

“Money isn’t everything,” Loeb says by way of explanation.

Fifty million, sadly, leaves one flying commercial. Hedge-fund money can put you into exhilarating conversations about the virtues of Gulfstreams versus Falcons.

Still, it’s quite a lot. In fact, what else is there? Investment bankers report that they, you know, “create industries.” “Hedge funds are just about the money,” says one investment banker, channeling, momentarily, a Peace Corps volunteer. “Not everybody, believe it or not, is totally driven by the money.”

Hedge funds, though, don’t have any other product. Loeb knew he wasn’t in the moral-indignation business. “The only thing I care about,” he says, “is making money for my investors.” And, not incidentally, himself. “Hedge funds are the best way to make a fortune today,” says one manager succinctly. And what a fortune it is!

The financial implications of the hedge-fund fee structure aren’t complicated. The hedge-fund industry approaches, in round numbers, $1 trillion in assets. Last year, according to one hedge-fund index, hedge funds returned almost 20 percent. Thus, last year alone, something like $40 billion flowed into the hands of hedge-fund managers—which is, on average, close to $6 million for every single person who opened a hedge fund.

And that’s not the top. The top is staggering. Institutional Investor reported that George Soros, perhaps the most famous hedge-fund manager, earned $750 million last year—and that’s real money, not stock options. That one-year take would have made him one of Forbes’s 400 richest Americans, tied for 389 with Teresa Heinz Kerry. (Soros, not limited to just one year, is the 24th richest American, worth $7.2 billion.)

In a letter to one CEO, Loeb pointed out that his fund made $600 million in profits through 2003. (A hedge-fund manager couldn’t help himself—bumbling CEOs ought to know who really makes the money!) That’s $120 million for bonuses, the bulk of it for Loeb. So far this year, his fund is up almost 20 percent. If gains hold, that’s about $60 million for Loeb to distribute, mostly to himself.

Of course, investment-banking money is nothing to sneeze at. And yet, a very presentable net worth of $10 million, $20 million, or even $50 million, sadly, leaves one flying commercial. Hedge-fund money, by contrast, can put you into exhilarating conversations about the advantages of owning a Gulfstream versus a Falcon. There are other distinctions. Like the ability, as a possessor of hedge-fund wealth, to truly appreciate art, especially brand-name art. A net worth of $50 million is not going to get you your pick of Impressionist art. Says one art consultant who guides hedge-fund managers, “If one year they make a lot of money, they’ll spend $50 million [on art].” There’s your Picasso.

Spend hedge-fund money on art and you might get a listing as one of the top ten art collectors in the world, which was how Steven A. Cohen, manager of SAC Capital (take last year: $350 million), was identified by ArtNews, in part for his Picasso and his Van Gogh.

Not everyone is into art. George Hall—his hedge fund is the Clinton Group—went another direction. He bought a megayacht. It’s 115 feet long. For a time he kept it at Chelsea Piers. Parking cost $12,000 a month, but then it was so handy if, say, he wanted to throw an impromptu dinner for 80, which he occasionally did. Or maybe cruise to the private island Paul Tudor Jones II (last year’s income: $300 million) owns in the Bahamas.

Real estate is another hedge-fund collectible. It may be true, as one manager asserted, that hedge funds relaunched New York’s superluxury market, which is $10 million and up. “And they pay cash!” exclaimed one Realtor. As if one needed another example of who the top dog is now, hedge-fund manager James Dinan snapped up the apartment of fallen Tyco CEO Dennis Kozlowski, paying $21 million. Loeb made his real-estate splurge in East Hampton, buying a house on two and a half acres big enough to be nicknamed the “TWA terminal.” He paid $15 million, for which he got pools—indoors it’s a wave pool, outdoors it’s a 75-foot lap pool—and 125 feet of beachfront.

Still, the most impressive purchase was probably that Time Warner pied-à-terre that David Martinez, manager of Fintech, snapped up. He paid $45 million and—this was the galling part—considered it a complete fixer-upper. Martinez expects to put $10 million to $15 million into the redesign, which includes the cost to create a seascape look from rare blue stones, but not of furniture.


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