Being corporate
Paying people
After we passed $100 million in assets under management in the fall of
2003, spring of 2004 quickly took us above $200 million before levelling
off just under $300 million. We were not doing anything new or better. In
the eyes of potential investors, however,
we were no longer a risky start-up fund,
but instead a growth story with a stable, if
boring, return profile. Around this time,
the hedge-fund industry was seeing massive
new investment in general and a big part
of our growth was undoubtedly down to
some of our investors looking for places to
put their new capital. Not that we minded.
In the space of 18 months we had gone
from a no-hope start-up to become a decent-sized hedge fund with a prom-
ising outlook where everyone was paid well. How quickly things can change.
We all relished getting salaries. What a concept: you actually get paid to
work! Our framework agreement on relative compensation meant we could
avoid the awkward conversations that often cause great friction in small
start-up companies. We had agreed that the three of us would make the
same amount of money until we all made £250,000 per year. Once the firm
reached a size where the three of us could make that amount and still have
more money to go round, we would re-evaluate things. As I owned 100 per
In the eyes of potential
investors, however, we
were no longer a risky
start-up fund, but instead a
growth story with a stable,
if boring, return profile.
90 B ec omi ng th e real de al
cent of the business, it was easy for me to say that ‘we’ would decide what
happened next, but Brian knew I would not take advantage of this. The
mutual trust that came with our long friendship had helped cement our
business relationship. I had wanted this compensation agreement to avoid
precisely the destructive friction that sharing equity ownership can create
in the early stages of a firm when there is already too much uncertainty.
Unfortunately my fears of frequent divorces in the hedge-fund industry
were proven correct eight months after launch.
It had been clear for a while that the personal dynamic between
Massimo on one side and Brian and me on the other was not working. It
was perhaps somewhat unfair to judge this sort of thing during a period
of such stress and hardship, but constant bickering had rendered the office
environment unpleasant for all of us. We knew that Massimo had an oppor-
tunity to attend Insead for business school that would expire when classes
started in September. As a result we made the difficult but probably mature
decision to part ways over the summer. Typically for the hedge-fund indus-
try, none of our investors took much notice. Brian and I had a replacement
lined up weeks in advance in the form of Alberto Lage from Spain, who
stayed at Holte Capital to the end. To the investors this was just another
personnel change. It was a strange feeling that something so important to
us, losing one-third of our team, mattered so little to the outside world:
another symptom of the insular world of the hedge fund.
In all my time working in hedge funds I still don’t think anyone has
come up with the optimal solution to ownership and compensation struc-
tures, if indeed such a thing even exists. It later had massive benefits to me
to own 100 per cent of the business, but, like all owners, I felt that the firm
could not exist without me and that I paid those who worked for me fairly
I don’t think I ever had anyone leave because they were dissatisfied with
their compensation.
Expanding the team
‘Everybody wants to join a hedge fund these days; finding someone will be
easy’, people used to tell me when I talked of difficulties with recruiting to
match our growing assets. The eagerness people had to join the industry
often reminded me of the Internet revolution I had experienced at HBS

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