Capt, Hennessee Group & Bayou Grp hedgies
By RIVA D. ATLAS NY Times
Published: August 31, 2005
The apparent collapse of the Bayou Group, the Connecticut hedge fund manager, has attracted scrutiny to the Hennessee Group, one of the oldest consultants in the hedge fund business.
Hennessee raised tens of millions of dollars for Bayou, people in the hedge fund business said.
The Hennessee Group, based in New York, was set up in 1997 by E. Lee Hennessee, a former broker who had a history dating back to the 1980's of recommending hedge funds. Her firm's clients include a mix of wealthy individuals and some pension funds, but she is mostly compensated by the hedge fund managers, an arrangement that some fund managers say is rife with conflict.
The troubles at Bayou have cast a shadow on Ms. Hennessee, who until recently was a steady presence in the financial press and at industry conferences, with her husband and partner, Charles J. Gradante. The firm has developed widely cited indexes that track hedge funds.
Ms. Hennessee, a native of Raleigh, N.C., often talks about having personal connections with other well-known financial figures.
"She used to make a big deal about how she grew up with Julian Robertson," said Budge Collins, a marketer of hedge funds. A spokesman for Mr. Robertson, one of the best-known hedge fund managers, said that Mr. Robertson did indeed know Ms. Hennessee but had not done business with her.
Ms. Hennessee grew up around the corner from Louis Bacon, another well-known manager, according to a profile of Ms. Hennessee by a North Carolina magazine, and her grandmother once ran a book club with Elizabeth Dole's mother.
The associations appear to have helped Ms. Hennessee attract clients in the hedge fund business, which, despite its growth in recent years, is still largely built on the strength of personal relationships.
Many hedge fund investors, particularly wealthy individuals, still tend to pick managers based on reputation and connections.
"There's a whole network of high-net-worth individuals out there who share information," said Sandra Manzke, a longtime industry consultant. "Everyone looks at the same names."
Still, at a time when hedge funds are attracting greater scrutiny from regulators, some managers have begun criticizing the way Ms. Hennessee conducts her business. The firm represents itself as working on behalf of investors in hedge funds.
Ms. Hennessee and Mr. Gradante did not return several calls placed to their offices and their Sutton Place apartment in Manhattan.
According to their Web site, the firm does not "market money managers."
"The investor is our client," it states.
But Ms. Hennessee receives lucrative fees from hedge fund managers for whom she raises money.
One hedge fund manager who declined to speak for attribution because of fears of jeopardizing a relationship with Hennessee, has done business with Hennessee and said the firm was typically paid 1 percent annually of assets it brought in, for as long as those assets remained in the funds.
Often, managers pay those fees in the form of brokerage commissions, channeled through a brokerage firm with whom Hennessee has a relationship, the manager said.
This arrangement is highly unusual, and much more lucrative than the way marketers are usually compensated, competitors and fund managers said. Typically, fund marketers charge up to 20 percent of management fees and 20 percent of the fund manager's share of any profits. Some fund managers said that the way Hennessee was compensated was fraught with conflict.
Hennessee often places clients' money with hedge funds that buy stocks because those traders are more apt to generate commissions, said James R. Hedges IV, who runs LJH Global Investments, an advisory firm.
Mr. Hedges said he wondered whether Hennessee had been paid by Bayou through brokerage commissions. If so, he said, "wouldn't you know what was going on in the portfolio?"
In a 2003 interview with The News & Observer, a Raleigh newspaper, Ms. Hennessee described the hedge fund business as a "young, immature industry."
But she said: "People are secretive at first, but it will become less secret and more open as people come to understand them better."
AI
