September 4, 2008
Agassi's Ex-Estate In Tiburon: A $20,000,000 Tear-Down?
We can't confirm any of the details so we'll just consider it a "RandomRumor" for now, but from a plugged-in reader with respect to Agassi's ex-estate in Tiburon:
The couple who bought this are in the process of tearing it down and putting up what they really want. $20 million teardown. Ya gotta love hedge fund managers - too much extra cash!!
∙ Not The Best “Investment” For Agassi In Tiburon [SocketSite]
First Published: September 4, 2008 12:00 PM
Comments from "Plugged In" Readers
let's just hope the new owners build "green"
Posted by: pvc at September 4, 2008 12:13 PM
That home is kind of showing its age. Still shocking none the less.
Posted by: Ryan at September 4, 2008 12:23 PM
Is that you, Satchel?
Posted by: NoeValleyJim at September 4, 2008 12:32 PM
I've been outed! (hehehehe)
No, I think to afford this level of foolishness, one would have to spend about 6 years as a portfolio manager at a good shop (that's TOTAL years of experience). 2-3 years of good performance gets you the ability to manage around $100M, which can allow payouts of around $5-10M per year for good traders. After those 3 years, you market to foolish families (at this level, MUCH of the money is overseas family wealth), and try to lock up $1B+ for a few years. This allows you to "skim" around $40M (about $20M net guaranteed to the trader/pm), while simultaneously swinging for the fences - which would alow the big payout ($100M+). The 6th year is of course the year you use to explain how sorry you are to the investors and how you always intended to be a good steward of their capital, blah, blah, blah. Never fails - this strategy was pioneered by guys like Hillebrand and perfected by the true masters like Robertson. Recently, a few new guys got in on the gravy train, and didn't disappoint, blowing up their clients' capital in spectacular fashion, like Brian Hunter at Amaranth and Dwight over at Ospraie.
I got out of the business in 1999, sadly a year or two too early. Not that I'm complaining!
Posted by: Satchel at September 4, 2008 12:53 PM
Regarding "building green". The "green" thing to do would be to not tear this down, and instead try to refurbish the property. I know I may be in the minority, but I think this residence has nice asian-contemporary incluences with a touch of mid-century modernism, and it would be a desirable project to have fun with. Some of my favorite projects have been with the challenge of working with an existing structure, instead of creating what client's feel are their dream home, and instead can be a nightmare.
If they do decide to tear it down, which is their right, let's just hope this property does not turn into another overgrown stucco "Tuscan Villa" .
Posted by: anonarch at September 4, 2008 2:08 PM
wow Satchel you are bitter.
My humble but educated guess is this house was owned by a san francisco hedge fund manager who made $45 million in a bad year and did it for more than 6 years.
How do you conclude that spending half of one year's gross income on a primary residence is "foolishness".
Posted by: resp at September 4, 2008 2:28 PM
Sorry if I sound bitter - I'm really not!
Of course, about the house - it's foolishness. No one needs a $20M teardown. No one is important enough to warrant that expenditure of capital. I'm not criticizing their decision - it's THEIR money, after all! - I just think it's foolishness from a societal point of view, that's all. But hey, that's what you get when you make chasing green squares the centerpiece of an economy by inflating the money supply: the best and brightest are sucked into the industry. In a different age, those people (myself included) probably would have done something else.... more productive.
It could be a San Fran hedge fund manager who's been at it for more than 6 years. My experience was in the 1990s. There were basically NO hedge fund managers based in SF back then (that's a little exaggerated of course, but only a little). Some VCs that's for sure. Much of the "hedge fund industry" today is unrecognizable to the people who worked in the industry even 10 years ago. The emphasis on equities of course really only took off after 1997 or so, and the entire credit hedge fund industry basically didn't exist prior to 2000 or so (at least not in any size).
So, that's my very long way of saying that the manager might have been in the industry for more than 6 years, but probably not too much longer!
Posted by: Satchel at September 4, 2008 3:12 PM
andre made $45 million in a bad year and did it for way more than 6 years. (endoresments was the big money). he bought that place with steffi i think -- she made tons too. (but german taxes got a lot of it, or not, ask her dad)
Posted by: johnny mac at September 4, 2008 3:43 PM
I'll say it.
Posted by: ex SF-er at September 4, 2008 4:06 PM
I only have one question for Satchel -- how do you "start" in the hedge fund business?
Preferably without taking any more classes (my doctorate was more than enuf education).
Posted by: Jimmy (Bitter Renter) at September 4, 2008 4:09 PM
I only have one question for Satchel -- how do you "start" in the hedge fund business?
Find up to 35 individuals with money to invest (preferably not friends or relatives -- unless you don't mind them not talking to you after you lose their life savings). Build a track record. Find some accredited investors. Congratulations, you now are running a hedge fund. Yes, it really is that easy. (Did I miss anything?)
Disclaimer: I am not now, nor have I ever been, associated with a hedge fund. Not career advice.
Posted by: EBGuy at September 4, 2008 4:48 PM
Very interesting stuff in this thread, thanks to all.
The green thing is point of view and metrics more than an absolute thing. If someone is going to build an outscale manse for themselves, then it makes sense to bulldoze just a little bit less rainforest while doing that if possible, while also building a place that costs less to heat, cool, water, drain, and so on. Being green, at least for now, means that instead of just building whatever works or comes to mind or would be traditional, one builds something with respect to the materials and the use, since after all most of the cost in a building is the operation and not the construction even with the traditional 60% on site labor overhead which makes absolutely zero sense in this age of modern manufacturing. In the US green construction is being driven by old school return on investment optimization.
Posted by: Mole Man at September 4, 2008 5:09 PM
EBGuy, you missed some tiiiiiiny little details that keep things legal.
Posted by: exuberant at September 4, 2008 5:30 PM
I was actually being facetious about the green thing but Mole Man makes an interesting point. Regardless of how it's built, the scale of this structure is absurd for a single family, though that large lot is to die for.
Posted by: pvc at September 4, 2008 5:34 PM
I only have one question for Satchel -- how do you "start" in the hedge fund business?
I wrote this post many times, but it is hard to get "right". here goes.
the most common way: know somebody who is already in a hedge fund.
How easiest to do that?
1) go to an Ivy League school. Stanford counts even though it is not truly Ivy. Berkely does not count (sorry)
2) major in finance/business and go into an Investment bank.
once you get into an Ivy, or go to an IBank, then you befriend as many people as possible. You show them how you excel in things. You try not to burn bridges or stab folk in the back (or if you stab them in the back for your personal gain, make sure they don't know it). Then you wait.
Eventually one of them will start a hedge fund. When they do, get them to ask you to join their hedge fund. stay there for a few years and then if it does well you can split off and start your own.
This is BY FAR the most common way to start/get into a hedge fund
#2 most common way:
be a GREAT mathematician or computer major. the reason: many hedge funds are "quant" funds. and they need math and CS majors.
again, the name on your degree is important. Ivy or Stanford. Perhaps Berkeley here.
I know this sounds nepotistic, but believe me the world of finance is EXTREMELY nepotistic. inbred if I dare say (I dare say). most people I know who are in hedge funds (i know a fair amount) got there because somebody they know was in one.
it's very similar to "how do you get on the board of a corporation".
I will freely admit: in my life I have struggled with the fact that I chose in my life not to go into finance, and so I missed my chance. I know that I would not have been happy long term in finance... but I passed up a once in a lifetime opportunity to join the super-rich. I could have done that and retired at 35. instead I slog away in my practice. and I am somewhat bitter at times about it. I'm not sure I made the correct decision.
however: the hedge fund world is not doing so well this year. this is the first year where we may see more hedge funds close than open. also, for the first time I'm hearing rumblings of people balking at the 2/20 payment schedule... so the gravy train may have passed.
my other half may go for it... we haven't decided... because one thing I did learn is that money is most assuredly not everything. It was a huge surprise for this colored kid from the tenderloin. I thought FOR SURE I would turn into "G". but instead money bores me. but I'm still jealous. Makes no sense, does it?
Posted by: ex SF-er at September 4, 2008 5:58 PM
EBGuy, you missed some tiiiiiiny little details that keep things legal.
Uhhh, no. That is the exactly the point of my post (and why you start with 35 or fewer investors -- you did follow the link, right?). This is the Wild West. With a proven track record, you can then grow your hedge fund with an unlimited number of accredited investors (no SEC registration required for the sale of securities). An accredited investor can be: a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year. And we all know how many of those folks are in Ess Eff :-)
Not hedge fund management advice.
Posted by: EBGuy at September 4, 2008 5:59 PM
Ok, seriously, who cares if rich people are "green" or not when they build their mansions. They are such a tiny minority that their actions have pretty much zero impact on the world (might not seem that way in SF but its true). Let's say the new owner builds 40,000 sq. ft. That's equivalent to about 20 regular houses. Big deal. The ratio of "regular" people to hedge fund millionaires is probably 1,000,000:1 if not higher. Its the majority -- the hundreds of millions of not-rich people whose green choices will shape the environment. In the grand scheme of things, rich people don't really matter at all.
Posted by: Jimmy (Bitter Renter) at September 4, 2008 5:59 PM
'instead money bores me. but I'm still jealous. Makes no sense, does it?'
I echo your sentiment to some extent ex SF-er.
I think the ideal that making money is the criteria of a good life (success and happiness have been confused somewhere along the way) is so endemic in our society now that its impossible not to be swayed at least to some extent.
Having been a fairly recent entrant to the US from the UK I am still surprised (but not amazed) at how much more of a money culture it is here in a multitude to ways. eg people are judged how smart they are by how good their job is (or how much they are paid) , people seem to be swayed by advertising of products much more readily etc
Posted by: REpornaddict at September 4, 2008 6:41 PM
I like money in general, so I guess I disagree on that level. Money doesn't make happiness but it don't hurt.
P.S. I also don't think the hedgefund starters list is limited to the Ivy League+ Stanford. Any smartypants school will do.
Posted by: sparky at September 4, 2008 7:32 PM
Not to keep us off topic, but how can this 2/20 compensation scheme be sustained? Don't studies indicate that most hedge funds underperform the market (just like most mutual funds) and those that do outperform often have extreme levels of risk? Why do pension and endowment funds and other mega-investors agree to these fees?
Posted by: FSBO at September 4, 2008 8:15 PM
I echo some of what ex SF-er says about getting into a hedge fund. I suspect that currently his advice is the way to go. But it wasn't always that way.
The real big macro funds - the real masters of the universe types like Druckenmiller, Soros, Steve Cohen, Kovner, Leon Cooperman, Robertson, etc. - took people from all sorts of places. Someday I'll post some details of how I did it, but for now what I'll say is that these guys all loved smart risk takers, and once one's foot was in the door, risk taking was rewarded greatly.
All right - one example. In 1992 I took a job with one of the really top places (I was 2 years out of school - 25 years old). I had been making around $150K doing advisory work, but I wanted to trade. I was offered a "corporate" type deal-role job at a fund, with guaranteed salary + bonus of $200-250K+, which was a fair amount of money back then. But it wasn't a trading role.
When I got there, I gradually hung around the desk, recommending trades, researching, reading, etc., until I got one of the pms to "sponsor" some trades for me (basically earmark a small piece of his account for my trades). I let my other duties go to the point that I basically wasn't doing anything I was hired to do. At that point, after it became clear I wasn't going to do what I was supposed to do, they called me in and said they didn't know what to do with me. I told them to fire me, or give me a job on the desk. I said I only wanted the same salary as the basic out of school FX desk trader gets - at that time $70K. It impressed them that I would go down from $250K to $70K, and that's what I did (for all of about 3 months). The following year I made more than 10 times that amount.
I'll add, though, in keeping with what ex SF-er said that I DID have an Ivy League education (double Ivy - college and grad), but I wasn't born with a silver spoon in my mouth. Neither of my parents got out of high school (my dad was an auto mechanic).
Portfolio managers I worked with ran the gamut of backgrounds. MANY started out of college as FX desk clerks/traders at Ibanks, and clawed their way up through performance. A few were quant types (particle physicists were the largest group in the funds those days), at least one was a degenerate gambler who never finished college (at Oxford, though - smart guy) who knew one of the star traders from secondary school. One guy was an anethesiologist/MD, who was always calling us up with recommendations on "coated stent" companies until we offered him a job.
For people who want a fun read of what the fund world was like back then, I'd recommend Jack Schwager's Market Wizards. I read that book in 1991 and right there and then said that was the coolest job I'd ever heard about. By 1996 I was literally sitting right next to one of the people profiled in that book - at least for part of the typical day (rather not say which one - for obvious reasons).
Another great book for the "feel" of Wall Street in the early 1990s - when the old culture was intersecting with the new, more academic focus - is "Liar's Poker". I remember one line that really captured what it was all about, something said by one of the top Salomon guys to the effect of how all the fancy MBAs from the Ivies weren't worth anything on the desks. Something like "give me poor but smart kids from the Bronx and Brooklyn", "hungry". And, "You win some days. You lose other. You pick up and fight again. No feelings - that's the key - No feelings". If anyone's got that book at home and can quote it accurately (I haven't read it in almost 20 years) that would be great!
Not sure any of this will help you in your quest, Jimmy!
BTW, ex SF-er, 2 and 20 is SO 2000s! Our firm used to get 4 and 23 on most funds, and a typical prop trader would get 30% of the gains on proprietary (firm) money and 10-11% of the gains from customer money (basically half the performance fee) and 1-2% management fees (which paid for the desk costs and salaries of an assistant).
Posted by: Satchel at September 4, 2008 8:32 PM
Rich people matter because others commonly emulate them, sometimes subconsciously. As Benjamin Barber points out in his recent book Consumed these desires drive the culture, and as such it is very interesting that high end desirable appears to be moving from how much can get to how much per unit up front and over time. This is a massive shift, and the amounts of energy and materials we process for housing are big enough for this to have strong influence on the economy and the environment in the future.
The money thing is fascinating to me. During the dot com boom I knew many relatively young people who became very rich and then found themselves with their big houses and fast cars and faster lovers wondering if that was it. Was that all there was? In contrast the inventors of the spreadsheet never made great fortunes from VisiCalc, but they did make good money and had fun spreading a useful idea. The spreadsheet gets used as an examples of inventors getting a low payback relative to the value of their contribution, but the evidence is that Dan Bricklin and Bob Frankstone lived happier lives than most dot commers whether successful or not.
Posted by: Mole Man at September 4, 2008 8:46 PM
Thanks for the bio and wall street insight Satchel. I can still remember the horror I felt during my study of economics when I realized that wall street was just sloshing OPM around, taking their cut, and then dumping the losses on the marks. Do you suppose wall street was ever about allocating capital to productive uses? If so, when did it change? And do MBA schools have courses in looking dumb, shrugging your shoulders and saying, "Hoocoudanood?" for when their schemes blow up?
Posted by: diemos at September 4, 2008 9:21 PM
wow, some of you sure like to listen to yourselves talk......I mean write.
Posted by: noearch at September 4, 2008 9:22 PM
this will explain some things
Posted by: inquiringmind at September 4, 2008 10:33 PM
The existing property looks like the love child of the Carmel Middle School and the adjacent golf club. It's an obvious do-over. I hope they can reuse some of the materials.
Posted by: vox at September 4, 2008 11:54 PM
There seems to be a general misunderstanding of my post.
nowhere did I say one must go to an Ivy to be a hedgie. I said the 2 EASIEST ways were
1. to go to an Ivy or work for an Ibank
(because that's how you get connections)
2. to be a mathematician or CS major at a big-time university. Ivy not important here... a place like Berkely or Madison or Duke/UNC etc is fine here
(because so many hedge funds are "quant" funds these days)
Posted by: ex SF-er at September 5, 2008 5:29 AM
Satchel: it's interesting you bring up "Liar's Poker" because it was in my mind when Jimmy (Bitter Renter) asked his question. Specifically the part where the "hero" lands his job. Off the top of my head-didn't he get his job because he happened to be at a party and met the wife of an Ibanker? I also recall he was a lib arts major of some sort at an Ivy. so typical. yawn. That said, I think that guy is more talk than life... if I recall (it's been years since I read the book) he only worked for like a year or two before burning out. (and he was bonds, not a hedgie). His book is funny and a light read if people are interested. (if I recall... it's more of a "look how funny rich bond traders are" sort of book)
and the term Liar's Poker refers to the infamous "Predator's Ball". Back in those days the place to be was in Junk Bonds, specifically Michael Milken of Drexal Burnham. If one is interested in the sleazy way Wall Street abuses other people's money and other people's trust-this is a good book. I also like "When Genius Failed" (About Long Term Capital Management... the first big hedge fund blowup), and "Smartest Guys in the Room" (scathing book about Enron).
"2 and 20 is SO 2000s! Our firm used to get 4 and 23 on most funds"
sounds like you got in when hedge funds were still hedging things on their client's behalf. I agree, my experience with hedgies is the venorated 2/20. but like I said above, the 2/20 fee schedule is under attack as well.
To make this even slightly topical:
how do we know that the new Agassi house owner is a hedgie? why not VC?
Posted by: ex SF-er at September 5, 2008 5:34 AM
I agree ex SF-er that Liar's Poker is sort of a fluff sort of book, from a guy who worked on the infamous Salomon treasury desk for a few years as a sales trader (not a prop guy). I'm only recommending it for people who want to get some flavor for the tension between "old" Wall Street risk-taking culture and the (then) new more quant focused Wall Street.
And I defnitely agree that "When Genius Failed" is worth reading. I was VERY close to that whole situation in summer 1998 (though I wasn't at LTCM), and the only quibble I have is with the title. Who exactly failed? Hiilibrand, Merriwether and the rest put a fortune in their pockets, and they all went on to make tens of millions more betting other people's money even after LTCM failed. One of my favorite fools of the late 90s was a somewhat obscure (to the general public) trader/manager, Victor Niederhoffer - worth checking out his wiki bio. There remains a never-ending supply of "investor" fools, that's for sure (I think I read somewhere that Hillibrand - who was the original "rocket scientist" who shocked Wall Street when he made $23M for himself one year at Salomon in the late 80s/early 90s - fairly recently was one of the highest paid traders again somewhere).
"Do you suppose wall street was ever about allocating capital to productive uses? If so, when did it change?"
Yes. I think that prior to around 1907 Wall Street's primary role was allocating capital efficiently. When JP Morgan risked so much of his personal fortune in the Panic (and I think lost a good deal), the power structure resolved that the bankers' personal fortunes should no longer be at risk. Once the Federal income tax was ratified in 1913, a whole new class of "marks" appeared.
From my reading of history, it looks to me like the ability of finance as an efficient allocator has ebbed and flowed over the years. Since 1991 (widepsread encouragement of securitization by Greenspan to enahle the continued well functioning of the debt ponzi scheme) and 1998 (bailout of LTCM at the behest of the Fed) in recent history, this allocative role has been totally thrown overboard. Nothing a good depression can't fix, though :)
Posted by: Satchel at September 5, 2008 6:23 AM
Satchel - great story on how you got on a desk. Liar's Poker had so many good stories - like the guy who took his calls under his desk.
Trading I think has always favored the brooklyn street smarts over the ivy league types (esp true at Bear) - though some of all stripes do very well. I suspect so many hedge funds are started by ivy league guys is some self selection as many come from families with Wall Street connections and they start with $10 or $20 million of friend and family money and you got a lot more people with that kind of confidence and access to capital in the ivies.
Posted by: inquiringmind at September 5, 2008 8:12 AM
Shoot... I only know three people who work at hedge funds. And MIT isn't an Ivy school.
Gotta work on that network ...
Interesting read tho.
Posted by: Jimmy (Bitter Renter) at September 5, 2008 9:22 AM
Since 1991 (widepsread encouragement of securitization by Greenspan to enable the continued well functioning of the debt ponzi scheme)
Do you have a long term view on securitization? I've posited that "those who poisoned the securitization stream will be shown the door" and eventually the machine would ramp back up. It doesn't seem to me that securitization, per se, was the problem, but rather the system on top of which it was built had endemic corruption -- basically, everyone in the chain had a monetary incentive to keep it going (agents, mortgage brokers, appraisers, ratings agencies, warehouse lenders, etc.). The fact that banks are no longer wholesaling and the rise of "internet" RE operations seems to indicate a clearing out of the old and bringing in a system with some checks and balances. Or will the temptation for banks be too much once securitization ramps back up?
Posted by: EBGuy at September 5, 2008 11:07 AM
Not to keep this off subject but another good read is the Ugly Americans: The True Story of the Ivy League Cowboys Who Raided the Asian Markets for Millions...maybe not so much a hedge read but still entertaining.
Posted by: J at September 5, 2008 11:10 AM
Volcker weighs in on securitization:
Former Federal Reserve Chairman Paul Volcker said the U.S. financial system, dependent upon securitization rather than traditional bank loans, is broken, and may contribute to the weakest expansion since the 1930s.
``This bright new system, this practice in the United States, this practice in the United Kingdom and elsewhere, has broken down,'' Volcker said today at a banking conference in Calgary. ``Growth in the economy in this decade will be the slowest of any decade since the Great Depression, right in the middle of all this financial innovation.''
Posted by: EBGuy at September 5, 2008 2:34 PM
We know it is a hedge fund guy becuase of this:
This relates to the youtube article posted by inquiringmind when he said "this will explain some things". BTW his parners were not so thrilled about the media coverage he received so soon after they closed the youtube deal.
Posted by: Soma at September 5, 2008 4:44 PM
It is interesting how many of the regulars here are self-made. I also grew up poor, and even lived in The Projects for a while. Being a white nerdy glasses-wearing kid in The Projects isn't any fun, I can assure you, but at least no one wanted me in their gang.
Posted by: NoeValleyJim at September 6, 2008 10:27 PM