What Hedge Funds Talk About When They Talk About Money

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Scaramucci Plays Host in Las Vegas

Anthony Scaramucci and Kelly O’Connor preview the SkyBridge Alternatives Conference, or SALT. Held over four days, the Wall Street schmooze-fest is the country’s largest hedge fund conference.

Publish Date May 14, 2014. Photo by CNBC.

LAS VEGAS — Behind the dancing fountains of the Bellagio Hotel, hedge fund titans mingled with wealth managers at the Hyde nightclub on Tuesday night.

Hands were shaken and business cards were exchanged as waitresses in tiny red dresses strutted about and the alcohol flowed.

It was a private kickoff for the SkyBridge Alternatives Conference, or SALT, the hedge fund industry’s biggest yearly gathering. Referred to on Wall Street as the industry’s Super Bowl, it brings together headline investors, politicians and entertainers.

But there was an elephant in the room. Even as the industry gives itself a slap on the back and billionaire investors like David Tepper speak this week about making gigantic profits, the average performance of hedge funds has lagged behind the Standard & Poor’s 500-stock index for five consecutive years despite the fact that money flowing into hedge funds has never been higher.

So it is up to this year’s speakers — many of whom are not in the industry — to add a little stardust to disappointing performance. They include political figures like Valerie Jarrett, a senior adviser to President Obama; former Prime Minister Tony Blair of Britain; and David H. Petraeus, the retired four-star general and former director of the C.I.A. The entertainment world will be represented by the director Francis Ford Coppola, the actor Kevin Spacey and the musician Lenny Kravitz.

Over three days, the conference’s 1,800 participants gather to exchange ideas, socialize and seal partnerships amid the slot machines and the craps and poker tables of the hotel complex.

For SkyBridge Capital, which started out as an incubator for start-up managers and acquired the hedge fund unit of Citigroup in 2010, the conference has played an important role in branding. The firm manages investments in a portfolio of hedge funds — called fund of funds — and sells its products to wealthy individuals, those with a net worth of at least $1 million and at least $25,000 to spare who want to invest in big-name hedge funds like Daniel S. Loeb’s Third Point Capital.

At a time when many other hedge fund of funds are flagging, business at SkyBridge is booming. Over the last year alone, the firm has increased its number of clients to 27,000 from 24,000, in part because of the SALT conference.

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Anthony Scaramucci is the founder and co-managing partner of SkyBridge, which sponsors the SALT conference.Credit Rick Wilking/Reuters

“In terms of lifting brand awareness, it’s been tremendous,” said Troy Gayeski, a portfolio manager at SkyBridge who will speak on two panels during the conference. Panelists sit on a stage flanked by two giant screens with SkyBridge logos. Participants walk around with heavily branded SkyBridge merchandise, and many of the panels are hosted by CNBC anchors. Anthony Scaramucci, founder and co-managing partner of SkyBridge, is a contributor to CNBC and an adviser to the network.

The idea for the conference is a story that Mr. Scaramucci has told so many times it has become industry lore. In the depths of the financial crisis, amid the bank bailouts by the government in 2009, President Obama warned banks not to sponsor lavish conferences on taxpayers’ money. As banks responded by canceling their Las Vegas gatherings, SkyBridge spotted an opportunity and jumped in.

If there is any concern about some of the country’s wealthiest gathering in Las Vegas to drum up support for more money, it isn’t immediately apparent.

But what did seem to have a lot of participants heated on Wednesday morning was the United States economy and the Federal Reserve’s quantitative easing program, which has kept interest rates at all-time lows.

“I don’t think the U.S. economy has recovered from anything,” said Peter Schiff, chief investment officer of Euro Pacific Capital. “All the Fed has succeeded in doing is reflating bubbles,” he said, adding that it has enriched a small part of the population.

His comment touched off a loud dispute with the economist Nouriel Roubini, who gained the nickname Dr. Doom for his prediction of the last crisis, after he dismissed Mr. Schiff’s views. Another panelist, former Prime Minister George Papandreou of Greece, looked on quietly.

Even before the conference kicked off, Fed policy and its effect on the so-called 99 percent was the subject of a heated debate at a lunch sponsored by Morgan Stanley for its clients and financial advisers. The Wall Street bank is one of Skybridge’s most important clients, selling Skybridge’s products to its own network of wealthy clients.

During a panel discussion at the lunch, Harold Ford Jr., the former Tennessee congressman, and Gary Kaminsky, a Morgan Stanley vice chairman, both complained that the top 1 percent of the United States was becoming richer while the quality of life had declined for average Americans as their cost of living had increased.

In making his point, Mr. Kaminsky referred to a conversation he had last fall with Timothy F. Geithner at a private dinner at a SALT conference in Singapore. He asked Mr. Geithner, the former Treasury secretary, what he would say to someone who had retired but could no longer live as they had planned because of low interest rates.

“The secretary gave me this really nasty look from across the table and I wasn’t sure what he was going to say,” Mr. Kaminsky said. “The statement was very simple, when asked what someone in that situation should do, he said: ‘I would tell that person to get a job.’”

Donald Drapkin, the onetime associate of Ronald O. Perelman and the founder of the hedge fund Casablanca Capital, piped up. “The rich keep getting richer from government policy,” he said, adding that the guy at the top of the food chain can borrow money for nothing to invest and make bigger returns.

Despite these concerns, the hedge fund industry has benefited from low interest rates. As returns on bonds and Treasuries fell to depressed levels, pension funds and endowments turned to hedge funds for better returns, and inflows into the industry is at an all-time high. About $2.7 trillion flowed into the industry in 2013 alone, according to HFR, profits that continue to make hedge fund managers some of the wealthiest individuals in the United States.

Kenneth G. Langone, the chief investment officer of Invemed Associates, made reference to that when he kicked off the official conference on Wednesday.

“Like it or not, you’re the 1 percent,” he told the audience. So far, no one has argued the point.

Follow the social media reaction to the SALT hedge fund conference.