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Stan O'Neal's Hedge Fund Return?

Posted by: Matthew Goldstein on September 25, 2008

When E. Stanley O’Neal ran Merrill Lynch, the big Wall Street brokerage started to resemble a giant hedge fund—juicing its returns with a big bet on tens of billions of dollars in now toxic mortgage-backed securities. So it’s only fitting that nearly a year after O’Neal was forced out at Merrill, the former Wall Street CEO is considering joining a fast-growing hedge fund, among other job opportunities.

O’Neal is mulling taking a position with Vision Capital Advisors, a three-year-old hedge fund led by stock and bond trader Adam Benowitz and Harvard Business School finance professor Randolph Cohen, according to people close to the situation. New York-based Vision, which launched in 2005 with well under $100 million, now has $850 million in assets under management and is one of the fastest growing hedge funds on Wall Street.

Vision invests mainly in speculative private placements by small-cap companies called PIPEs, or private investments in public equity. In a PIPE deal, an investor typically purchases either discounted stock or a bond that is convertible into shares at a price that is often below the prevailing market rate. Vision has posted some explosive returns since it began trading, generating an eye-popping 180% return in 2006—its first full-year of operation. Last year, Vision registered a more modest, but still impressive 37% gain. By comparison the Russell 2000 Index, a popular index for measuring the performance of small-cap stocks, fell 7% in 2007.

Benowitz did not return a phone call seeing comment on the matter. Hedge fund spokeswoman Lisa Snow declined to comment. Owen Blicksilver, an O’Neal spokesman, had no comment. A Merrill Lynch spokeswoman says she had no information on O’Neal’s search for a new job.

Cohen, Benowitz’s hedge fund partner, also wouldn’t comment on the speculation surrouning O’Neal. But he has high expectations for Vision. “Vision capital makes long term investments in successful growth companies,” he says. “As they succeed, we succeed. What Warren Buffett has achieved with Berkshire Hathaway, we aspire to achieve in the small-cap space.’’

Vision’s founders, Benowitz and Cohen, are childhood friends. Benowitz oversees the day-to-day operation of the fund, while Cohen is in charge of risk management and asset valuations. Benowitz is blind in one eye; hence the name Vision Capital.

O’Neal has kept a low-profile since stepping down as CEO at Merrill, after reporting the firm reported the first of several big writedowns and profit losses last fall. His image has been tarnished by Merrill’s big move into the market for collateralized debt obligations—those risky subprime backed securities that have caused so much trouble for the firm and much of Wall Street. Still, O’Neal has many contacts on Wall Street, both with investors and businesses. And those contacts could be valuable to a hedge fund or another financial enterprise.

The mounting losses at Merrill ultimately pushed John Thain, O’Neal’s successor, to enter into a shot-gun marriage with Bank of America. The deal between Merrill and Bank of America was announced on Sept. 15, a day afterLehman Brothers filed for bankruptcy.

O’Neal was the first of several prominent Wall Street CEOs to lose their jobs during the 13-month long housing-inspired credit crunch. He walked away from Merrill with a retirement package that’s been valued at $160 million.

Reader Comments

Scott Marlowe

September 25, 2008 8:09 PM

Maybe ol' Stan should worry about what company he's going to rip off next AFTER he gets out of prison.

Kurt Osis

September 25, 2008 9:18 PM

What the hell did they pay Thain all that money for, just to merge with the other bank from Charlotte? They could have saved the time and let ONeal merge with Wachovia.


September 25, 2008 9:40 PM

Why not? There's a sucker born every minute; if anyone is foolish enough to trust Mr. O'Neal with anything more authentic than Zimbabwe $1 billion bills, than more power to them.

Inline business

September 26, 2008 2:56 AM

Its a bad news but a great information for us.In future if we come across this kind of situation, will know the solution to overcome because of your information.

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September 26, 2008 8:38 AM

Incredible hubris. He wrecked a great American institution, forced out people who dare cross him or did not hit is insane performance levels , did nor resign when the $7.9 billion hot at Mother Merrill came, but had fired many for minor offences, bought a sub prime originator at exactly the wrong time, wrecks peoples lives, a disgrace of a CEO. They must be mad to hire him and you would be mad to invest. A man of honour would disapear into private life and do charitable works, hell he walked out with $161 mio. He represents everything wrotten in Wall Street.

Fed UP

September 26, 2008 9:23 AM

Stan ripped off ML. He was given an office at ML when he "retired" for 2 years plus an assistant. The shareholders need to sue him and the board of directors that were his hand-picked friends. He should've been fired not allowed to leave with more than the employees will ever see now. When I went to meetings and he showed up like a rockstar with body guards and the hotel clears the lobby for him, I knew it wasn't good. It was all about Stan and no one else.

Richard E Barsom

September 28, 2008 10:22 AM

I think it is a great move. Vision is the cream of the crop in the alternative investment world. Stan is a perfect fit.


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Wall Street Crook

September 29, 2008 3:16 PM

Why not! After all he does not have to work for a living. The tax payer bailout which funded his big payout paid for it.

If wish the guy rather clean the local highways wearing an orange jumpsuit. Cause they are all crooks using "derivatives" to rob hard working Americans.

I guess Congress finally came to their sense today.


October 20, 2008 2:27 PM

Stan O'neil has yet to be held accountable for his neglegence and failure to manage risk at Merrill. Any CEO who allows enough risk to be taken that it leads to the demise of his firm should be reprimanded. He instituted a "performance based culture" that forced many smart, talented people from the firm. Stan was the biggest failure of all.


October 20, 2008 9:11 PM

i believe that the spelling of his name is o'neal - does anyone know if he has a foundation or anything for charities or non-profits - i need some help with a project...

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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