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.