Colorful Bloomberg article from 2006:
Niederhoffer, Humbled by '97 Blowup, Posts 56 Percent Return
By Deepak Gopinath
May 31 (Bloomberg) -- One evening in April, Victor Niederhoffer went to a party at the St. Regis Hotel in New York.
Niederhoffer, 62, used to be one of the most prominent hedge fund managers in the U.S. He made a fortune during the 1980s and '90s, trading out of his New York office and chalet-style mansion in Weston, Connecticut. Then Niederhoffer lost it all -- his $130 million fund and most of his own savings -- when his bets on the markets went wrong.
Niederhoffer's life collapsed beneath him. He closed his firm. He mortgaged his house and sold his cherished collection of antique silver. Among those treasures was a 5-foot (1.5-meter) horn of plenty that had once belonged to King Charles XV of Sweden. Niederhoffer says he became so depressed that his family feared he might kill himself.
As he walked beneath the gilt chandeliers of the St. Regis that April night, sporting a lavender blazer, Niederhoffer was back on top. He was being honored at a fete for some of the country's top money managers. Since 2002, Niederhoffer has parlayed $2 million into a new, $346 million hedge fund, Matador Fund Ltd. Last year, he posted a 56 percent return, for an average annual return of 41 percent.
``I appreciate the difficulty and the courage it took to give me an award, since I once went under,'' Niederhoffer told the crowd of 300 money managers.
It's been a long journey back for Niederhoffer, a Wall Street iconoclast who celebrated his early achievements in a memoir titled ``The Education of a Speculator'' (John Wiley & Sons, 1996).
`Underdog Capital'
The book traced his personal odyssey from Brighton Beach, Brooklyn -- ``the underdog capital of the world,'' he called it - - to the pinnacles of finance. Niederhoffer wrote of his prowess on the squash court, his unflinching concentration, his high- stakes trades. He told of his games of chess and tennis with billionaire financier George Soros, for whom he'd once managed about $100 million.
No sooner had the book been published than Niederhoffer's unhedged trades in U.S. stock options and Thai equities blew up. Niederhoffer was wiped out, as a chain reaction of devaluations in Asia rocked world markets. The fiasco foreshadowed the spectacular collapse of Long-Term Capital Management LP, John Meriwether's hedge fund firm in nearby Greenwich, Connecticut, which lost more than $4 billion in 1998 after Russia defaulted on debt.
`Over His Head'
Niederhoffer became a Wall Street pariah, the butt of black humor and gossip. Brokers refused his business, he says. When he walked into the Four Seasons restaurant in Manhattan, the whispers would start. He says co-owner Alex von Bidder told him the restaurant's patrons got a thrill from seeing the mighty humbled.
``You know how people like to talk,'' von Bidder told him. ```There's Niederhoffer. He just went under. Went in over his head. Got too big for his britches.''' Von Bidder picked up his tab.
Niederhoffer's 1997 debacle still resonates on Wall Street. When his old broker, Refco Inc., collapsed in scandal last October, word spread that the New York-based firm might have hidden losses that it had incurred on Niederhoffer's trades years before. The talk irked Niederhoffer and prompted him to deny what he calls unsubstantiated rumors. He says he had nothing to do with Refco's unraveling.
Niederhoffer says he's emerged from the ashes a changed man. His failure has taught him humility, he says.
Appetite for Risk
A Harvard College graduate with a Ph.D. in finance from the University of Chicago and, colleagues say, a preternatural tolerance for risk, Niederhoffer says he no longer believes he can master all markets. He refuses to chase profit in faraway places such as Thailand, where he once lost $50 million. Instead, he focuses almost exclusively on the $130 billion-a-day market in futures and options on the Standard & Poor's 500 Index.
``I try not to reach for the stars,'' Niederhoffer says.
Niederhoffer hasn't lost his appetite for risk, however. As he was during the 1990s, Niederhoffer is a bull. In the argot of Wall Street, he's long-biased. He tries to make money from short- term movements in the S&P 500. To do that, he buys and sells various futures and options contracts on the index as many as two dozen times a day. He typically holds each position for one to five days.
To stoke returns, he employs a tool common to hedge funds, one that accelerated his undoing nine years ago: leverage. Niederhoffer buys on margin, or with borrowed money.
Steep Losses
The value of the positions he holds far outstrips the amount of money he actually has. And because Niederhoffer is a bull, he's vulnerable to market declines. He has lost as much as 30 percent in a month.
Sol Waksman, founder of Barclay Group Ltd., a Fairfield, Iowa-based firm that tracks hedge fund performance, says he lost some of his own money -- he won't say how much -- when Niederhoffer went under in 1997. He says he doesn't have the stomach to invest with him again.
``I never thought in my wildest dreams that it would go to zero,'' Waksman says of his investment. ``I wasn't fully aware of the risks he was taking.''
Even before disaster struck, Soros had warned that Niederhoffer might be swamped by big moves in the markets. ``There was a flaw in his approach,'' Soros, 75, wrote in ``Soros on Soros'' (John Wiley & Sons, 1995). ``It is valid only in a trendless market.'' Soros, who stopped using Niederhoffer to manage money in 1995, declined to be interviewed for this story.
`Tidal Movement'
Niederhoffer says he does take risks. That's the only way to reap market-beating returns, he says. ``Not an hour goes by here that we don't have direct action taken to prevent ourselves from being overwhelmed by tidal movement,'' he says.
On a sunny, late-January afternoon, Niederhoffer and his nine researchers/traders are at work in the second-floor trading rooms of his 20,000-square-foot (1,858-square-meter) Connecticut mansion. The estate sprawls over 13 acres in bucolic Weston. A narrow drive stretches past a dozen wooden bulls and bears. One of the bears is 12 feet tall. To the right is a racquetball court that Niederhoffer, a five-time U.S. squash champion, uses to work on his tennis strokes.
Niederhoffer is about 6-foot-2 and has close-cropped gray hair. He favors blazers and trousers in pastel hues of pink, blue, orange and yellow. He never wears shoes indoors.
Niederhoffer, Humbled by '97 Blowup, Posts 56 Percent Return
By Deepak Gopinath
May 31 (Bloomberg) -- One evening in April, Victor Niederhoffer went to a party at the St. Regis Hotel in New York.
Niederhoffer, 62, used to be one of the most prominent hedge fund managers in the U.S. He made a fortune during the 1980s and '90s, trading out of his New York office and chalet-style mansion in Weston, Connecticut. Then Niederhoffer lost it all -- his $130 million fund and most of his own savings -- when his bets on the markets went wrong.
Niederhoffer's life collapsed beneath him. He closed his firm. He mortgaged his house and sold his cherished collection of antique silver. Among those treasures was a 5-foot (1.5-meter) horn of plenty that had once belonged to King Charles XV of Sweden. Niederhoffer says he became so depressed that his family feared he might kill himself.
As he walked beneath the gilt chandeliers of the St. Regis that April night, sporting a lavender blazer, Niederhoffer was back on top. He was being honored at a fete for some of the country's top money managers. Since 2002, Niederhoffer has parlayed $2 million into a new, $346 million hedge fund, Matador Fund Ltd. Last year, he posted a 56 percent return, for an average annual return of 41 percent.
``I appreciate the difficulty and the courage it took to give me an award, since I once went under,'' Niederhoffer told the crowd of 300 money managers.
It's been a long journey back for Niederhoffer, a Wall Street iconoclast who celebrated his early achievements in a memoir titled ``The Education of a Speculator'' (John Wiley & Sons, 1996).
`Underdog Capital'
The book traced his personal odyssey from Brighton Beach, Brooklyn -- ``the underdog capital of the world,'' he called it - - to the pinnacles of finance. Niederhoffer wrote of his prowess on the squash court, his unflinching concentration, his high- stakes trades. He told of his games of chess and tennis with billionaire financier George Soros, for whom he'd once managed about $100 million.
No sooner had the book been published than Niederhoffer's unhedged trades in U.S. stock options and Thai equities blew up. Niederhoffer was wiped out, as a chain reaction of devaluations in Asia rocked world markets. The fiasco foreshadowed the spectacular collapse of Long-Term Capital Management LP, John Meriwether's hedge fund firm in nearby Greenwich, Connecticut, which lost more than $4 billion in 1998 after Russia defaulted on debt.
`Over His Head'
Niederhoffer became a Wall Street pariah, the butt of black humor and gossip. Brokers refused his business, he says. When he walked into the Four Seasons restaurant in Manhattan, the whispers would start. He says co-owner Alex von Bidder told him the restaurant's patrons got a thrill from seeing the mighty humbled.
``You know how people like to talk,'' von Bidder told him. ```There's Niederhoffer. He just went under. Went in over his head. Got too big for his britches.''' Von Bidder picked up his tab.
Niederhoffer's 1997 debacle still resonates on Wall Street. When his old broker, Refco Inc., collapsed in scandal last October, word spread that the New York-based firm might have hidden losses that it had incurred on Niederhoffer's trades years before. The talk irked Niederhoffer and prompted him to deny what he calls unsubstantiated rumors. He says he had nothing to do with Refco's unraveling.
Niederhoffer says he's emerged from the ashes a changed man. His failure has taught him humility, he says.
Appetite for Risk
A Harvard College graduate with a Ph.D. in finance from the University of Chicago and, colleagues say, a preternatural tolerance for risk, Niederhoffer says he no longer believes he can master all markets. He refuses to chase profit in faraway places such as Thailand, where he once lost $50 million. Instead, he focuses almost exclusively on the $130 billion-a-day market in futures and options on the Standard & Poor's 500 Index.
``I try not to reach for the stars,'' Niederhoffer says.
Niederhoffer hasn't lost his appetite for risk, however. As he was during the 1990s, Niederhoffer is a bull. In the argot of Wall Street, he's long-biased. He tries to make money from short- term movements in the S&P 500. To do that, he buys and sells various futures and options contracts on the index as many as two dozen times a day. He typically holds each position for one to five days.
To stoke returns, he employs a tool common to hedge funds, one that accelerated his undoing nine years ago: leverage. Niederhoffer buys on margin, or with borrowed money.
Steep Losses
The value of the positions he holds far outstrips the amount of money he actually has. And because Niederhoffer is a bull, he's vulnerable to market declines. He has lost as much as 30 percent in a month.
Sol Waksman, founder of Barclay Group Ltd., a Fairfield, Iowa-based firm that tracks hedge fund performance, says he lost some of his own money -- he won't say how much -- when Niederhoffer went under in 1997. He says he doesn't have the stomach to invest with him again.
``I never thought in my wildest dreams that it would go to zero,'' Waksman says of his investment. ``I wasn't fully aware of the risks he was taking.''
Even before disaster struck, Soros had warned that Niederhoffer might be swamped by big moves in the markets. ``There was a flaw in his approach,'' Soros, 75, wrote in ``Soros on Soros'' (John Wiley & Sons, 1995). ``It is valid only in a trendless market.'' Soros, who stopped using Niederhoffer to manage money in 1995, declined to be interviewed for this story.
`Tidal Movement'
Niederhoffer says he does take risks. That's the only way to reap market-beating returns, he says. ``Not an hour goes by here that we don't have direct action taken to prevent ourselves from being overwhelmed by tidal movement,'' he says.
On a sunny, late-January afternoon, Niederhoffer and his nine researchers/traders are at work in the second-floor trading rooms of his 20,000-square-foot (1,858-square-meter) Connecticut mansion. The estate sprawls over 13 acres in bucolic Weston. A narrow drive stretches past a dozen wooden bulls and bears. One of the bears is 12 feet tall. To the right is a racquetball court that Niederhoffer, a five-time U.S. squash champion, uses to work on his tennis strokes.
Niederhoffer is about 6-foot-2 and has close-cropped gray hair. He favors blazers and trousers in pastel hues of pink, blue, orange and yellow. He never wears shoes indoors.