Richard Breeden's New Career: Interventionist Hedge Fund Manager

The weekend's Wall Street Journal carried a piece describing former SEC Chairman Richard Breeden's new career. He runs nine-month old hedge fund which actively harangues the management of its holdings to "improve strategy and governance."

OK, other hedge fund managers spout off about this a lot these days. And I'm on record as thinking that, unless, like Eddie Lampert, you actually buy the company, who cares what some shareholder thinks about corporate strategy? As Holman Jenkins noted, in agreement with me, in an article about which I wrote recently, here, there are plenty of other types of companies to buy, rather than become an activist outside shareholder.

According to the article, Calpers has invested $400MM with Breeden's fund. Yet, Breeden is a novice at this. Reading further, the Journal piece states,

"(Breeden's) basic idea is to take modest stakes in smaller companies whose stocks have been lagging due to strategic missteps, out-of-whack compensation structures or other problems, and then advise management on how to get back on track."

Allegedly, Breeden's efforts at strategy advisory led Alexander & Baldwin, one of his holdings, to listen to him, and the stock price rose 18%.

However, I Googled Breeden's bio, and found that he has essentially no business background whatsoever, save for a brief stint as a legal beagle at the resuscitated WorldCom. And some unspecified work in 'his own turnaround and workout' firm. No strategy consulting stretches at McKinsey or Bain. No tenure as Chief Strategy Officer at some large-cap companies. Nada.

Calpers & company are betting hundreds of millions of dollars on the strategic insights of a non-practicing lawyer.

Breeden has certainly cashed in on the current rage among institutional investors for "relational" fund management. Whether he can actually maintain a healthy margin over the S&P500 returns for more than his first year of management remains to be seen. Given how hard it is for seasoned managers to outperform the S&P, you'd think Breeden has to do more than just run around waving the ethics flag and shouting, in effect, 'listen to me!'

Had I known it would be that easy, and could have gotten tens of millions in client money myself, I guess I could have saved a lot of time and trouble actually researching what corporate performance patterns tend to consistently outperform the index.