�Kather­ine Bur­ton

Bloomberg Businessweek (North America) - - Markets/ Finance -

$17 bil­lion—the worst out­flow since 2009. More are de­mand­ing that strug­gling funds lower the fees of 2 per­cent of as­sets and 20 per­cent of prof­its they’ve typ­i­cally charged.

Port­fo­lio man­agers can still do very well: Head­hunters say last year even a los­ing firm may have paid man­agers bonuses of $1 mil­lion or more. But for those who are cut loose or leave a job, it’s not un­usual to be out of work for a year. Over a burger at P. J. Clarke’s in Mid­town Man­hat­tan, one man­ager who asked not to be named says he was con­fi­dent when he left his job in 2014 that he’d have lit­tle trou­ble start­ingg his own firm. He’s still try­ing to raiseaise the money. Mean­while, the rent on his of­fice is eat­ing into his sav­ings.

Hedge funds still com­mand $2.86 tril­lion in as­sets, about $11 tril­lion more than in 2007. And many in­vestors still can’t re­sist the promis­eromise of a man­ager who’ll outdo a plain-vanilla port­fo­lio. A $100,000 in­vest­ment in the S&P 500 in Fe­bru­ary 1997 would be worth $6 mil­lion to­day; the same amount in­vested with Paul Singer’s El­liott Man­age­ment would have grown to more than $14 mil­lion, after fees. Both Cal­i­for­nia’s and New York City’s pub­lic-em­ployee pen­sion funds re­cently swore off hedge funds, but the Cal­i­for­nia teach­ers’ fund is adding to its al­lo­ca­tion.

His name is Un­clee Mo. Once a bril­liant, some­whatt frag­ile com­peti­tor on the race­track,track, Mo’s now a star in the breedingee­d­ing shed. From his firstt crop of 3-year-olds, a trio o of horses has emergedd as con­tenders in the Ken­tucky Derby on May 7: Mo Tom, Re­pole’s own Out­work, and the fa­vorite, Nyquist.st. For per­spec­tive, con­sid­ern­sider that about 1,600 stal­lion­sal­lions in Amer­ica pro­duce progeny­rogeny th that com­pete for the D Derby’s 20 spots.pots. It took the coun­try’s ’s top stud, T Tapit, al­mostt a decade t to pull off thee same feat of sen send­ing three off­springff i g tot th the race (co­in­ci­den­tally, also this year).

Re Re­pole es­ti­mates Un­cle Mo is worth $100 mil­lion. Op­ti­mistic? Cer­tainly, but not out of the ques­tion. He fig­ures Mo’s stud fee could rise from $75,000 to­day to as much as $150,000 in 2017, an in­crease in­dus­try in­sid­ers call fea­si­ble. Fac­tor in about 200 mat­ings per sea­son and com­bine that with the horse’s age—he’s only 8 years old. He may spend al­mostl­most two more decades in the breed­ing ng shed.

Mo has all but guar­an­teed that Re­pole’s thor­ough­bred busi- ness will be prof­itable for as long as it lasts, a rar­ity in an in­dus­try where many own­ers run up big losses. “Un­cle Mo has paid for ev­ery y sin­gle los­ing-propo­si­tion horse rse I can ever own in my life,” he says.

Re­pole co-founded Glacéau Vi­ta­m­in­wa­ter—which Coca- Cola ac­quired in 2007 for $4.1 bil­lion—as well as Bod­yarmor, the sports- drink com­pany. A life­long race­track “rail­bird,” Re­pole bought Un­cle Mo for $220,000 at a Ken­tucky auc­tion of young horses back in 2009.

Even as a baby, Mo was a big, pow­er­ful, leggy thing. When he ar­rived the next spring at trainer Todd Pletcher’s barn in up­state New York, his mas­sive stride awed on­look­ers. “He was a ground- gob­bling ma­chine,” says Pletcher. The colt won his de­but race by 14 lengths.

In early 2011 the un­de­feated Un­cle Mo was the Ken­tucky Derby fa­vorite. He didn’t make it to the race. He was de­feated at Aqueduct and di­ag­nosed with a rare liver dis­ease. He dis­ap­peared for four months,m made a brief come­back,co and went out with a 10th-place fin­ish in theh Breed­ers’ Cup Clas­sic. Mo now spends his days­day at Ash­ford Stud, an ex­panse­expa of rolling fields and lime­stone-and-limes oak barns in the Ken­tuckyK blue­grass. Triple CrownCrow win­ner Amer­i­can PharoahPha calls Ash­ford home, too. Cool­more Stud, which oper$4.8 ates Ash­ford, owns stakes in both horses. Re­pole didn’t want to talk much about the deal beyond say­ing that he re­tains a “healthy” piece of Un­cle Mo. Pharoah’s ini­tial stud fee was set at $200,000. Tapit com­mands $300,000. Mo, by com­par­i­son, started out at just $35,000 in 2012, a re­flec­tion of his strug­gles on the tracktr as a 3-year- old. But his first­firs crop of 2-year- olds earned moremo money than those of any oth­eroth stud in Amer­ica last year. So far in 2016, his off­spring have­hav made $4.8 mil­lion, enough to p place him third on the stal­lion­lio rankings list this year, even thoughtho he hass no older thor­ough­bred­sou com­pet­ing.om­pet­ing. Re­pole still seems s a bit haunted by what-ifs. What if Mo had stayed healthy, what at if he’d made it to the Derby? Re­pole sees the suc­cess of Mo’s off­spring as proof of how great the colt was go­ing to be: “He would have been Amer­i­can Pharoah be­fore Amer­i­can Pharoah.” �David Pa­padopou­los and Micha Ron­deau

The bot­tom line Money is mov­ing out of hedge funds in re­cent months, and the in­dus­try is started to look crowded. Amount Mo’s off­spring have made so far in 2016, enough to place him third on the stal­lion rankings list The bot­tom line Un­cle Mo’s off­spring have hit the race­track run­ning. His stud fee used to be a bar­gain $35,000; now it’s $75,000 and climb­ing.

Edited by Pat Reg­nier Bloomberg.com

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