A Hedge Fund History Lesson

Stocks are tanking. Some hedge funds are liquidating, while others weather the market, determined to stay afloat. The S.E.C. is grappling with how to regulate the private funds, and investment managers are fending off attacks on their generous pay structure. Buffett is doing well. And one of the top performing funds is something called Cerberus.

What year is it? Why, it's 1970, of course.

In her June 1970 Fortune story titled "Hard Times Come to the Hedge Funds," Carol Loomis painstakingly reviews the damage the bear market of 1969-1970 did to the still relatively unknown world of hedge funds. In reading it, it's hard to believe just how little has changed in 37 years.

The loosely regulated funds are still mysterious to outsiders, and the top securities cops remain flummoxed by how to rein them in. Aspiring investment managers, smelling easy money with the 20 percent profit sharing arrangements, are flocking to the biz for its promise of huge paychecks. Rich investors are still undeterred by the high price for the sometimes mediocre returns. Even Carol Loomis is still writing for Fortune.

Curiously, one of the biggest hedge funds in 1969 was called Cerberus Associates. With $40 million in assets (smaller than many managers' annual incomes today), Cerberus ranked third behind A.W. Jones, which was the first hedge fund, and Fleschner Becker Associates.

Loomis mentions that Cerberus, named for the "three-headed dog who guarded the gates of Hell" in Greek mythology, was one of the star performers of the time.

But neither the Cerberus of 1969 nor its managing director, Ronald LaBow, has any connection with the Cerberus we know today. As Dan Roth tells us in this month's Condé Nast Portfolio, the founder of Cerberus Capital Management was just 10 years old when LaBow was dodging losses in 1969.

Stephen Feinberg founded the private equity and hedge fund firm Cerberus Capital in 1992. It's best known today as the new owner of Chrysler, which it bought earlier this month from Daimler AG. It was also named for the gnarly mutt, and "the company has long held that the symbolism refers to the fact that one eye is always open, presumably protecting investors' money." Feinberg's colleague, Tim Price recently admitted that it's "a terrible brand name."

It's not known what happened to the original Cerberus. Calls to a Ronald LaBow, who is managing money at a small firm called Stonehill Capital went unreturned.

by Megan Barnett