How to Start a Hedge Fund Without Having to Run It

As everybody knows very well indeed at this point, hedge fund principals can make eye-popping sums of money. But as Nassim Taleb discovered when he ran his own fund, it can be very hard on the soul.

Mr. Taleb says it was the daily grind of trading in a low-volatility market that motivated him to quit. "I burned out," he says. "If I go three or four years without a big bang [in the market], I start having battle fatigue."

Taleb wasn't making lots of money anyway, since his strategy didn't work very well at the height of the Great Moderation. Then again, most of his investors didn't want him to make lots of money. They didn't invest most of their money with him; instead, they used him as more of an insurance policy. If all the rest of their investments suddenly went down, there's a good chance that their investments with Taleb would go up.

So how come Taleb is setting up a new hedge fund, Universa Investments? Because although he's an owner of the fund, he's not the fund manager.

Mr. Taleb won't be directly involved in day-to-day trading at Universa. Instead, he will be an adviser and will have a large stake in it. Mark Spitznagel, a former Empirica trader, will manage the fund's daily activities.

Nice work, if you can get it. All the upside of owning a hedge fund, with none of the downside.