Victor Niederhoffer

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Victor Niederhoffer

Victor Niederhoffer, a well known hedge fund manager, champion squash player and statistician studied statistics and economics at Harvard University (B.A. 1964) and the University of Chicago (Ph.D. 1969). He was a finance professor at the University of California, Berkeley (1967-1972). In 1965, while still at college he co-founded with Frank Cross a company called Niederhoffer, Cross and Zeckhauser, Inc., an investment bank which sold privately held firms to public companies. This firm is now called Niederhoffer Henkel, and is run by Lee Henkel, the former general counsel to the IRS. Victor pioneered a mass marketing approach in investment banking, and did a large volume of small deals at this firm. Niederhoffer also bought many privately held firms with Dan Grossman, his partner during this period.

As a college professor in the 1960s and 1970s, he wrote numerous influential academic articles about market inefficiencies which led to the founding in 1980 of a trading firm, NCZ Commodities, Inc. (aka Niederhoffer Investments, Inc.). The success of this firm attracted the attention of George Soros. Niederhoffer became a partner of Soros’ and managed all of the Fixed Income and Foreign Exchange from 1982-1990. [1] Soros said in The Alchemy of Finance that Niederhoffer was the only one of his managers who retired voluntarily from trading for him while still ahead. In fact Soros held Victor in such high esteem, that he sent his son to work for him to learn how to trade. [1]

Contents

[edit] Returns

Niederhoffer Investments returned 35% a year from inception through 1996, when MAR ranked it the No. 1 hedge fund manager in the world. In 1997 Victor published a NY Times bestselling book, The Education of a Speculator.

[edit] 1997 Losses

In 1997, Niederhoffer Investments was not finding many opportunities for investment, and having returned much of its funds to customers such as George Soros, began investing the remaining 100 million dollars in areas where Niederhoffer later admitted that he did not have much expertise. [2] Niederhoffer decided to buy Thai bank stocks, which had fallen heavily in the Asian financial crisis, his bet was that the Thai government would not allow these companies to go out of business. On October 27, 1997, losses resulting from this investment, combined with the largest one day drop in the history of US markets (7.2%) forced Niederhoffer Investments to close its doors. In a lawsuit Niederhoffer later filed in the U.S. District Court for the Northern District of Illinois against the Chicago Mercantile Exchange, where he traded options, he alleged that floor traders colluded to drive the market down that day to force him out of his positions. Traders at the time said Refco may have been responsible for as much as $35 million of Niederhoffer's losses.[3]

[edit] New Fund

Since closing down his fund in 1997, he began trading for his own account again in 1998, after mortgaging his house and selling his antique silver collection. This original fund is called Wimbledon Fund, the name reflecting his love of tennis. He began managing money for offshore clients in February 2002, with the Matador Fund. Niederhoffer employs proprietary programs that predict short-term moves using multivariate time series analysis. In the five-year period since 2001, Victor Niederhoffer's fund has returned 50% a year(compounded). His worst year in this period was 2004 returning 40%, in 2005 he returned 56.2% (as reported in eFinancial News). On April 6, 2006, the industry group MarHedge awarded [4] Matador Fund Ltd. And Manchester Trading, two funds managed by Niederhoffer the prize for best performance by a Commodity Trading Advisor (CTA) in the two years 2004 and 2005.

From 2000-2003, Niederhoffer co-wrote with financial writer Laurel Kenner a widely read weekly column on the markets for CNBC MoneyCentral.[5] He and Kenner co-wrote Practical Speculation (John Wiley & Sons, February 2003), called "the best trading book of the young millennium" by Active Trader magazine. Niederhoffer's life story, and the lessons he learned growing up that helped him become a success were told in, the 1997 best-selling book The Education of a Speculator.

On his website[6] Niederhoffer claims to be proudest of having had “a benevolent influence” on people that came in contact with him. At least a dozen employees whom he started out or taught became billionaires or multi-centimillionaires, including Monroe Trout, Toby Crabel, Stu Rose, John Hummer and Roy Niederhoffer (Victor's younger brother), all of whom are famous in money management or M&A.

Victor Niederhoffer is famous for hiring young and extremely bright traders, whom he mentors. He encourages them to develop their own trading strategies, and runs his firm more like a science lab than a traditional trading firm.

[edit] Squash

Niederhoffer is one of the greatest hardball squash players in history, and is a member of the squash hall of fame. [7] Niederhoffer who had played racquet sports all his life growing up had never played squash when he entered Harvard University in 1960. One year later he won the national junior title and by the time he graduated, Niderhoffer was the National Intercollegiate squash champion. He won the U.S. Nationals five times (a record exceeded only by Stanley Pearson who won his sixth in 1923). He also won three national doubles titles. In 1975, he defeated one of the greatest players in the history of the game Sharif Khan in the final of the North American Open (the only time that Khan failed to win the title in the 13 year period between 1969 and 1981).

[edit] Other Activities

Niederhoffer is also the founder of the NYC Junto, a libertarian group hosted on the first Thursday of every month since 1985. He is a devoted follower of Ayn Rand. The NYC Junto focuses on libertarianism, objectivism and investing and was inspired by the Junto hosted by Benjamin Franklin in Philadelphia from 1727 to 1757. He has six daughters, Galt (named after Sir Francis Galton), Katie, Rand, Victoria, Artemis and Kira. His son Aubrey (named after the main character from the Aubrey Maturin series of novels by Patrick O'Brian) was born in May 2006.

[edit] Bibliography

[edit] References

Sawyer, Nick. "The iconoclast of Brooklyn", Profile, Risk magazine, March 2004. Retrieved on 2006-09-18.

Sweeney, John. "Interview: Victor B. Niederhoffer - Music of the Markets", Stocks & Commodities magazine, April 2001. Retrieved on 2006-09-05.

[edit] Notes

  1. ^ a b Niederhoffer, Victor (1997). The Education of a Speculator.
  2. ^ Niederhoffer, Victor (2003). Practical Speculations.
  3. ^ Robison, Peter. "Bennett's Refco Scheme Exposed by Late-Night Hunch", Bloomberg, October 27, 2005. Retrieved on 2006-09-18.
  4. ^ "MARHedge Performance Awards 2006: Winners", Marhedge, April 7, 2006. Retrieved on 2006-09-18.
  5. ^ Contributors:Bios. MSN Money (2006). Retrieved on 2006-09-18.
  6. ^ Niederhoffer, Victor (2006). About Us. Retrieved on 2006-09-18.
  7. ^ Victor Niederhoffer: Opened up Squash. Squashtalk (2006). Retrieved on 2006-09-18.

[edit] Personalities of Wall Street

See List of personalities associated with Wall Street.

[edit] External links

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