Even for the most extra-ordinary skier, neither acumen nor experience can prepare oneself for the mortal threat of an avalanche. Philippe Jabre learnt this last year.
In February 2005, Jabre, then the star trader for London hedge fund GLG Partners, was skiing in Courchevel with his wife Zaza, a client and two guides when a huge mass of snow rapidly descended upon them. When the avalanche hit, his wife was submerged. Jabre and his companions spent 23 minutes trying to find her and dig her out, with the odds of her survival dwindling by the minute. Miraculously, she survived, capping her recovery in January with a return to the slopes at the French ski resort where they own a home.
Jabre also faced down two powerful forces in his professional life in 2005 that threatened to submerge him. The first was a near-cataclysm in the credit market that put his GLG Market Neutral fund down 18% through May. The fund posted a remarkable recovery, capped by a double-digit return in December that put it up 5.47% for the year.
The second was the UK Financial Services Authority’s investigation into his February 2003 trades in Japan’s Sumitomo after he received information about a coming convertible-bond deal from Goldman Sachs. It was the most high-profile regulatory probe in the history of the London hedge-fund community.
The latter reached its conclusion this week, with the FSA’s Regulatory Decisions Committee deciding to fine Jabre and his former firm GLG £750,000 apiece, determining that the trader and, in turn, his firm violated market conduct and committed market abuse.
The fine against the 45 year old Jabre was the largest ever meted out to an individual. Despite the penalty, the RDC ruling marked the third time Jabre evaded a dreadful fate. The judicial panel decided that Jabre did not deliberately commit market abuse, ruling that he did not violate the FSA’s Principle 1 governing market integrity. Against the FSA regulators’ recommendation, the RDC opted not to ban or suspend Mr Jabre.
That he emerged with his license intact can be seen as miraculous in some regards. When the two-year investigation came to light last year, it seemed to many in London’s hedge fund set a clear-cut case that would end with Jabre’s head on a platter. As the investigation wore on, the details became less clear, as is often the case regarding the nebulous terrain of information exchanges between investment banks and hedge funds.
The decision ensures that Jabre, for two decades a prominent fixture in London’s investment community, will have a third act – the first being the spectacular success, the second his near-demise under regulatory scrutiny and the third his potential return to running money. The course of the third act may not go smoothly. He will not be returning to GLG and he must re-register to run money if he plans to start a new fund – meaning the FSA once again holds the key to his future.
Jabre was not available for comment. But several prominent individuals in the London hedge fund community said that whatever the outcome, the third act will be as closely followed as the first two because of his stature.
“Philippe is a hedge fund legend,” said a manager at a London fund that operates some strategies similar to GLG. “He is a born money-maker, and there are very few of those out there, even in the hedge fund world.”
Jabre’s personality, according to those who know him well, is that of the quintessential hedge fund manager, only more so. The price of a ticket to this world is an extreme degree of competitiveness, high intelligence and innovative thinking. Jabre established a reputation at a young age in the London investing community as both a risk taker and a brilliant trader. He earned an MBA from New York’s Columbia University in 1982, trained at JPMorgan and soon made his way to BAii, a division of BNP, the French Bank. In his 16 years there, he specialized in the budding market for convertible arbitrage, a strategy that involved buying a company’s convertible bonds and selling short the company’s stock.
Jabre acquired a reputation among critics for operating aggressively. In 1997, he joined GLG Partners, a hot two-year-old hedge fund started by former Goldman Sachs bankers Noam Gottesman, Pierre LaGrange and Jonathan Green. It was developing a reputation as a player in the burgeoning London hedge fund industry, in part on the strength of its access to new offerings, and Jabre’s convertible arbitrage brought a new dimension. “It’s ironic now, given the investigation, but one of GLG’s big moves toward legitimising themselves as a firm was getting Philippe,” said one hedge fund manager who was active in the 1990s.
Jabre’s Market Neutral fund grew to more than $4 billion at its peak, returning 23.1 per cent returns on average after fees between 1998 and 2005. According to individuals familiar with his investing style, Jabre’s ability to beat the benchmark by 18 percentage points a year on average was his push to move away from convertible arbitrage and toward more opportunistic trading across various asset classes.
GLG helped Jabre, who has four children, become a rich man, with his personal fortune estimated at £180-£200 million, enabling him to concentrate on charitable efforts, including a focus on Lebanese causes.
However, the two-year FSA investigation caused an irreparable strain in the relationship between GLG’s senior ranks and Jabre. Individuals familiar with the firm say GLG came to view Jabre as someone who took unnecessary risks. One individual described the rift as akin to “a rock group that becomes huge, where their success leads to their eventual break-up”.
While Jabre officially remains on leave, individuals say he will not return to GLG. Jabre will almost certainly look to raise money for his own firm. Some individuals say the FSA could decide to block any attempt by him to set up a new fund in London. But other hedge fund industry participants, however, say the FSA would grant him approval since the RDC did not suspend him.
And no one is questioning Jabre’s continued ability to attract investors. Said one hedge fund manager: “Somebody was asking me the other day whether he could raise money if he starts running his own hedge fund. My God, he’ll almost be killed in the rush.”
Stephen Schurr is the London-based hedge fund correspondent for the Financial Times. Copyright 2006 The Financial Times Limited