Michael Steinhardt

Michael Steinhardt is a prominent investor best known for founding one of the earliest hedge funds in 1967. Steinhardt, Fine, Berkowitz, and Co. achieved impressive returns in the 1960s through the early 1990s. He later stepped away from the industry to focus on philanthropic pursuits before returning to become chairman of Wisdom Tree Investments in 2004.

Michael Steinhardt was born just outside of New York City in 1940. His father, Sol, was a jeweler and notorious gambler with reported ties to organized crime. He would also become one of his son’s earliest clients after Michael raced through high school and the Wharton School of Finance, graduating at the age of 19. Michael’s first position after Wharton was in the research department at Calvin Bullock, followed by Loeb Rhodes and Co.

In 1967, Steinhardt and two partners founded Steinhardt, Fine, Berkowitz and Co., one of the earliest significant hedge funds. The fund would achieve nearly 25% returns over the next quarter-century. His two partners departed in 1979, and the firm was renamed Steinhardt Partners. The firm’s success continued, and Steinhardt would be known as one of the prominent traders in Wall Street history.

Steinhardt’s success relied on a few simple points: remain versatile, watch macro trends, and trade for the short term. In his early years, he was an aggressive short seller, staying true to the “hedge” part of a hedge fund by protecting long positions with accompanying shorts. His management style earned him notoriety as well - he became known for rough treatment of employees and for a short temper that would appear after disappointing results.

Such disappointments were rare as Steinhardt Partners entered the 1990s. The hedge fund industry was booming and its managers, Steinhardt included, were enjoying celebrity status on Wall Street. This status brought attention to the industry, including whispers about corner-cutting by the often secretive fund managers. The SEC launched an investigation of U.S. Treasury bill trading by a handful of large funds in 1991. The inquiry led to a record-breaking round of fines for Steinhardt, Salomon Brothers, and Bruce Kovner in 1994. That same year, Steinhardt Partners lost over 30% on trades of foreign bonds. Michael Steinhardt recovered much of those losses over the next year but eventually closed the fund in 1995 to focus on philanthropy.

Steinhardt returned to Wall Street 2004 as a major investor in, and eventually Chairman of, Wisdom Tree Investments. The firm offers exchange-traded funds based on alternative indexation - the practice of creating indices that underweight stocks that do not meet specific fundamental standards.