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Wednesday
Nov242010

Who is Todd Deutsch? Background on Hedge Fund Star Named in Federal Insider Trading Probe

Here is a name that may -- or may not -- become much better known as federal authorities move forward in their vast investigation of insider trading: Todd Deutsch. 

Now, before saying another word, let me just make something clear: Todd Deutsch, who is a super successful hedge fund trader, has not been accused of any wrongdoing. He was simply mentioned in the Wall Street Journal article on November 20 that revealed the insider trading investigation. Specifically, the article stated:

Among hedge-fund managers whose trading in takeovers is a focus of the criminal probe is Todd Deutsch, a top Wall Street trader who left Galleon Group in 2008 to go out on his own, the people close to the situation say. A spokesman for Mr. Deutsch, who has specialized in health-care and technology stocks, declined to comment.

No doubt, that one sentence has turned Todd Deutsch's life upside down and he is probably now hunkered down with lawyers preparing to fight charges that may -- or may not -- materialize and which may -- or may not -- be true. It can't be easy being near the center of what the Journal said is a probe so big that it could "eclipse the impact on the financial industry of any previous such investigation." 

My purpose here is not to traffic in innuendo or imply that Deustch is guilty of anything. Nor do I want to invade his privacy at what must be a very difficult time. On the other hand, if Todd Deutsch is being investigated for good reason, he could well become the Dennis Levine of our time. And so people may rightly be wondering right now: Who is Todd Deutsch?

Here's what we know.

Todd Deutsch is in his late 30s. He was born in 1972, grew up on Long Island, and graduated from the University of Wisconsin in Madison in 1994. For years, he has been seen as a rising star in the hedge fund industry. He worked for Goldman Sachs and then a hedge fund named JLF Asset Management before moving to the Galleon Group, a hugely successful hedge fun run by Raj Raj Rajaratnam known for its investments in technology stocks. In August 2005, the Boring-est Blog mentioned Todd Deutsch, then 32, as real comer in the hedge fund world, quoting a colleague at Galleon as saying that Deutsch was "One of the three best traders in the industry." The article also said that "He's known for his tech and health-care stock-trading prowess" and estimated his annual income in 2005 at "$25 – $30 million."

The website aTrade characterized Raj Rajaratnam's Galleon Group this way at one point:

His firm has a slew of health-care and tech long/short funds that combine fundamental research and savvy trading to capture both long-term and short-term gains. Rajaratnam personally manages close to $2 billion, and those funds collectively returned 15.6 percent last year. Finally, add in a taste of the Galleon Group's overall action (the firm has $4.2 billion in assets), and Raj is rocking -- as are his main traders."

Todd Deutsch became better known in early 2006 when Trader Monthly magazine ranked him 51st on their list of top 100 traders for 2005 and estimated his income at $40 to $50 million that year. Deutsch got more attention in September 2006, when The Wall Street Journal reported that the $800 million Captain’s Offshore Fund, which he ran for the Galleon Group, was up more than 30 percent with investments in drug stocks and the retailer Best Buy. Ultimately, Todd Deutsch's Captain's Offshore Fund ended 2006 with returns of 44 percent. His earnings that year were estimated at $75 to $100 million.

In other years the fund earned returns of over 50 percent and his overall annualized returns during his eight years of leading Captain's Offshore Fund was reportedly 20 percent. He was said to have done even better when he was at JLF Asset Management, with returns of over 60 percent in some years. 

So it was not surprising that Todd Deutsch got high praise in 2007 in the blog 1440 Wall Street: "Todd Deutsch of the Galleon Group is one of the biggest rockstars on Wall Street. Born and bred to be in the business, he is the Tiger Woods of equities, racking up huge gains over the past few years."

The subject of that article, however, was Deutsch's difficulties at the Galleon Group during a period when the Captain's Offshore Fund suffered significant losses -- ending the year ultimately down 25 percent. The article was titled: "Todd Deutsch finally hits an air bubble."

Todd Deutsch left Galleon Group in June 2008, before that firm crashed and burned in an insider trading scandal. His stated reason was to take some time off. The Captain's Offshore Fund was closed after Deutsch left Galleon. Not long after, Todd Deutch began working to start his own hedge fund and reportedly approached some former colleagues at Goldman Sachs about the venture. 

Todd Deutsch's new hedge fund, launched in the first half of 2009 with some $210 million in start-up investments, was called Bascom Hill Partners -- named after a large hill that lies at the center of the University of Wisconsin-Madison. Gregg Moskowitz, another trader from Galleon, joined Todd Deutsch in this new hedge fund. It started trading in August and was based in offices on East 55th Street in Manhattan -- walking distance from Todd Deutsch's $2.5 million apartment on the 33rd floor of a tower located near the East River. 

The Galleon Group became embroiled in scandal in 2009 and closed its doors in October of that year. Todd Deutsch was not implicated in any wrongdoing at the firm. 

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December 6, 2010 | Unregistered Commenterhermes
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