Farallon Capital Management, L.L.C. is an Americaninvestment firm that manages capital on behalf of institutions and individuals. The firm was founded by Tom Steyer in 1986. Headquartered in San Francisco, California, the firm employs approximately 165 professionals in eight countries around the world. Farallon primarily manages capital for university endowments, foundations, and high-net-worth individuals.
History
Farallon was founded by Tom Steyer in January 1986 with $15 million in seed capital. Before operating out of a cramped H&F office, Steyer had worked for San Francisco-based private equity firmHellman & Friedman, as a risk arbitrage trader under Robert Rubin at Goldman Sachs, and in Morgan Stanley's corporate mergers and acquisitions department. Farallon made a name for itself by being one of the first hedge funds to raise money from a university endowment. In 1987, Steyer, who received his bachelor's degree from Yale, approached the university's endowment to allocate funds for Farallon to manage. The Yale endowment declined based on the fees charged by Farallon. David Swensen, Yale's chief investment officer, later came to an arrangement with Tom Steyer in which Farallon would initially manage an allocation of the Yale endowment for no fee. After Yale's investment proved to be lucrative, many other college endowments and pensions began to invest in hedge funds.
Investment strategy
Farallon claims to have pioneered absolute return investing, a model focusing on potential returns as well as risk adjusted returns. Absolute return investing "treats every investment—whether a residential mortgage, a common stock, or a parcel of land—as a bond, with an implied rate of return." Farallon invests in various asset classes including value investments, credit investments, merger arbitrage, real estate related investments, and direct investments in both developed and emerging markets. Farallon typically holds positions anywhere from two to five years. Farallon also practices "event driven" international investing, finding distressed international companies and helping the businesses restructure. In 1999, Farallon bought a direct stake in an Argentine shoe company, which it helped stabilize to profitability as Argentina recovered from an economic crisis. And in 2002, Farallon bought control of Bank Central Asia, an Indonesian financial institution, for $531 million. At the time, many of Indonesia's banks were on the verge of collapse because of bad loans made during President Suharto's leadership and the country was seen as dangerous for foreign investment. Over the next four years, Farallon installed a new chairman and made necessary reforms. After Farallon sold its stake for a profit in 2006, many other institutional investors began to look to Indonesia for returns. In the year before Farallon's investment in Indonesia, $286 million flowed into the country as foreign direct investment. After Farallon exited, that number grew to $1 billion in 2007 and $4 billion in 2008. According to Council on Foreign Relationseconomics fellow Sebastian Mallaby, "Farallon's investment was a blessing for Indonesia." According to Institutional Investor's Alpha, Steyer considers "himself as a research-oriented fundamental investor, not a trader." In March 2010, Farallon announced plans to refocus its investing on risk arbitrage and credit wagers and lessen its equity exposure. In addition, the firm said it would disclose more information to clients to "foster a more open culture at the hedge fund."
Investment vehicles
Farallon Capital Institutional Partners: for Farallon's institutional investors to invest in.
In 2006 it was reported that Farallon Capital was the largest hedge fund in the world in 2005. Steyer named the firm after the Farallon Islands off the coast of the San Francisco Bay Area.
Organization
Andrew J.M. Spokes acts as the firm's Managing Partner. Spokes was promoted to the position in 2012 when Steyer separated from the firm. Prior to his promotion, Spokes oversaw portfolio management and strategy for Farallon exclusive subadviser Noonday Global Management. Spokes opened Farallon's first international office in London in 1998. Farallon retains talent by giving enterprising professionals the opportunity to spin off and run new funds with Farallon capital. For example, former Farallon traders started Noonday Global Management and ChinaRock Capital using Farallon money and back office support. Today, Farallon has 21 principals, 13 managing directors and 35 investment professionals who oversee the firm's day-to-day operations and management.
