Did Jeff Kong Get His $74 Million?


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Jeff Kong has officially joined Passport Capital.

This means the feud between him and his former boss, 2010’s best hedge fund manager, Don Brownstein, the physics professor turned founder of $2 billion investment fund Structured Portfolio Management, might be settled.

Kong had said that Brownstein owed him $74 million in performance-based compensation.

There are no clues about whether or not Kong got paid.

As soon as Kong sued, Brownstein, Kong’s former boss, filed a counter-claim. He sued Kong, SPM’s former portfolio manager and Senior Managing Director, for $10 million, according to the CT Post.

Brownstein and Kong had been feuding over Kong’s departure for Passport Capital shortly after Brownstein and his co-manager William Mok, his co-manager, made over $87 million last year when one of their funds gained 49.5% YTD in 2010, the year’s best returns, according to Bloomberg’s annual ranking.

Kong departed in May 2010 and *tried* to begin work at the San Francisco-based hedge fund in December 2010.

Months later, the fund has finally announced the hire, which leads us to believe that the claims might have been resolved. The big question is: Did Kong get his $74 million?


The feud was a big one. By publicly saying he’s owed $74 million, Kong basically announced that his winning strategy is the reason the firm performed so well (see right).

(For what it’s worth, Kong also claims that Brownstein walked around with a bat, said “I’ll kill you if you leave,” and “if you leave, it’s in a body bag.”)

Brownstein’s is another version of the story.

He says Kong broke a noncomplete clause. He’s suing for Kong to return a $5 million bonus from 2010 and a $5.8 million disbursement from the fund’s first-quarter profits of last year.



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Kong says Brownstein owes him $74 million, which he says covers his share of the profits he earned SPM.

There are a few issues at play here. First, the issue of Kong’s compensation.

Compensation for portfolio managers at hedge funds is usually structured so that portfolio managers share in the fund’s growth each year. If a $1 billion fund gains 50%, for example, that’s $500 million in total profits for the fund, which is split (typically) 80%/20% by the investors and fund managers.

To earn $74 million by typical standards, Kong would probably have had to have been the sole manager of the $1.2 billion Structured Servicing Holdings, which gained 134% in 2009 (he probably wasn’t; SPM founder/boss Brownstein (and perhaps Mok too) appears to co-manage every SPM fund), or the manager of multiple funds.

But it doesn’t appear that he is.

Brownstein and Mok are listed as the managers of the fund that earned +49.5%, SPM’s $1.2 billion Structured Servicing Holdings LP fund. Mok is also listed as the top manager of SPM Core, the firm’s ~$400 million mortgage-backed arbitrage fund. SPM Core gained 30.8% in 2010 and in 2009, gained 53.6%. And Mok also managed SPM Opportunity, which gained 100.2% in 2009 (and 30.8% in 2010).

Don Brownstein

The 50% dip in the fund’s returns might be explained by Kong’s departure, but it’s also likely to be the result of a less profittable year for distressed mortgage properties.Just two months ago, in January, Brownstein was celebrating earning the #1 best returns in Bloomberg’s annual ranking.

Little did we know there was internal strife going on with his partner, Kong, who took the back-burner as Don Brownstein got the media spot light beause he founded SPM.