A California hedge fund bulldozed state labor laws, imposed harshest noncompetes
businessinsider.com
businessinsider.com
> In 2018, Voleon had a return of 14% during a market turndown where the S&P 500 index dropped 6.2%. However, in 2019, its returns dropped to 7%, below the returns of its hedge fund peers of 9.2%. In 2020, Voleon's flagship fund lost 9%.[6][8]
Given their returns, how do they have 7.6 billion AUM?
They are called “hedge funds” because, as opposed to other stock funds they were allowed to take short positions while mutual funds could not, and so they could hedge some of their risk.
Not possible. Even the greatest mutual fund manager in the history of the world, Warren Buffet, has beat the market only 39 out of 58 years.
https://en.wikipedia.org/wiki/Hedge_fund#Etymology
"Early hedge funds sought to hedge specific investments against general market fluctuations by shorting the market, hence the name.
Nowadays, however, many different investment strategies are used, many of which do not "hedge" risk."
They're still not generally designed to beat the S&P 500, always.
As someone else is pointing out that's very close to the intended behavior of hedge funds. Entities with money in hedge funds also have money in indexes. They aren't necessarily looking for just "the market, but more" they want uncorrelated behavior to hedge their exposure.
Am I missing something? Don't most of these funds under-perform index funds over the long and even medium term? The idea that they wouldn't have customers if this were the case is another Econ 101 fantasy. It's like any pyramid scheme, just with better record-keeping and marketing.
In a statement to Insider, a Voleon spokesman said:
"Like most hedge funds, in order to protect its most sensitive intellectual property, Voleon requests that select employees sign noncompetition agreements. Voleon's non-compete agreements are not a condition of employment. Those who sign it will receive a paid garden leave. Those who haven't signed it remain employed at Voleon, but may not receive access to the most sensitive intellectual property."
The Voleon ex-employees who spoke to Insider said their noncompete agreements did not provide paid leave. Ex-employees and other sources close to the firm said the unpaid noncompetes have been applied broadly — including to people who say they had little exposure to the firm's secret sauce. They described the firm's noncompetes as a de facto condition of employment and said the firm was taking measures to restrict employees from joining competitors as recently as this year.
My current non-compete is in the finance industry and uses paid salary during garden leave as a way of avoiding non-compete laws. Nobody esp cares whether it is legal since its a year or two paid vacation.
More often than not they will quite happily waive the non-compete and the pay - a sensible arrangement for all concerned.
Sounds ripe for abuse.
Sort of. Traders have successfully sued when screwed on a formulaic bonus. If it's discretionary, and historically didn't follow a formula, an employee has much less to stand on.
I can claim with full certainty that comp is entirely discretionary and is not beholden to any "percentages". They pay you min(market worth, amount to make you stay) - and those figures are reviewed every year.
Percentages only apply to discretionary traders who are allocated a book to trade. They get to keep a certain percentage. For everyone else, especially techies and researchers, it's discretionary.
One edge case for deeply-imbalanced power relationships is expressed in the writings of classical Italian advisor Machiavelli, and more recently in the US in the book "48 Laws of Power" by Robert Greene.
Like, in Silicon Valley? https://www.youtube.com/watch?v=LOmbOfJLTKc
In a nutshell, severability clauses may not save an employment contract plagued by illegal terms (in the case above, related to mandatory arbitration). In California at least, the presence of unconscionable terms can render the entire contract unconscionable when viewed as a whole.
They were super cagey about the non-compete. They claimed it was optional and offered additional salary if you signed it, but it sounded like it wasn't. They also claimed it was narrowly applied, and now it looks like that wasn't true.
Clearly dodged a bullet with that one.
The previous section of the B&P code (16600) can be found at [https://leginfo.legislature.ca.gov/faces/codes_displayexpand...] specifically [https://leginfo.legislature.ca.gov/faces/codes_displaySectio....] which makes it illegal to restrain anyone from trade (which includes non-compete). No civil violations, but if you suffered an injury due to such a clause, then you could probably sue over it. Just way less clear, and also way less clear you could get things like attorneys costs - which the new law makes a thing.
It also adds a section making any such contract signed elsewhere unenforceable in California (how that would play out in Federal Court still TBD. Seems unlikely to go well though).
[https://www.littler.com/publication-press/publication/califo...]
The actual damages payouts probably wouldn't be great (as, at best, you've got the employee's salary over the period of their unemployment due to thinking the noncompete was binding), but for a trivial amount of work ("Your honor, here's the employer's signature, here's the illegal noncompete clause, No further arguments"), it could be a half decent cash flow for the lawyers. Not sure if it's legal to kick back legal fees to your client, but if so, that might work.
The exceptions I'm aware of are:
* Voleon could claim that Delaware law applies. They'd have a tough case since they have literally no presence in the state - they're just a Delaware LP (like most hedge fund management companies). But, as the article noted, this works only if the employee had an attorney review the agreement. And even if that did happen, recent cases in Delaware suggest that Delaware might still rule that California law applies: https://www.mofo.com/resources/insights/230331-delaware-case...
* If Voleon pays its employees through a K-1, basically giving them shadow equity, then you could argue that the employees are LLC members or limited partners and that the non-compete is enforceable. But Voleon doesn't do that.
* Really, Voleon seems to be putting most of its weight on the (totally bogus) argument that the non-compete is voluntary. Telling that the spokesperson wouldn't say how many employees, particularly at higher comp levels, actually chose not to sign.
Where exactly are they going to go? There's a reason they're clustered around NYC, similar to how big tech clusters around SV.
A Voleon spokesman:
> Those who sign it will receive a paid garden leave.
Voleon ex-employees:
> Voleon ex-employees who spoke to Insider said their noncompete agreements did not provide paid leave. Ex-employees and other sources close to the firm said the unpaid noncompetes have been applied broadly — including to people who say they had little exposure to the firm's secret sauce.
According to a Voleon ex-employee, which also matches my understanding of this industry:
> They will defend that noncompete by saying more and more firms have two years. The trick is: And yes, they pay you something when they make you sit out of your career.
If you have negative opinions of the finance industry in general, I can't do much but remind you that it's a large and varied industry and that your opinions are priors you should expose to relevant data.
Moreover, it raises the question of who truly benefits from these charitable contributions. For example, Ikea is owned by a charity for tax optimization purposes. The mission of the charity is to promote interior design and architecture. Essentially, strategic investments that will ultimately benefit Ikea itself in the long run.
I wonder how this article is going down in the Berkeley stat department...
In any way you look at it, a business using non-compete clauses is trying to have the employees bear the weight of questionable business practices.
Companies want to have their cake and eat it too: no, you can't work for someone else, and no, we're not gonna compensate you for that.