In Larson He Trusts
Jeff Larson is back at work, which is saying something. In July 2007, the Boston hedge fund manager lost $1.5 billion in a matter of days, and it seemed he might never sell a security again. Larson’s crucial misstep: He bought corporate bonds on margin, meaning he borrowed a lot of money in an effort to buy even more bonds. But the bonds tanked when the credit market froze last year, and though Larson’s move didn’t wipe out his investors, he did have to close his ﬁrm, Sowood Capital; ﬁre 90 employees; and give up his Back Bay ofﬁces. "A loss of this magnitude is as devastating to us as it is to you," he said in an apologetic conference call with his clients, which included Harvard University, the Boston Foundation, and the state pension system.
Larson spent the following months talking to people who had survived—or avoided—similar financial calamity, and decided a little disaster shouldn’t scare him away from the field he loves, according to a person from Larson’s inner circle. In May he quietly opened a firm called Larson/Kelleher Capital with a far more modest stature than Sowood’s: It’s just him, a partner, and six employees in a one-room office in Wellesley. He manages his own money now, along with that of some close partners—a sum a source pegs at between $50 million and $100 million, far less than the $3 billion–plus from endowments, foundations, and pension plans that he had invested at Sowood. And this time, he’s not borrowing anything.
Like most of those in his business, Larson doesn’t talk to the press. But when Reuters reported this July he was "leaving no stone unturned" in pursuit of investors in the new ﬁrm, Larson was furious, the insider says. Rather, Larson is focusing on his work, not marketing himself. "He just wishes people would stop paying attention to him," the insider says.
That’s not likely to happen, but his peers do seem to be watching with sympathy. Jonathon Jacobson, who worked with Larson at Harvard and now manages his own $12 billion fund, says Larson impressed people by the way he ended things at Sowood: meeting with investors, finding new jobs for his employees. "Most others would have attempted to stay in business. Had Jeff done so, his investors likely would have been completely wiped out," Jacobson says. "You really see the measure of a man when the chips are down." Larson’s job now is to show he can still make the smart bets.