By Mike Tolson
Houston Chronicle Staff Writer
Houston hedge fund manager John Arnold, a major force behind Enron’s once-mighty energy trading operation and one of the city’s richest men, has decided to retire — at 38.
In a letter to investors that was not made public but quickly found its way to the nation’s financial press, Arnold said he was quitting in order to “pursue other interests.” While the commonly used phrase often connotes a forced resignation, in this case the hedge fund was the one he controlled, and reportedly more than half of its assets were his own.
A receptionist at Centaurus Energy said Wednesday that Arnold was not speaking with the media. She would not confirm his pending departure. Arnold is No 3 on Houston’s list of billionaires, behind Rich Kinder and Jeffrey Hildebrand, with an estimated net worth of about $3.5 billion.
In his brief letter announcing the closing of the Centaurus Energy Master Fund, Arnold praised his staff for building “the best infrastructure and models in the business.” He said the fund achieved results “better than I could have hoped for or imagined” and claimed that returns on investments were consistently good – “often in triple digits” – in part because his group was disciplined and remained focused on its core knowledge of the energy industry.
For all the fund’s success – it reported a down year only in 2010 – Arnold said it was time to move on.
“After 17 years as an energy trader, I feel it is time to pursue other interests,” he wrote.
Rarely gives interviews
Arnold has kept a low profile while gaining, and then managing, great wealth. He rarely gives interviews to the press and seems uninterested in self-promotion. His rare public comments have concerned trading matters and charitable endeavors involving his foundation.
Arnold made his name at Enron, where he was the star trader in a field where his company was the acknowledged leader. He had a reputation for placing large, smart bets that netted him and Enron huge profits. It was said that he received the largest bonus Enron ever bestowed on an employee.
Arnold’s investment pattern reportedly was repeated at Centaurus, which has been closed to new investors since 2005. In one example that has been often cited in financial publications, Arnold’s fund bet heavily on lower gas prices in 2006, opposite the position taken by commodities hedge fund giant Amaranth. Arnold was proved correct and his fund reaped what was reported as close to $1 billion in profits. Amaranth went out of business.
More time with family
Arnold, who was never implicated in any of Enron’s accounting irregularities or bad business choices, started his fund when Enron went under in 2001. He assembled some of its top traders.
His decision to devote his talent to different endeavors may reflect a growing passion for philanthropic work as well as a desire for more time with his wife, Laura, and their three young children. Laura Arnold is a Yale-educated lawyer and former corporate executive who sits on the boards of a number of local organizations.
Both have a longstanding interest in education and have been major benefactors of the KIPP charter schools. She served on the board of Teach for America, the national training program from which KIPP gets many of its younger teachers.
Among philanthropists, the Arnolds are the polar opposite of check-writers who are happy to support a good cause and happier still if their name ends up on the side of a building. In an article last year in the Chronicle of Philanthropy, the couple described how they decided to no longer engage in “mutual fund” giving, in which money is given across the spectrum to a wide group of worthy non-profits. Instead, they began to focus their efforts in specific areas that interested them and do their most to make a difference, which meant personal involvement.
They became interested in Barry Scheck’s Innocence Project, for example, and helped bring him to Houston to explain the organization’s needs. Not long thereafter, they paid for research into testing ways to reduce false identification in criminal cases.
They also began to focus on pension issues and have helped explore alternative forms of fund management. Like all their areas on interest, pension fund management in an era of financial stress does not lend itself to easy answers or one-size-fits-all solutions. The Arnolds have said repeatedly they are not interested in donating money for quick fixes.
“We have the benefit of being young, so we can look at very complicated problems,” John Arnold told the Chronicle of Philanthropy. “We have years to see these through.”
Signed Giving Pledge
In the small world of the Houston ultra-wealthy, the Arnolds cut a different profile. They are not on the political right – they have donated significant amounts to the Obama campaign and Democratic National Committee – and they do not seemed concerned about preservation of their wealth. They have signed the Giving Pledge, an effort promoted by billionaires Warren Buffet and Bill Gates to get wealthy Americans to commit to giving away most of their money before they die.
In leaving the hedge fund world to pursue other commitments, John Arnold may be simply following in his wife’s footsteps. She also had been professionally successful, then decided to take advantage of their success to do things she found more rewarding.
“I spent my life being ambitious,” she told the Chronicle of Philanthropy. “At some point, you realize that your highest and best use isn’t related to your personal work and your ambition. It’s related to the resources you’ve been given and your ability to make transformative change.”