Editor's Note: Ever wonder about the inception of Hedgeye? How did this all start?

Hedgeye CEO Keith McCullough's memoir Diary Of A Hedge Fund Manager chronicles the life and business insights McCullough learned on his way "from the top, to the bottom, and back again." The following is a free excerpt.

EXCERPT: Diary Of a Hedge Fund Manager  - 719CDZkYguL


The recruiter’s message was garbled and vague: Large, well-known private equity player looking to launch multi-strategy hedge fund.

It was late November 2006. I already worked for a large, well-known hedge fund firm, Magnetar Capital. Magnetar was launched in April 2005 by a 39-year -old numerical savant named Alec Litowitz, formerly the Head of Equities at Citadel Investment Group and considered to be a master of merger arbitrage. Litowitz had joined forces with ex-Glenwood Capital Partners president Ross Laser. Man Group Plc had acquired Glenwood in 2000, producing a nice windfall for Laser; Litowitz, meanwhile, had been producing handsome profits at Citadel.

Together, the two set up headquarters in Evanston, Illinois, outside Chicago and not far from Northwestern University. Magnetar opened its doors for business with $1.7 billion in assets under management. At the time, it was one of the largest hedge fund startups ever. Less than two years later Magnetar’s assets neared $4 billion, it had expanded its reach to open offices in New York and London, and it was charging after numerous forms of portfolio strategies not limited to merger arb or equities.

Around the time Magnetar was forming, I launched, along with my partner Harry Schwefel, a hedge fund management company called Falconhenge Partners, and a flagship hedge fund of the same name. We put up some impressive numbers, which eventually came to the attention of Laser, who proposed folding our team into Magnetar.

Laser wasn’t alone in his pursuit during the first half of 2006. Dan Och of Och-Ziff Capital Management was also courting Harry and me. Deciding which offer to take put us in an enviable position, although it was still a difficult choice. In May 2006, we chose Magnetar.

The recruiter called not long after I’d joined Magnetar’s New York office, and I wasn’t looking to leave. So I ignored the message.

Most Hedge fund portfolio managers (PMs), if they’re any good, can expect to hear from a headhunter now ands again, perhaps every other month. In the latter half of 2006, with hedge fund mania spiking, it seemed like I was getting calls from PM-seeking recruiters every other week.

Later that same November afternoon, the recruiter called again, and I let her go to voice mail again. This time she mentioned the name of the firm looking to get into the hedge fund business: The Carlyle Group

After the close, I called her back.