As vice chairman and chief legal officer for Millennium Management, one of the world’s largest hedge fund managers, Simon “Sy” Lorne, ’70, spends a lot of time making sure things are done in a proper, lawful, and ethical way at the firm. Oddly enough, it was a suggestion of regulatory malfeasance at Millennium some 15 years ago that led to Lorne’s job being created there and his hiring.
Ultimately, Millennium settled the question of wrongdoing, but a lot of investors withdrew their money and went elsewhere. Lorne had some simple marching orders.
“The word given to me was, ‘Solve this problem and make sure we never have it again,’” Lorne recalls.
Lorne shrugs off talk of pressure, though he admits banks and major financial institutions can weather fines and government charges better than hedge funds partly due to the sensitivity of funds to reputational concerns in some quarters.
“If any hedge fund—including ours—were to have a significant government penalty, it would have to look at the very real possibility of being out of business because investors are concerned about the reputation of hedge funds and all of the investors have the right to withdraw all of their money over time,” he says.
What brings Lorne comfort is that if he and his employees in the legal or compliance departments conclude that something has too much of a compliance risk, “then Millennium isn’t going to take that risk.
“It’s a two-edged sword: more risk, but more authority and respect given to the control function than you’ll find in other institutions,” Lorne says. “And I find that enormously liberating. I don’t need to worry about whether we’re going to do something that I find inappropriate. If I find it inappropriate, we’re not going to do it.”
Lorne was an economics major as an undergrad, and like some law school graduates, wasn’t sure whether to pursue an MBA or a JD. He ultimately decided that a law degree gave him more options in his professional life.
“When I went to law school, I had in the back of my mind the notion that I would not be a lawyer but in fact would one way or another go into finance,” he says. “Turned out I kind of fell in love with the law and ended up marrying the two.”
After graduation, Lorne spent time at Munger, Tolles & Olson LLP (becoming a partner in less than three years), and later at Salomon Brothers as global head of internal audit. When Salomon became Travelers Group, he was a managing director and senior member of the general counsel’s office. When Travelers was acquired by Citigroup, Lorne coordinated the global compliance functions. He also served as general counsel of the U.S. Securities and Exchange Commission (SEC) from 1993 to 1996.
Millennium has about $35 billion under management and has more than 2,000 employees worldwide. Lorne oversees the legal, compliance, and internal audit departments, and a portion of the public relations function. He has about 70 employees reporting to him.
Depending on the day, Lorne says challenges typically come at him from a couple of different directions. One is when Millennium might want to start a new fund, or considers trading in a different market, or starts to develop a different trading function, like commodities, that it hadn’t done much of before.
“A new initiative in the firm requires analyzing what kind of regulatory structure is involved, what kinds of risks are coming up, how we respond to those risks, and what kinds of controls we need to establish,” Lorne says.
The other challenge that Lorne encounters often is new laws or new areas of inquiry by the SEC. He says he pores over financial newspapers daily and studies the analyses of financial law initiatives by different regulators around the world, and particularly enforcement actions—especially with novel or different theories—that are brought by regulators in the United States, Europe, or Asia.
“I think about whether the activity they’re challenging is something similar or related to what we’re doing at Millennium and if so, what kinds of controls we should establish to cover that, what kind of educational programs we should develop, et cetera,” Lorne says.
At Millennium, Lorne says “tone at the top” and culture are “critically, critically important” to remaining a highly ethical organization. He once reviewed a code of ethics at another firm that was 30 pages long. “It was very nice, but I can’t get people to read 30 pages,” Lorne says. “It might be good, but not for a portfolio manager moving at 100 miles per hour.”
Millennium’s code of ethics is less than a page. It basically tells employees to do the right thing, obey the law, and if someone has a concern, to ask a question.
“We spend a lot of time thinking about how to be effective in setting the culture of the firm, and making sure that the 2,000-plus people in various parts of the world understand that this is our culture and we care about it very much,” he says.
For the past four to five years, Lorne has been actively involved in the Alternative Investment Management Association, an education and advocacy group that works to promote greater understanding and acceptance of alternative investments such as private equity, managed futures, real estate, commodities, derivatives contracts, and hedge funds. Lorne currently serves as its chairman.
“I care about the reputation of the hedge fund industry for the hedge fund industry’s sake because I’m part of it,” he says. “If I can help make it more effective, more well received by regulators around the world, then we’re all better off.”