An investing legend does demography

Michael Steinhardt, 66, chairman, Jewish Life Network, Steinhardt Foundation.

By Corey Hajim, Fortune

(FORTUNE Magazine) -- During his 28-year career managing money, Michael Steinhardt averaged a gaudy 24% annual return for his investors, after fees. And though he retired from the business in 1995, the legendary hedge fund manager still has plenty to say about the market - among other topics.

Steinhardt spoke to Fortune's Corey Hajim recently about the outlook for stocks in 2007, his view on high fees at run-of-the-mill hedge funds, and a new study he funded at Brandeis University to count the number of Jews in the United States.

Stocks soared in 2006. Do you think the market is overheated?

This is not a period that is effusive. There is not much in the way of new issues; there is not much in the way of traditional speculation. There still remains a certain pall over America. It's as if we sort of anticipate, deep in our stomachs, that something bad is going to happen.

Do you think a correction is coming?

We have a big train in motion, and the train is clearly moving in a certain direction, and it's moving that way in most parts of the world. Who are any of us to say it will stop moving in that direction now? So the logic would be that the market would continue to go up. Bull markets don't end on a dime. Having said that, I am not comfortable with it. It goes back to intuition, which is why I am short a few S&P 500 futures. If that is speaking out of two sides of my mouth, so be it. But that's how I feel.

Do you think the hedge fund boom is sustainable?

Yes. But my question is, How do guys who run large hedge funds with performance that is anything but distinguished continue to happily roll along? Some of these guys confidently speak of a high-single-digit return, five percentage points over Treasury bills. Charging two [percent of assets] and twenty [percent of profits] for that is just absurd. I would make the case that some long-only, low-cost mutual fund managers should, even in bad markets, achieve better returns than most of the hedge funds.

The study you funded found over seven million Jews living in the U.S., almost 40% more than previously thought. How is that?

What this study shows is that there is a much larger number of Jews than heretofore believed, but the incremental number are mostly Jews who are not associated with any Jewish organization.

You've given $125 million to Jewish organizations, but you say you're an atheist. Why bother?

The founders of the state of Israel were almost entirely secular and proudly Jewish, so secularity is nothing to be ashamed of in the Jewish world. What I am interested in figuring out is how to create a renewed interest and a renewed excitement in an ancient tradition.  Top of page