66 | FORBES ASIA APRIL 2018I
t’s late December and Joseph Edelman is onstage at the rootop
bar at Manhattan’s Dream Downtown hotel. With gin-infused
cucumber cocktails lowing and the Manhattan skyline glitter-
ing through the windows behind him, Edelman is strumming
his sunburst Fender Stratocaster and belting out a credible cover of
Elvis Costello’s “Pump It Up.” It’s Perceptive Advisors’ annual holi-
day party, and Edelman’s performance is something of a victory lap.
His lagship fund is up 41 % net for 2017.
Hedge fund managers typically distinguish themselves in difer-
ent ways—how much money they manage, the total amount of fees
they earn or their personal wealth. Edelman manages $ 3 .8 billion,
serious money but far less than other, more famous hedge funds.
And while Edelman recently joined the three-comma club with a
$1.1 billion net worth, he is outranked by at least 45 other hedge
fund managers tracked by Forbes. Edelman’s Perceptive Life Sciences
hedge fund’s claim to fame is its astounding long-term performance.
Its annualized 3 0.2% net-of-fees return since its inception in 1999
is the best among all human-managed hedge funds—even beating
David Tepper’s Appaloosa Management’s 25 % annual return since
1993. For Edelman it represents a more than 13 0-fold return.
“It is nothing short of extraordinary, and Joe has done it out of
the limelight,” says Leslie Lake, a longtime Perceptive Life Scienc-
es investor who manages $1.5 billion of hedge fund investments at
Invus Financial Advisors. “Over 18 years it’s not random. here is
something in his DNA.”
At 62, Edelman is not well-known outside of the narrow area of
biotechnology investing. But in the world of clinical data and end-
points, he’s a rock star whose success has enabled him to charge
his limited partners a management fee of 3% of assets and 25 % of
proits. He cares little about size: “I want a really good track record.
hat is my scorecard,” he insists. And he believes his edge is derived
mostly from his understanding of the idiosyncrasies of human
behavior.
As a teenager, Edelman spent summers in the company of fa-
mous scientists like two-time Nobel Prize winner Linus Pauling
while working at the laboratory of his father, Isidore Edelman, ini-
tially a professor at the University of California, San Francisco, and
eventually chairman of biochemistry and molecular biophysics at
Columbia University. “I learned to have an appreciation for the sci-
entiic method. It’s a way of thinking, and a certain level of skepti-
cism that you need,” Edelman says.
Ater studying psychology at UC San Diego, Edelman pursueda graduate degree in pharmacology but abandoned it in 1980 to
move to New York City with a vague notion of combining science
with business. He got his M.B.A. at New York University in 1987,
ater studying part-time while working as a bookkeeper at an ac-
tors’ union. His next stop: Wall Street, as a research analyst cover-
ing biotech.
Edelman struggled in that position, because he was unable to
form consistent opinions. He kept focusing on probabilities and
changing his mind. “I think the stock is going higher but not that
much—you can’t publish stuf like that on the sell side,” Edelman
says of his days at Prudential Securities.
What Edelman really wanted to do was manage money. He
took a job at a small hedge fund and then started Perceptive Advi-
sors in 1999 ater he was able to raise $ 3 .5 million from friends and
a hedge fund manager. His timing was perfect. In his irst year—in
the midst of a bubbly bull market that catapulted biotech stocks up
102 %—Perceptive returned 129 %.
With that gale-force wind at his back, Edelman has been buying
and shorting small-to-midsize biotech stocks ever since. As with
other funds devoted to the sector, his staf is stacked with doctors
and Ph.D.s in biological sciences. But there are a lot of scientiical-
ly trained geniuses parsing data on Wall Street these days. Edelman
claims his edge is his training in psychology. It’s why he named his
hedge fund Perceptive Advisors.
“Psychology is very important. here is perception and reali-
ty. Biotech stocks are driven by whether a drug works, if it will be
approved and if it will sell more than consensus,” Edelman says.
“hat’s an eight-year process. here are a few single days of events.
Everything else is a perception of that event.”
For Edelman it’s all about understanding the biases of mar-
ket participants. He views the stock market like a poker game: “If
a hand is going well, that doesn’t mean you shouldn’t bet more as
subsequent cards are played, even though the ‘price’ of participating
has gone higher as the pot gets bigger,” he says.
He is obsessed with the idea of repeat surprise—that a negative
surprise is oten followed by more negative surprises and that posi-
tive surprises also occur in streaks. Edelman ofers his biggest posi-
tion, Neurocrine Biosciences, as an example. Last year the compa-
ny’s Ingrezza became the irst drug approved by the Food & Drug
Administration for the treatment of a movement disorder associated
with the long-term use of drugs for schizophrenia. Ingrezza’s irst-
quarter revenue came in much higher than anticipated, but analystsMr. 30%
BY NATHAN VARDIWho’s the world’s best hedge fund manager? David Tepper? Stevie
Cohen? Try Joe Edelman, a wannabe psychologist with a bead on biotech
who has quietly built the best track record of the past two decades.Investing HEDGE FUNDS