Natalie Ross and Michelle-Marie Heinemann.

On the first Wednesday in May, a rather large tent pops up behind the Vanderbilt Gate on Fifth Avenue between 104th and 105th Streets with the sole purpose of shielding the over-the-top headgear of 1,300 ladies who lunch, a handful of men and one Martha Stewart from the elements as they duke it out for millinery supremacy at the Frederick Law Olmsted Awards Luncheon—or, as anybody who’s anybody calls it, The Hat Luncheon. At this year’s event, the tent proved unnecessary, as honorees Jenny and John Paulson had pledged a cool $100 million to The Conservancy Fund, the exact dollar figure necessary to ensure perfect weather.

Arriving on the scene, the Transom quickly sussed out an early front-runner in the hat arms race: Carole McDermott, a sprightly darling decked out in heritage pearls and a Chanel suit. She skipped the small-time weaponry and went straight for the nuclear option with a towering scale replica of Central Park strapped to her dome, complete with an adoptable bench.

“I have every year gone a bit bigger, and I’ve never once regretted it,” said Ms. McDermott, who stands at 5-foot-3 sans heels but checked in at close to 7 feet with her choice chapeau, which she said took an estimated three months to put together.

We then found the gorgeous Lizzie Tisch standing contrapposto, surrounded by an iPhoned throng. She was wearing an anatomically correct garden snake made entirely from mother-of-pearl. The “hat” was apparently the handiwork of Aaron Keppel, an artist who, Ms. Tisch was quick to note, is not to be confused with “your grandmother’s milliner,” a sentiment echoed by gal pal Amy Fine Collins, who was wearing a snow-white barn owl on her forehead, precariously perched.

“He’s just the most incredible artist. Look at the detail—the wings were made from tearing up thick stock paper and putting it back together,” Ms. Fine Collins said of Mr. Keppel’s handiwork. “The eyes! Look at the eyes! They’re perfect replicas of the real thing. He even constructs them as they would be found in nature. Breathtaking.”

The Transom had only a moment to acknowledge the breathtakingness of the owl peering over her forehead before Ms. Tisch and Ms. Fine Collins continued almost in unison: “Our park is truly our city’s greatest gift. What better way to tip our hat to it than to literally tip our hats to it?”

Making our way into the tent for lunch, we found Gillian Miniter, former president of the Conservancy’s women’s committee, wearing a fluorescent firecracker above her head. We asked her about the logistics of something so delightfully impractical.

“The real art is getting past your doorman in one of these things without him making some slick remark,” she said, gesturing toward the large group of gathered women who would help raise $3.3 million while nibbling on avocado lobster salad. “People fly in from around the world for this lunch,” she continued. “People slave for months getting their hats ready; people open their checkbooks and really have a chance to make a lasting gesture to the city they love. One hundred percent of the money raised here will go to park programs and initiatives, and I think that’s just great.”

As we eventually teetered out of the tent after one too many white wines, clutching a Tiffany tote bag (the perfect Mother’s Day re-gift) stuffed with Estée Lauder’s finest, the Transom had a hard time disagreeing.

Photo by Victor Alcorn

Last November, the New York Times reported that the 92nd Street Y had entered into an unusual relationship with certain hedge funds managed by the nonprofit's board members. The Y could invest with money managers such as John Paulson, who sent his children to the Y's nursery school, at no fee, and with a promise from the billionaire hedge fund manager to guarantee any loss.

That guarantee turned out to be a good thing, as Mr. Paulson's funds have had a notoriously hard time of things lately. But despite being backed by the word of a man worth nearly $12 billion, a man who earlier this week announced a $100 million donation to Central Park, some people decided that Mr. Paulson's guarantee to make good any loss wasn't good enough, the Y, whose $40 million endowment represents a tiny fraction of Mr. Paulson's total wealth, decided to take its money back, according to Kate Kelley at CNBC.

Although the Y was remunerated for any losses from Paulson or other hedge-fund investments, concerns had developed about the lack of a more diverse portfolio, said these people, and about the possibility that a manager would not be able to reimburse the Y for losses in the unlikely case of a career-ending loss.

Because really, what does that mean, risk-free? Does such a thing exist, can't any many fail, any castle crumble, any fortune dwindle?

(H/t Dealbreaker)

Today, the hedge fund billionaire announced a $100 million gift to the Central Park Conservancy, the largest donation made to the organization charged with the physical management of the park.

"The Conservancy is responsible for transforming and sustaining Central Park as the celebration of culture, nature and democracy that it is today," Mr. Paulson said in a press release issued by the Conservancy. "It is my hope that today's contribution will help it endure and flourish and inspire others to join me in ensuring that the Park continues to receive the support it needs to be this city's greatest asset."

The gift will fund improvements to parkwide infrastructure and recreational activities, according to the release, and the fund the endowment of the Conservancy, whose private fundraising provides more than 80 percent of the park's annual budget.

According to Bloomberg, Queens-bred Mr. Paulson said his parents took him on stroller rides through the park as a child, and his Fifth Avenue resident—seen here in The Wall Street Journal—is said to offer views of the Central Park Reservoir.

Ray Dalio isn't making friends in Stamford, Conn., says The New York Post, reporting that the Bridgewater founder ticked off locals with the surprise demolition of a boatyard to make way for the massive hedge fund's new waterfront headquarters.

Bill Ackman’s position in JCPenney has cost his hedge fund, Pershing Square, $900 million this year as shares fell 18 percent.

The government is investigating possible mortgage fraud at Residential Capital, the mortgage-lending unit of government-owned Ally Financial, Reuters reports. The Securities and Exchange Commission disclosed in court filings Monday that it had issued a formal order of investigation in February to probe ResCap's mortgage-bundling and underwriting practices. Ally, which is 74 percent-owned by the Treasury after a series of bailouts during the financial crisis, placed ResCap into bankruptcy proceedings in an effort to shed bad assets ahead of a potential IPO.

Barclays may face a criminal investigation into whether it properly disclosed details of a deal to raise capital with Qatar sovereign wealth funds during the financial crisis.

Morgan Stanley and Citigroup will allow more time for the appraisal of their joint-venture brokerage, Morgan Stanley Smith Barney. Investment bank Perella Weinberg was set to put a value on the JV this week, but will delay the decision until Sept. 10.

Prosecutors revised the indictment of Level Global Investors co-founder Anthony Chiasson and ex-Diamondback Capital Management portfolio manager Todd Newman, adding new counts of securities fraud pertaining to alleged insider trading in Nvidia Corp.

The Occupy movement isn't over "until the last person calls it quits and goes home, wherever home is," an organizer tells Bloomberg as the movement's Sept. 17 day of action approaches. This is proving to be the case in Hong Kong, where 10 or so protesters continue to hold out in HSBC headquarters.

Can Spain avoid Greece's vicious cycle?

Mutual funds run by Morgan Stanley are showing hefty stakes in Facebook, The Wall Street Journal reports, and while many of those shares were acquired pre-IPO, allowing the funds to show paper gains despite Facebook's fallen stock price, investors in the funds are at risk of further Facebook losses.

HSBC is talking settlement with U.S. regulators over charges the bank violated sanctions against Iran and Sudan among other nations. The bank set aside $700 million for the matter in July.

Bank of America's four new directors are typical bank-director types, Bloomberg reports, perhaps indicating that BofA thinks it's on the right path, definitely indicating that the train has left the station on our dream of shaking up the North Carolina-based bank from inside the boardroom.

Citigroup's private banking unit withdrew $410 million from John Paulson managed hedge funds, a lot of money, no doubt, but as sharper wits than ours have pointed out, so long as Mr. Paulson himself doesn't send a redemption letter to a certain hedge fund located at 1251 Avenue of the Americas, Paulson & Co. should be okay.

SEC Chairman Mary L. Schapiro through down her arms in the effort to rein in systemic risk posed by money-market funds. The Times says the Treasury might take up more powerful weapons.

The case of Vietnamese banker Ly Xuan Hai shows once again that it's safer to be a crooked banker in the west than the east.

A top German politician said that the Greek bailout plan can't be renegotiated. Though history tells us there can't be a renegotiation until in fact there is. Elsewhere, is Finland the forgotten frontier in a potential eurozone breakup?

The move underscores a third-quarter that was somewhat humbling for the big banks. A foreclosure scandal, ramped-up capital requirements, falling revenue and mortgage-putback worries have prompted increased investor skepticism about the sector. Paulson's selloff of big-bank shares isn't totally surprising, given his tempered remarks about Bank of America in late October.

mtaylor [at] observer.com | @mbrookstaylor

Forbes' Teri Buhl reports (via John Carney):

John Paulson told investors today he still likes his long trade in Bank of America but has now lowered his outlook on the bank's earning per shares in 2012.

Last summer Paulson was telling investors he predicts BofA to score a whopping $3 EPS by the begining of 2012. Today he changed that target to $2.66 normalized EPS in 2012. If you assume a price to earning ratio of 10 that would equal around $26 dollars a share on $BAC. Paulson's 167 million shares of this mega bank sits in his Recovery Fund.

Buhl wonders whether the revised estimate has anything to do with the nasty letter BofA got last week from bond investors who're asking for at least some of their money back on $47 billion in potentially faulty mortgages. We'll add that ongoing investigations by the Securities and Exchange Commission, the FBI and all 50 states' attorneys general could be reasons to forsee some "earnings headwinds."

mtaylor [at] observer.com | @mbrookstaylor

Paulson's September comeback is something of a vindication for a bullish stance the hedge fund manager took earlier this year. The investor, who gained prominence for shorting the mortgage market ahead of the housing crisis, is now advocating that investors buy houses and gold ahead of a coming wave of asset-price inflation.

August was a rough month for Paulson. According to reports, his $9 billion Advantage Plus fund lost 4.3 percent during that month, and for the first eight months of the year, the fund had lost 11 percent. That slump appears to have reversed; today's Journal report says that all of Paulson Co.'s hedge funds are registering year-to-date gains.

Paulson's success could accompany a broader outflow of money from traditionally safe bets like U.S. Treasury securities into equities, as yields on long-term bonds remain at extreme lows. If that trend gains traction, we may be poised for a year-end stock-market rally.

mtaylor@observer.com

Twitter: @mbrookstaylor

Paulson's $9 billion Advantage Plus fund lost 4.3 percent in August, the FT says, "according to an investor." The company's $3 billion Recovery fund fell 9.1 percent on the month, widening its second-quarter loss of 13 percent. Bloomberg, meanwhile, pegs the Advantage Plus fund's year-to-date losses at 11 percent.

The overall company, which manages $31 billion, has apparently made a bad bet that the U.S. economy would quickly recover from its slump. "Bullish positions in banks such as Citigroup and Bank of America, as well as bets designed to pay off an upswing in the US housing market, have soured as investors have reassessed their view of the US economy," the FT reports.

Paulson & Co.'s Credit Opportunities fund, the one that shorted U.S. the subprime mortgage market and made Paulson a fortune, is down 1 percent for August.

Earlier this month, a story splashed across the front page of the Post warned that representatives from more than a dozen New York City hedge funds had "crossed the border" to meet with Connecticut Governor Jodi Rell. Over fried calamari, the governor reportedly pitched the executives on moving their businesses to her state: There had been talk for months that the city's hedge fund managers might flee because of cruel new taxes, just like the threats about a mass exodus from London to Switzerland, or from Europe to Hong Kong.

Instead, the real threat to the hedge fund world has turned out to be the ineffable, sweet, cozy lure of hammocks.

This month, Richard Grubman, the top Boston hedge fund manager, who was in the papers earlier this year for allegedly throwing his keys in the face of a valet who had asked him to move his BMW X5 at the Ritz in Boston, announced his retirement from the $10 billion Highfields Capital. Then, last week, the 57-year-old Soros protégé Stanley Druckenmiller announced he was shutting his hedge fund, writing a widely circulated letter that described the stress of recent struggles. He reportedly had his retirement epiphany after turning down a nice October golf invitation from another billionaire.

Two days later, Paolo Pellegrini, who only recently left John Paulson to start his own fund, announced that he'd be returning money to investors after a terrible year. "I've concluded that substantial additional work," he said, "is required to position the Fund to profit consistently." Earlier in the summer, Steven A. Cohen, No. 113 on this year's Forbes billionaires list, and often associated with the Damien Hirst formaldehyde-suspended shark he owns, told Vanity Fair he was about ready to step down from full-time trading.

Is this wave of hedge fund retirement what happens after too many chaotic years in a row, or is it a symptom of the changing times on Wall Street, where there are slightly new rules getting in the way? Or, like Julian Robertson's iconic announcement just as the dot-com bubble was bursting, is it a sign of dark days ahead?

More > Just How Sorry Are Finance Bigwigs?

"THERE ARE A couple of ways people quit," a person who manages a multibillion-dollar hedge fund said this week. "One is, they make a ton of money, they have a crappy year, now investors want to meet with them to find out why they're not making money, and they're like, 'I don't want to meet with these assholes.'"

That was not the case with Mr. Druckenmiller, according to his letter. In his first two paragraphs, he used the words "friends" and "pleasure" twice each, and then "love," "wonderful," "gratitude," "trust," "joy," "satisfaction," "luckier," "marveled," "reward," "rewarded" and "rewarding."

"Then," said the hedge fund manager, who would only speak anonymously, "there's the guy who's doing great, but says, 'I don't love what I do anymore because I've gotten bigger.'" In fact, Mr. Druckenmiller wrote that he left George Soros' fund a decade ago because of how hard it was to perform well with gigantic sums of capital, and he said that again became an issue. Its stress took a toll. "I have had to recognize that competing in the markets over such a long time frame imposes heavy personal costs," he said. "While the joy of winning for clients is immense, for me the disappointment of each interim drawdown over the years has taken a cumulative toll that I cannot continue to sustain."

"Then there's the guy," the hedge fund manager continued, "who says he's quitting, when, in fact, his investors are putting him out of business." He paused to search for the phrase. "If they're trying to drive you out of town, get in front of the parade."

There are more obvious reasons, too. In May, Arthur Samberg's Pequot Capital Management, once one of the biggest hedge funds in the world, closed because of an insider trading investigation. Funds are shuttered after good times, too: "Nearly everyone will be forgotten," Andrew Lahde wrote in October 2008, after a year of 870 percent returns. "Give up on leaving your mark. Throw the BlackBerry away and enjoy life."

Just like that autumn, this summer has been a season of nerves. Everyone, even the billionaires, seems vulnerable. "Money manager Philip Falcone is effectively mortgaging a significant chunk of his multibillion-dollar hedge funds' assets in an effort to raise financing for an ambitious plan to construct a high-speed wireless network," Reuters said earlier this month. On the other end of the spectrum, even old-time stock pickers are leaving. This week, 73-year-old Lou Simpson, who's managed the $4 billion investment portfolio at Warren Buffett's Geico for years, announced his retirement.

Back in 2000, one of the ur-hedge fund managers, Paul Tudor Jones, was asked about retirement. "I have a son that just turned 3, and I would unequivocally continue to trade until he went to college," he said. "At that point, I think I'd probably be airborne hunting and fishing all over the globe every day in my life." One assumes his son should be headed to school by 2015. Does his father only have a few years of work left? "He's not going anywhere," a spokesperson said. "No intentions to stop."

mabelson@observer.com

More > Just How Sorry Are Finance Bigwigs?