Published in The Financial Times
After the butternut squash soup, followed by the rump of lamb with chateaux potato and ribbons of carrot, one of the two hedge fund managers looked me straight in the eye and asked: “So then, would you fancy my job?”
Wiping some of the main course off my chin, I considered the question. Seven hours earlier, I would have had to pass. But seven hours earlier, what I knew about the shadowy, secretive, largely unregulated world of hedge fund management could have been written down on a ribbon of carrot.
Now that I had spent a day shadowing Gervais Williams and Rob Giles of Gartmore’s Dollars 200m (Pounds 106m) AlphaGen Volantis Hedge Fund, I knew a fair bit. For example, I had learnt that:
i. Hedge funds have nothing to do with hedges. You’d be forgiven ly hideously complicated. Managers can do all sorts of fancy and complicated things to try to make absolute returns – using convertible securities, index futures or arbitrage. But this does not mean that they will be involved in all such things. Indeed, most of the time, Gervais and Rob run their hedge fund like a conventional investment fund – buying and selling shares listed on the London Stock Exchange, with the aim of choosing companies whose price will rise. What makes them hedge fund managers is their tendency to engage in a spot of short-selling: an activity that involves borrowing stocks from your broker and then selling them, hoping that you can buy them back – and returning the stocks to their rightful owner – once their price falls.
iii. Hedge fund managers spend about 80 per cent of their day staring at computer screens. The rest of their time is spent meeting companies that are looking for investors, barking instructions to dealers and having phone conversations that go like this: “Yup. Yup. Yup. Yup. The second half looks good. Yup. Yup. Yup. Yup.”
iv. Not all hedge funds are the scary large “global macro” funds typically associated with the likes of George Soros – but even the smaller ones are jolly big. Indeed, when someone such as Rob says he’s going to “buy 50,000 Thorntons chocolates”, he’s not planning a lavish gesture towards his wife. He’s buying a substantial stake in a company. Within his first 10 minutes of trading, Rob had increased the value of his hedge fund by a whopping Pounds 293,000, which, let’s face it, is more value than most of us will add to our company in a day. “If I increase the value of the fund by Pounds 100,000 in a day, I go home content,” he explained. “If I make Pounds 200,000 I’m a pretty happy fella. Pounds 300,000 or Pounds 400,000 and I’m ecstatic.”
v. Even if hedge fund managers do not look or act like they are loaded, they probably are. I was surprised to spot Gervais collecting stamps on a Caffe Nero card (“Have your 10th coffee absolutely free!”), and even more surprised when he told me that he took his last holiday in cheap and unglamorous north Wales. But the fact is that hedge fund managers earn lots of money. This was confirmed by Rob’s admission that he planned to retire by “40, 42” – he is 35 – and by his comment that his father, who was a policeman for 30 years, got a salary that was “a small percentage of what my bonus will be this year”. He added: “I do think everyone in the City is overpaid.”
vi. Hedge fund managers aren’t as happy when things go well as they are unhappy when things go wrong. “If I lose more than a quarter of a million pounds in a day, I’m like a bear with a sore head,” said Rob. “Yet if I make a quarter of a million in a day, I’m happy, but not ecstatic. It’s not proportional. Because you expect to make money.”
vii. Hedge fund managers have many more words and phrases for losing money than for making money. My notebook reveals that Rob and Gervais had tens of different ways to describe losses (“we got burnt on that”, “we got carted”, “we got pissed all over”) but only really one way of describing gains (“we made a fuckload of money on that”).
viii. There are some things that even hedge fund managers don’t understand about hedge funds. Most hedge funds, although run onshore, are usually incorporated offshore. But don’t ask the managers where. “The fund is set up in … er . . . .,“said Rob, turning to his colleague. “Where is it set up, Gervais? The Cayman Islands? Isn’t it registered in Dublin as well? To be honest, I have no idea how it works.”
All this and much more ran through my mind when Gervais popped his question over lunch. Certainly, I had liked more about being a hedge fund manager than I expected. It was a lot like being a financial journalist, only infinitely better paid. But the answer had to be no. And it was the box of Cheerios that did it. As I arrived at Gartmore’s offices just before 7am, an open box of the cereal was sitting on a desk behind Rob and Gervais.
I found it hugely depressing. Almost no amount of money, or main rump of lamb at lunchtime, could make up for the fact that breakfast for hedge fund managers is often a bowl of cereal eaten alone, at 7am, sitting in front of a Reuters screen, the prospect of another 12 hours of work looming ahead.
(c) 2005 The Financial Times Limited. All rights reserved