Interview with a Hedge Fund Manager

April 8, 2008 3:19 PM

n+1: Is this your actual office? It’s so small.
HFM: Yes. I don’t actually spend much time in here, I have a desk out on the trading floor so this is just for, you know, meetings or phone calls I can’t take out of the desk, or interviews with literary magazines that I do every Wednesday at 4pm.

The literary magazine n+1 is running a series of informative, frightening, reassuring, somewhat hilarious interviews with an anonymous hedge fund manager. Required reading you don't have a cousin on Wall Street, the text bristles with choice quotes and ends with a terrifying warning- stop putting in the office.

posted by 235w103 (19 comments total)

This is actually a really great reading. Also, pretty entertaining for coming from a Hedge Fund manager. The stuff about the sub-prime meltdown is particularly telling.
posted by socalsamba at 3:40 PM on April 8, 2008

Good stuff. I noticed this:

HFM: We were just sitting here watching. It was amazing how the stock just dove. It had been trading poorly for months but it lost 60 percent of its value in a couple of hours. And we were mesmerized just watching on our Reuters screens. And everyone in the market was doing the same thing, the phone stopped ringing, I stopped getting Bloomberg messages, everyone was just watching: "It can’t be! What’s going on! Stuff doesn’t lose that much value on no news in a couple of hours."

And really what was going on was that there was a run going on against Bear and people were getting wind of it.

n+1: There was no news, Bear never announced—

HFM: Nothing like that, in fact they were going to come out and say everything was fine. I don’t want to pick on Bear but it was just incredible. And then what happened in subsequent days is that similar prophecies—stock price prophecies—happened to other financial stocks, and rumormongers thought they could spread rumors and drive down the stock of other financial companies in other situations. Or maybe everybody just came to the same conclusions themselves. The same thing happened to Lehman but they were able to restore confidence and the stock went back up.

I remember when Lehman tanked, sat there for a while, and then climbed back up. It was really weird, and someone made a lot of money off that news, either selling short or buying low.
posted by delmoi at 3:48 PM on April 8, 2008

HFM: Yeah, the computer is sending out the orders and doing the trading.

n+1: It's just a couple steps from that to the computers enslaving—

HFM: Yes, but I for one welcome our computer trading masters.

He knows my kind.
posted by napkin at 4:05 PM on April 8, 2008 [2 favorites]

Great post! And speaking as an avid organic heirloom-variety gardener with a budding (ha) interest in finance, I really loved this part:

n+1: So the computers are running the...

HFM: Yeah, the computer is sending out the orders and doing the trading.

n+1: It's just a couple steps from that to the computers enslaving—

HFM: Yes, but I for one welcome our computer trading masters.

People actually call it "black box trading," because sometimes you don't even know why the black box is doing what it's doing, because the whole idea is that if you could, you should be doing it yourself. But it's something that's done on such a big scale, a universe of several thousand stocks, that a human brain can't do it in real time. The problem is that the DNA of a lot of these models is very, very similar, it's like an ecosystem with no biodiversity because most of the people who do stat-arb can trace their lineage, their intellectual lineage, back to four or five guys who really started the whole black box trading discipline in the '70s and '80s.

posted by Asparagirl at 4:11 PM on April 8, 2008 [3 favorites]

If we were in a calm economic environment and Bear, for non-systematic reasons, failed—say they put all their money into cheesesandwich.com or something, and they failed for that reason, then it might be appropriate to let them go bankrupt because the rest of the financial system would be stable.

Actually, Fitch just re-affirmed cheesesandwich.com's bonds at AAA. It's money-good.
posted by mullacc at 4:16 PM on April 8, 2008 [3 favorites]

Entertaining, even for a money-ignoramus like myself. I get the dark humor, even though most of the terminology is as foreign to me as perl.
posted by not_on_display at 4:38 PM on April 8, 2008

Hilarious. That guy is just made of quotes. Every paragraph has something really great in it. "You can’t play golf in your office during a crisis."
posted by synaesthetichaze at 5:06 PM on April 8, 2008

"I’m risking exposing the weaknesses of my tennis game."

I liked that part.
posted by mrgrimm at 5:47 PM on April 8, 2008

n+1: They have zombie banks?

In Japan, naturally.
posted by Fiasco da Gama at 6:49 PM on April 8, 2008

Damn you mrgrimm! Oh hell I'll just quote the whole thing anyway.

So I think for these guys it wasn’t just, "I’m risking 2 dollars if I say no," it was, "I’m risking 2 dollars plus anal rape in jail."

n+1: I don’t think they put them in that kind of jail.

HFM: OK, then tennis. "I’m risking exposing the weaknesses of my tennis game." So anyway that was the reason that deal was struck.
posted by A dead Quaker at 6:56 PM on April 8, 2008

Terrific all the way around. I'm working for a national financial magazine right now, and I wish we would run stuff that mixes entertainment and enlightenment as well as this does.
posted by GrammarMoses at 7:29 PM on April 8, 2008

And I think one of the things that every officer of a public company is very sensitive to, post-Enron, is jail. There has been a criminalization of failure.

Who is this guy, Karl Rove? Is he saying the Enron guys weren't guilty? Failure is perfectly legal. Fraud isn't.
posted by Potsy at 8:42 PM on April 8, 2008

Oh and I just noticed this:

HFM: It’s a low-risk fund by design.

n+1: What about when you lost 150 million dollars in sub-prime?

HFM: We’re not going to talk about that.

Heh.
posted by Potsy at 8:53 PM on April 8, 2008

Christian Bale wants his character back. But yeah, good stuff. Well-written.
posted by Civil_Disobedient at 11:18 PM on April 8, 2008

n+1: Hm-hm. But isn't—when you say that people started treating tripe-A paper like money—isn't money also like money, in that sense?

HFM: Well, yeah, our money is fiat money, but a dollar is a dollar. You can use it to pay your tax liabilities, right? It's legal tender for all debts. If you have a debt, you can always use the dollar to pay off the debt. But the CP—that may be worth nothing. I mean, you can't pay your taxes with CP, you can't pay off a debt with CP...

n+1: You can't buy a coffee in London with a dollar.

HFM: Well, that's true, that's true. If your only use for money is buying coffees in London, and you have dollars, then you have a problem.

I'm beginning to think they both have accounts on Metafilter.
posted by blacklite at 2:31 AM on April 9, 2008

I really enjoyed this, thanks!
posted by Kwine at 6:29 AM on April 9, 2008

How does he manage without CNBC blaring all day long? Without the money bunnies and Cramer's tantrums? Without the "west coast wakey-wakey?"

The man is obviously a visionary. I want to work on that desk.
posted by malocchio at 7:10 AM on April 9, 2008

Hilarious. Other financey-related humor can also be found at DealBreaker, though they sometimes enjoy their insular NYC community a bit too much.

Hedge fund guys actually tend to be the freaks and geeks of the finance world. If you're going to be on the lookout for MeFi humor there, the hedge fund types are your best bet.

Is he saying the Enron guys weren't guilty? Well, most Enron convictions have been overturned. And Skilling is probably going to win his appeal. There was definitely fraud at Enron, but not ruin-the-whole-business fraud. The idea is that the gov't went so hard after Skilling and Lay only because people were angry about the failure and thier misunderstanding of accepted accounting principles, much like today. The actual frauds committed were fairly limited.

posted by FuManchu at 10:18 AM on April 9, 2008

I (heart) hedge fund guys. Seriously, all the ones I have met are quirky and interesting, and know their stuff so much better than anyone else.

And too right about CNBC, when I hear our desk making jokes about what Maria's been up to the night before I realize that they're watching too much...
posted by EricGjerde at 11:06 PM on April 9, 2008