More Money Than God: Hedge Funds and the Making of a New Elite (英語) ハードカバー – 2010/6/10
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The first authoritative history of hedge funds-from their rebel beginnings to their role in defining the future of finance.
Based on author Sebastian Mallaby's unprecedented access to the industry, including three hundred hours of interviews, More Money Than God tells the inside story of hedge funds, from their origins in the 1960s and 1970s to their role in the financial crisis of 2007-2009.
Wealthy, powerful, and potentially dangerous, hedge fund moguls have become the It Boys of twenty-first century capitalism. Ken Griffin of Citadel started out trading convertible bonds from his dorm room at Harvard. Julian Robertson staffed his hedge fund with college athletes half his age, then he flew them to various retreats in the Rockies and raced them up the mountains. Paul Tudor Jones posed for a magazine photograph next to a killer shark and happily declared that a 1929-style crash would be "total rock-and-roll" for him. Michael Steinhardt was capable of reducing underlings to sobs. "All I want to do is kill myself," one said. "Can I watch?" Steinhardt responded.
Finance professors have long argued that beating the market is impossible, and yet drawing on insights from physics, economics, and psychology, these titans have cracked the market's mysteries and gone on to earn fortunes. Their innovation has transformed the world, spawning new markets in exotic financial instruments and rewriting the rules of capitalism.
More than just a history, More Money Than God is a window on tomorrow's financial system. Hedge funds have been left for dead after past financial panics: After the stock market rout of the early 1970s, after the bond market bloodbath of 1994, after the collapse of Long Term Capital Management in 1998, and yet again after the dot-com crash in 2000. Each time, hedge funds have proved to be survivors, and it would be wrong to bet against them now. Banks such as CitiGroup, brokers such as Bear Stearns and Lehman Brothers, home lenders such as Fannie Mae and Freddie Mac, insurers such as AIG, and money market funds run by giants such as Fidelity-all have failed or been bailed out. But the hedge fund industry has survived the test of 2008 far better than its rivals. The future of finance lies in the history of hedge funds.
"[T]he bright light shed by More Money Than God is particularly welcome. Mr. Mallaby... brings a keen sense of financial theory to his subject and a vivid narrative style."
-The Wall Street Journal
"[S]plendid ... the definitive history of the hedge fund history, a compelling narrative full of larger-than-life characters and dramatic tales of their financial triumphs and reversals... Mallaby weaves into his narrative just the right amount of economic theory and market history, and he has a wonderful knack for explaining complex trading strategies in simple and elegant prose."
-The Washington Post
"[A] splendid account of the ups and downs of an industry in which few of the twenty-something hedge-fund wannabes know their history. They, and meddling politicians, should read this book before they are condemned to repeat it."
-The Financial Times
"Mallaby's book is informative and entertaining..."
"More Money Than God is an expert primer on America's most obscenely lucrative investment tool... [Mallaby is] incisive, informative, and as good a financial writer as he is a storyteller."
-NPR's All Things Considered
"In MORE MONEY THAN GOD, his smart history of the hedge fund business, Mallaby does more than explain how finance's richest moguls made their loot. He argues that the obsessive, charismatic oddballs of the hedge fund world are Wall Street's future-and possibly its salvation."
-The New York Times Book Review
"Sebastian Mallaby's history of hedge funds is well written, smart, and balanced."
"Sebastian Mallaby's in-depth research and clear writing style is engaging... With great insight into the lucrative world of hedge funds, More Money Than God is one of the best, most engrossing of the current financial books."
-The Finance Professional's Post (A publication of the New York Society of Security Analysts)
"[A] superb book"
-David Brooks, The New York Times
"Mallaby... effectively combines an insider's knowledge with a colorful storytelling ability... A lively, provocative examination of a little-understood financial realm."
"A superbly researched history of hedge-fund heroes stretching back to the 1950s, it is a fascinating tale of the contrarian and cerebral misfits who created successful, flexible businesses in an otherwise conventional financial world."
"More Money than God shines a fascinating light on what is still the most obscure route to becoming a billionaire--the mysterious world of hedge funds. Sebastian Mallaby's rollicking tour of industry legends--famous and otherwise-- tells the improbable story of A.W. Jones, the vagabond journalist-sociologist and daring anti-Nazi activist who, after the war, would create the first "hedged" investment fund. From there, we get rip-roaring profiles of investing titans from the full-throated gambler Michael Steinhardt to the bold TmigrT George Soros and the courtly stockpicker Julian Robertson to the ill-fated intellects of LTCM and the hedge fund stars of the present day. Even as Mallaby entertains he advances an unorthodox yet compelling brief: rich as they are, hedge funds are probably the best vehicles society has for assuming risk. Any who disagree will have to contend with the evidence of the recent Wall Street collapse. If one shudders at the prospect of concentrating risk inside giant banks whose chieftains wager other people's money and cavalierly call for taxpayer bailouts then, as Mallaby points out, hedge funds are a necessary antidote."
-Roger Lowenstein, author of The End of Wall Street
"Sebastian Mallaby takes us into the secretive world of hedge funds and the result is a wonderful story and an education in finance. The book is full of colorful characters playing high stakes' games. Throughout, with his customary intelligence, Mallaby helps us understand this important transformation of the financial industry."
-Fareed Zakaria, author of The Post American World
"When Alfred Winslow Jones started the first hedge fund, he had no idea where it would lead. Sebastian Mallaby, who must be the keenest student of hedge funds anywhere, now does-and he shares it with you in this crackling good read."
-Dr. Alan S. Blinder, Professor of Economics, Princeton University, and Former Vice Chairman, Federal Reserve
"A fascinating history. Mallaby combines vivid description of key personalities and episodes with thoughtful discussion of the sources of advantage for different investment styles in different periods of financial history. I enthusiastically recommend this book to colleagues and students in academia and asset management."
-John Y. Campbell, Chairman of the Department of Economics, Harvard University, and Partner, Arrowstreet Capital
大手金融機関は“Too big to fail” と言われいざという時には政府からの税金を使った資本注入で破綻を免れるが、ヘッジファンドは自分の才覚で破綻を回避するしかなく、大手金融機関よりもずっと道徳的であると言う。大手金融機関に対する ”Too big to fail“の考えがモラルハザードを起こしており、金融市場の問題はヘッジファンドより大手金融機関のほうがずっと責任が重いとのことである。
If you want to learn on how big names invest this is the way to go
I have to reiterate just how impressive the research was for this book, I read all of the footnotes because a sheer amount of fascinating information is held in the footnotes. If I ever write a book - I want to approach it like this author.
Sebastian Mallaby is currently the Paul Volcker Senior Fellow for International Economics at the Council on Foreign Relations. He's also a columnist at the WA Post and spent over a decade with The Economist responsible for international finance coverage - serving a bureau chief in Washington, Japan and southern Africa. He is the author of several noteworthy books on the political economy.
This work is an epic contribution to the historical evolution of certain financial products and the global industry(s) spawned therefrom in primarily, the western world. Welcome to the hedge fund industry, including an amazing cast of characters, their thought processes, training, relationships and the outcome of their work - The Making of A New Elite - with More Money Than God.
Admittedly, it is rare for me to dedicate myself to the reading of 400+ pages contained in any one volume, on any subject. Yet, the manner in which this book develops contains the unique qualities that inflame the desire within reader to come back for more. Incredibly well-written, researched, balanced and apolitical. This work is REQUIRED READING as an essential component in developing an understanding of global financial markets, risk assessment, risk management and the art of speculation.
As I read the book, Mallaby makes some points that have been central themes of other authors (See The WSJ's Scott Patterson's - The QUANTS), regarding the miscues that fueled poor investment/risk management strategies. Listen to Mallaby to garner the essence of this observation as it relates to the "art of speculation" - "The art of speculation is to develop one insight that others have overlooked and then trade big on that small advantage." P.91
"After the 1971 debacle, Weymar set about rethinking his theory of the market. He had begun with an economist's faith in model building and data: Prices reflected the fundamental forces supply and demand, so if you could anticipate those things - you were your way to riches. But experience had taught him some humility. An exaggerated faith in data could turn out to be a curse, breeding the Sol of hubris that leads you into trading positions too big to be sustainable."
"The real lesson of LTCM's failure was not that its approach to risk was too simple. It was that all attempts to be precise about risk are unavoidably brittle." P.231
(LTCM) Had misjudged the precision with which financial risk can be measured."p.245.
The point is that an unrepentant belief in the quantitative modeling that provides that "one insight that others have overlooked and then trade big on it" can have enormous consequences in either capturing returns or accelerating a cataclysmic demise of the capital under management.
How has that all worked out, in recent years? According to Mallaby, "Between 2000 and 2009, a total of about five thousand hedge funds went out of business, and not a single one required a taxpayer bailout."
Ah yes, "bailouts" - what is Mallaby's take on this issue? Listen to the following: "Capitalism works only when institutions are forced to absorb the consequences of the risks that they take on. When banks can pocket the upside while spreading the cost of their failures, failure is almost certain." P.13. Mallaby is clearly not a proponent of "privatizing the gains and socializing the losses."
What about our affection with history that drive financial and other forms of socio-economic modeling. Mallaby has some succinct insights:
"Projections are based on historical prices, and history could be a false friend." P. 233.
"In 1997, Merton and Scholes (LTCM) received the news that they had won the Nobel Prize for economics. The award was greeted as a vindication of the new finance: The inventors of the option-pricing model were being thanked for laying down a cornerstone of modern markets. By creating a formula to price risk, the winners had allowed it to be sliced, bundled, and traded' l thousand ways the fear of financial losses, which for centuries had acted as a brake on human endeavor, had been tamed by an equation." P.231.
So, where does Mallaby leaves us at the end of this magnum opus? His analysis leads him to conclude "The worst thing about the crisis is that it is likely to be repeated." P. 377. However, to suggest that the hedge fund industry was the primary culprit in either the creation or magnitude of the Great Recession would be erroneous. Again, between 2000 and 2009, 5,000 hedge funds are to have ceased operations - none of which required a taxpayer bailout. Mallaby also takes a rather benign approach to the plausibility/practicality of regulating this industry ("The record suggests that financial regulation is genuinely difficult, and success cannot always be expected." P. 379).
Yet, at the conclusion of this work, one quote from Mallaby continues to resonate with me: "It is the nonintuitive signals that often prove the most lucrative." p.302. However, the term "lucrative" as is as applicable to assessing risk and thereby avoiding potential losses, as it is to capturing returns on investment.
Like I said, an epic contribution to the historical evolution of the hedge fund industry. An uncanny, incredibly thorough, balanced treatment - written in a way that is appropriate for both industry insiders, and the lay-person. A perfect volume for graduate coursework in finance -- one that focuses on human beings, as well as the quantitative financial services products they develop and deploy in the global markets today.
What are some lessons (mine not Mallaby's):
The breaking of the pound in 1992 demonstrated that hedge funds were now of sufficient size to stand against central banks and take down a currency.
The bond crash of 1994 demonstrated that central banks when making monetary policy had to account for the actions of hedge funds. It also demonstrated how hedge funds, due to their leverage, had to sell into a panic which can turn a downturn into an acapulco cliff dive.
The Asian Crisis deepened this lesson as hot money flows wrecked these economies and given, in the years afterwards, how these countries built huge warchests of US dollars in currency reserves to ward off the speculators, the unintended consequences (imbalances in saving and trade) continue to this day for the US and the world.
Mallaby points out the financial crisis of 2008 was not caused by the hedge funds. This is true as long as one does not include the unintended consequences of the Asian crisis. That said the truest key to the financial crisis of 2008 is that ours has been a time of deregulation and freer markets. Market economies have an inherent feature that leads to periodic financial crises. The more free the market the greater the potential for increases in the magnitudes of upheaval. Markets are essential for a vibrant economy but a balance must be kept to keep the turbulance from out weighing the benefits.
The Asian countries tend to prefer a balance with more regulation of financial markets than the US and this has not changed ever after the 2008 crash and burn.
Just recently a large pension fund, Calpers, announced it is pulling its money out of hedge funds. Hedge funds are mostly unregulated therefore fund performance is difficult to attain but most studies find that the average fund after fees performs little better than the S&P 500 (Mallaby by way of a study done by Ibbotson disputes this). The bulk of funds, it seems, provide merely normal returns for their investors but for their managers more money than god.
Mallaby brings out that the 2&20 pay structure, which allows these outsized returns for managers, was designed partly to avoid paying income taxes, a loophole that persists to this day.