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More Money Than God: Hedge Funds and the Making of a New Elite Hardcover – June 10, 2010

4.6 out of 5 stars 115 customer reviews

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Editorial Reviews

Amazon.com Review

Sebastian Mallaby on Hedge Funds

I set out to write the history of hedge funds for two reasons. Explaining the most secretive subculture of our economy posed an irresistible investigative challenge; and the common view of hedge funds seemed ripe for correction. Hedge funds were generally regarded as the least stable part of the financial system. Yet they managed risk better than banks, investment banks, insurers, and so on—and they did so without a safety net from taxpayers.

Four years on, the book is done; and both my original motivations have been vindicated. Unearthing the story of hedge funds has been pure fun: From the left-wing anti-Nazi activist , A. W. Jones, to the irrepressible cryptographer, Jim Simons, the story of hedge funds is packed full of larger than life characters. Getting my hands on internal documents from George Soros’s Quantum Fund; visiting Paul Tudor Jones and reading the eureka emails he wrote in the middle of the night; poring over the entire set of monthly letters that the Julian Robertson wrote during the twenty year life of his Tiger fund; interviewing Stan Druckenmiller, Louis Bacon, and hundreds of other industry participants: my research has yielded a wealth of investment insights, as well as an understanding of why governments frequently collide markets. Meanwhile, the financial crisis of 2007-2009 vindicated my hypothesis that hedge funds are the good guys in finance. They came through the turmoil relatively unscathed, and never took a cent of taxpayers’ money.

Since the book has come out, many readers have posed the skeptical question: Do hedge funds really make money systematically? The answer is an emphatic yes; and without giving the whole book away, I can point to a couple of reasons why hedge funds do outsmart the supposedly efficient market.

First, hedge funds often trade against people who are buying or selling for some reason other than profit. In the currency markets, for example, hedge funders such as Bruce Kovner might trade against a central bank that is buying its own currency because it has a political mandate to prop it up. In the credit markets, likewise, a hedge fund such as Farallon might trade against pension funds whose rules require them to sell bonds of companies in bankruptcy. It’s not surprising that hedge funds beat the market when they trade against governments and buy bonds from forced sellers.

Second, the hedge-fund structure makes people compete harder. There is an incentive to manage the downside: hedge-fund managers have their own money in their funds, so they lose personally if they take losses. There is an incentive to seek out the upside: hedge-fund managers keep a fifth of their funds’ profits. This combination explains why hedge funds were up in 2007, when most other investors were losing their shirts; it explains why they were down in 2008 by only half as much as the S&P 500 index. People sometimes suggest that hedge funds survived the subprime bubble by fluke—perhaps their ranks include wacky misfits who are naturally contrarian. But there is more to it than that. John Paulson poured $2 million in the research that gave him the conviction to bet against the bubble. The hedge-fund structure created the incentive to make that investment.

Financial risk is not going away. Currencies and interest rates will rise and fall; there will be difficult decisions about how to allocated scarce capital in a sophisticated and specialized economy. The question is who will manage this risk without demanding a taxpayer backstop. The answer is hiding in plain sight: To a surprising and unrecognized degree, the future of finance lies in the history of hedge funds.

--Sebastian Mallaby

(Photo of Sebastian Mallaby © Julia Ewan)

From Publishers Weekly

Journalist Mallaby (The World's Banker) gives unusually lucid explanations of hedge funds and their balancing of long and short positions with complex derivatives, but what really entrances him is their freedom from regulation, high leverage, and outsized performance incentives. In his telling, they empower a heroic breed of fund managers whose inspired stock picking, currency trading, and futures contracting outsmart the efficient market. In engrossing accounts of epic trades like George Soros's 1993 shorting of the pound sterling and John Paulson's shorting of subprime mortgages, the author celebrates hedge titans' charisma, contrarianism, and market insights. Mallaby contends that hedge funds benefit the economy by correcting market anomalies; because they put managers' money on the line and are small enough to fail, they are more prudent and less disruptive than heavily regulated banks. Mallaby's enthusiasm for an old-school capitalism of unfettered risk taking isn't always persuasive, but he does offer a penetrating look into a shadowy corner of high finance. (June)
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.

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Product Details

  • Hardcover: 496 pages
  • Publisher: Penguin Press (June 10, 2010)
  • Language: English
  • ISBN-10: 1594202559
  • ISBN-13: 978-1594202551
  • Product Dimensions: 6.5 x 1.2 x 9.5 inches
  • Shipping Weight: 1.8 pounds (View shipping rates and policies)
  • Average Customer Review: 4.6 out of 5 stars  See all reviews (115 customer reviews)
  • Amazon Best Sellers Rank: #185,906 in Books (See Top 100 in Books)

Customer Reviews

Top Customer Reviews

Format: Hardcover Verified Purchase
Sebastian Mallaby, a former correspondent for The Economist magazine, is clear on where he stands on the issue of hedge funds regulation. He is against it. With the possible exception of a few systemically significant funds, he thinks regulation would bring more harm than good, and that there are more pressing concerns for fixing the global financial system. Not that hedge funds are a sideshow. Mind you, they manage close to two trillion dollars, and their management style and compensation practices tend to define the zeitgeist on the trading floors of financial institutions. Hedge funds are cool: as Mallaby shows, they are definitely the place to be for smart people bent on making serious money, or for those with the ambition to rewrite the rules of financial theory.

Hedge funds are defined by four characteristics: they stay under the radar screen of regulatory authorities; they charge a performance fee; they are partially isolated from general market swings; and they use leverage to take short and long positions on markets. Most importantly, in a financial system riddled with conflicts of interests and skewed incentives, hedge funds get their incentives right. As a result, according to Mallaby, they do not wage any systemic threat to the financial system, and they may even provide part of the solution to our post-crisis predicament.

The first set of well-aligned incentives deals with the issue of ownership. Hedge fund managers mostly have their own money in their funds, so they are speculating with capital that is at least partly their own--a powerful incentive to avoid losses. By contrast, bank traders generally face fewer such restraints: they are simply risking other people's money.
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First of all, the book is very well researched and well written. It's an easy read and gives a good general overview of the history of hedge funds. The author takes us via A.W. Jones's first hedge(d) fund (later: hedge fund) creation from 1949 through the 60s and 70s into the 80s and 90s and through the recent financial "crisis" (I would say it was a correction after a major boom/hausse) in 2008/09.

The reader is introduced to various legends of the industry like George Soros and Stan Druckenmiller as well as to Julian Robertson (Tiger), Paul Tudor Jones, the Commodities Corporation, Citadel, Jim Simons and others, as well as also to some hedge-fund implosions of Long Term Capital Management, Amaranth, etc. and to the bankruptcy of Bear Stearns and Lehman Brothers. Also some short sellers like Jim Chanos and David Einhorn are mentioned. Of course, there are many top guys missing, and the words SAC (Cohen) and ESL (Lampert) or Blackstone are only in the text without any details, ... and there's no mention whatsoever of Cerberus, BlackRock, Icahn, Apollo, etc.

One thing I didn't like in the book, was that quite some time was spent on George Soros, probably due to the author's background, ... but at least Soros wasn't portrayed as the hero/savior he holds himself so often out to be, but instead the author also shows the reality of the very dark side of Soros and it makes you dislike the guy even more.

But the book is an essential book and an absolute "MUST" read for every trader and money manager, and for everyone working at a hedge fund.
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Format: Hardcover
If you have read "Too big to fail", "House of Cards", "Big Short", "Lords of Finance", "Fool's Gold", etc. you will like this book better. More wisdom based on incredible research and interviews. I was initially resistant to Mallaby's recommendations about financial reform, but he sold me based on reasoning well supported by evidence. The clearest, most readable and reasoned discussions of the efficient-market theory and Soros' reflexivity. If you don't know those terms, read this book anyway. He will at the end and you'll be glad whether you interest is investing or just voting. This is scholarship dressed up as popular non-fiction. On a par with Tom Wolfe and Malcolm Gladwell for brining non-fiction to a wide audience.
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Format: Hardcover
I'll try to avoid harping on irrelevant-but-obnoxious (to me) traits of his book, but one is that this is a book of devotion to the almighty dude: I'm a man, and I found the male chauvinism nauseating. He makes little effort to hide the fact that he's genuinely, madly, hotly in lust with several of the hedge fund principals, including Salomon Bros. government bond trader, Craig Coats Jr.--whom Mallaby introduces as a "tall, handsome, charismatic stud... whose main tool was a firm belief in his own instinct" (p.222). Women in the book are at best worshipful supporters and at worst, queens (such as Mary Meeker, analyst for Morgan Stanley, p.259). Probably because she was an indispensable source of information, Carole Loomis is treated neutrally.

This gets more irritating when you consider the sympathy, even vicarious anguish, that Mallaby feels for billionaires he likes when they lose a billion or two. Their prior winnings are evidence of their status as superlative beings, but their subsequent misfortunes are heart-wrenching tragedies. It's probably why narrative journalism and investing are especially bad together: in financial markets, every loss is somebody's win, but if the winner is in the room, it's joyful.

Mallaby often "steps back" from the narrative to describe what lesson the reader is supposed to have learned from what has just "happened." Nearly always, this lesson is spectacularly wrong. For example, Mallaby describes the manner in which the Quantum Fund (led by Druckenmiller and Soros) shorted the UK pound in 1992, thereby wrecking the ERM, then, in 1997, squashed the Thai economy--the entire economy--like an unsuspecting kitten.
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