Those Whom the Gods Would Destroy — Review of “A Hedge Fund Tale”

January 5, 2011
By

Warning: This is one heck of a depressing book. Not the whole thing, just the final chapters. It’s enough to make you want a stiff drink at the end — even if you don’t drink.

But it’s still a great story.

Like many others, I became a fan of Barton Biggs through Hedgehogging — one of my favorite finance reads of the past five years. Near the end of Hedgehogging, Biggs included an odd little fiction piece about a guy named Judson Thomas. I think Joe Hill (the tragic hero of A Hedge Fund Tale) was the guy he really wanted to write about.

On diving into the book, two immediate thoughts came to mind. The first was “When does the movie come out?” Or if not the movie, then the cable mini-series on HBO or Showtime. Because the narrative, the characters and the story arc are perfectly suited for that.

The second thought is that Biggs has a leg up on Oliver Stone, because A Hedge Fund Tale is what “Wall Street 2″ should have been.

(The actual Wall Street sequel was impossibly annoying, in part because the lead character, played by Shia LeBeouf, was such an artless moron — a guy without a trader’s bone in his body.)

A Hedge Fund Tale is really the story of the great hedge fund boom, and its horrible 2008 bust, from the time of the dot com debacle onward. Biggs goes out of his way to make Joe Hill, the protagonist, a thoughtful, likable character from the start.

(Note: there may be some light spoilers here, but only in general plot description terms.)

Joe is half-white and half-black, the product of middle class parents from a small Virginia town. He is smart, capable and thoughtful, but his dreams of playing in the NFL take him to a “football factory” hick college. This underwhelming start, coupled with a passion for stocks instilled by a friend, forces Joe to break into Wall Street the hard way, through a menial back office job.

The story of Joe’s rise is inspiring and exciting. He catches the eye of a mentor with his taste for investment literature… breaks his way into the ranks of analysts… makes a few excellent calls… falls head over heels for the boss’ daughter, and so on.

When the venue switches from investment firm to multi-strategy hedge fund, the story kicks into a higher gear. Joe and his older mentor, Mickey, become Biggs’ vehicle for encapsulating the rise of the “quant value” shops.

One of the major investing stories of the past decade was the incredible, multi-standard deviation spread between growth and value that crescendoed with the dot com bubble, and the historic reversion to the mean, dramatically favoring value over growth, that took place in the bubble’s aftermath. This was the environment in which many “quant” funds thrived, crunching numbers that told them to build a leveraged portfolio of high quality, underappreciated value stocks while shorting high-flying, pie-in-the-sky growth against it.

As Biggs tells the story of Joe’s rise, from country jock to top hedge fund manager with a net worth approaching $200 million, he peppers the narrative with stock charts, descriptive asides, and refreshingly nuanced references to the world of Wall Street. Characters are vividly painted, such as the idiosyncratic co-owners of the $35 billion multi-strategy fund that seeds Joe and his partner. Many of the characters have blatantly obvious real-life counterparts, like Tommy Hadron as Paul Tudor Jones.


Joe Hill’s fortunes arc and then decline, Icarus-like, in line with the real world fortunes of the quant value funds. As Scott Patterson explained in his book The Quants, the long value / short growth strategy became so popular, and so over-leveraged, that these funds eventually became their own worst enemies — slitting each other’s throats via simultaneous forced de-leveraging.

The hardest portion of the book is the unflinching description of 2008 and its aftermath. Biggs pulls no punches in describing the bombed-out, soul-destroying carnage that wrecked so many Wall Streeters’ careers and lives, in many cases forever.

The book also casts a harsh light on the fate of human relationships, and the hard romantic toll that those obsessed with the markets must pay. At the beginning of Joe’s arc, he is idealistic and ecstatically in love. At the close, well… let’s just say there’s no Hallmark Card ending here.

There were only two things that disappointed me in this light, highly entertaining read. The first was that, in describing why the SEC banned short-selling in the midst of the global financial crisis, Biggs failed to note that the ban actually made the crisis worse. Many convertible arbitrage funds, and other players whose functional strategies depended on being able to hedge with shorts, saw their portfolios vaporized by that ruling, contributing to the instability and chaos. A small omission, but a notable one.

The other disappointment was the way Joe Hill just kind of “gave up” in the end. He didn’t have to turtle up, declare himself “done,” and otherwise roll over and die as far as markets were concerned. The hits he took were brutal, but by no means crippling. Of course, this sad retreat was admittedly the most realistic finish, as so many real-life players of the game found themselves too broken and demoralized to go on after 2008.

But still, to have the pilot light go completely and utterly out… to report that Joe had “lost all confidence” in his abilities as an investor, confirming his estranged wife’s cold assessments… to suggest the guy had learned nothing concrete or viable or noble, and had been emptied of his passion after all those years… it was just a very bleak, bleak finish (albeit quite true to life for many) that the real fighters, the real connoisseurs of challenge and discovery and bloodsport, would have a hard time recognizing.

Unlike the tragic players of A Hedge Fund Tale, drawn like moths to a flame by hubris and excess and personal insecurities, some have a fire that will never stop burning.

JS

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