Hedge Funds: The Truth

July 25, 2012 § Leave a comment

I will now tell you the only secret you ever need to know about hedge funds. Read carefully.

I haven’t spoken about the hedge fund in detail yet. There’s a good reason for that. Hedge funds thrive on secrecy. It’s paramount that no one uncover our trading strategy or they could replicate it or trade against it and in doing so, destroy it (see Iksil July 2012).

Secrecy is the most important thing for any hedge fund. It helps us to maintain our ‘edge.’ I really cannot stress how important it is that no one knows what we are doing. We cloak ourselves in subterfuge. (Mike originally wanted to call the fund ‘Mistikos’ — Greek for mystery– but in the end we decided on the safer MKT Capital LLC, to avoid any negative connotations).

We have our own trading pseudonyms. (Mike is Bigballs. Ben is Bigbear. Rajash is Bigbutt. I have been given the curious sobriquet of Haricots Verts).

Our trade ideas are couched in secrecy. The terms we use when executing, our macro views, the very jargon we use– its all done in a veil of befuddlement. No one understands it.

Infact sometimes we ourselves don’t know what we’re doing. For example the other day I was testing out a heavy long axe on some abstruse, slutty little LatAm country, obviously with a view to a deepening Euro crisis. I put out a couple of fanciful bids, just to test the water. A minute later I’d gotten lifted on three of these– utterly unrealistic marks. It was crazy. In a panic I tried to recall the trade but the jumped up MM on the other end starts washing me– anyway suffice to say I was shifting shit pretty big time.

Little did I know that Ben, who sits three desks down, had been amassing a short pos on same tinpot backwater for the past few days.

It was him lifting me! I thought He thought he’d got some sucker on the hook and was furious when he realised it was me all along. Luckily we ended market neutral, so didn’t lose much except for a little spread.

The secrecy of the hedge fund industry should translate into a myriad of ideas and diverse trade views. Unfortunately this diversity hasn’t translated into a diversity of performance these last few years. Look at the stats and you will see that, as an industry, we’ve been heading south pretty much unanimously since 07. But then again who hasn’t?!

I would argue that it’s fairly solid numbers to only be losing 5 or 6 percent when the rest are down 10 or 11. If you’re working for a bank benchmarks count for nothing. Lose 5 or 6 and the shareholders’ll be clamouring for blood. Don’t they understand that they caused this crisis in the first place?

Then there are the perks. You phone a restaurant and say it’s for 3 hedgies and they’ll give you a table anywhere. Last week I flew to the Jules Vernes on top of the Eiffel Tower, same day reservation, by the window. Country clubs, weekend rentals, good food, good wine, saunas and sausages– it’s all there for the taking.

Anyway now you know the truth just remember one thing– don’t tell anybody.

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