Confessions of a Hedge-Fund Manager


As Democrats and Republicans haggle over the final shape of financial reform, there’s one villain both sides agree on: hedge funds. But are they really as bad as we’ve all heard? A new book takes the first steps toward putting a human face on the funds. In a series of interviews with Keith Gessen, editor of n+1 magazine, the anonymous hedge-fund manager—HFM for short—explained his work and the crash to a layperson, offering his critiques of Wall Street, politicians, and himself.

Over the course of two years as the market shook, collapsed, and began to pick up the pieces, HFM became more and more exasperated with his work, culminating in his announcement during the last interview, in August 2009, that he was quitting his job and moving to Austin, Texas. With the whole set of interviews (previously published in n+1) just released as Diary of a Very Bad Year: Confessions of an Anonymous Hedge Fund Manager, NEWSWEEK’s David Graham spoke to HFM over Gchat about bad investments, meatheads, and what financial reform gets right—and wrong. Excerpts:

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Graham: So who the hell are you anyway? How old are you and just how rich are you, and who did you work for?

HFM: I can’t name my firm. I worked there for almost 15 years. Age: I’m older than 35 and younger than 45. Financial data: yeah, there’s no way to talk about that without sounding like a jerk or falsely modest while being strictly truthful.

Fair to say wealthy enough to retire to Austin and have a choice about whether or not to go back to work?

That is fair to say.

And how big was your group and the fund overall?

My group was at its peak around 20 people. The fund at its peak was around 400.

During the interviews that comprise the book, it sounds like you had a pretty brutal schedule. How’s retirement treating you?

It’s less work than work! Actually, taking time off is a wonderful way to figure out—in reality, not by using one’s imagination—what one misses and doesn’t miss about work. I do miss certain aspects of it—really, trading. And so I still log onto my Bloomberg terminal and read research and make suggestions to my old colleagues. Hey, I still have economic exposure to the firm and for personal reasons, too, want them to do great. But I also realize that there are things that I never should have been doing—managing people, dealing with investments that are more people-oriented and less trading-oriented. And, of course, looking at the markets without actually having accountability is a lot more pleasant than doing it with accountability. It becomes purely intellectual and a lot less emotional. I do get annoyed that I am missing the meltdown of developed Europe.

Gessen laments that there are extremely smart people who are minting money in finance but aren’t, say, curing cancer or writing great novels. But you have a sense of being part of history?

As a privileged observer. If I had the intellectual equipment to cure cancer or to write a great novel, I’d certainly feel like I ought to apply myself to those sorts of history-making endeavors. But the financial markets do shape history in ways that are sometimes unacknowledged or misunderstood.

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Gessen also portrays you as being more intellectual than the typical HFM. Do you think that’s true, or is the public view of financiers too monolithic?

I think that maybe what the public does is conflate the various kinds of financial professionals. To the public, everybody is a “banker.” I mean, I still hear that from friends/acquaintances who probably know better. They know I’m not a banker! But it’s a bit of terminological shorthand that I think is pernicious. So let’s accept that bankers and hedge-fund people are different. I have to say, though, that the idea that Wall Street is full of meatheads is just plain wrong. There are definitely a lot of obnoxious people, a lot of greedy people, but very few stupid people. And smart people—for all that they share every human flaw that can be found at every point on the IQ spectrum—tend to be interesting.

When you started these interviews, did you have any reservations?

For sure. I share with my firm a pretty deep-seated aversion to publicity. Hence, I’d only do it anonymously. And I felt like it would be worthwhile to do only if I could be very honest—partly because this exercise was something that I thought would be useful for me, personally, just to be forced to work out my thinking in an articulate way, to go on the record about predictions, etc. And by “honest” I mean honest with myself also. But at the same time, I wanted to make sure I wasn’t unfair to colleagues or counterparties.

What’s your take on the financial regulatory bill in its current state?

I actually wrote a short piece for the New York Observer about the regulatory bill, so let me start with that. I think people substantially oversell the power of regulation to eliminate/reduce the probability of crisis. Crisis is inherent in any system that turns illiquid, long-dated assets into claims that function like money. You can’t turn 30-year mortgages into checking deposits without the risk that the willing suspension of disbelief/suspicion this requires just one day evaporates. Many of the provisions in the bill are sensible, but the fact is they don’t really address the roots of this past crisis. Volcker rule (if it stays in there): great! I could see a bank blowing itself up by prop trading. But that’s not what happened to most of the banks that had issues. Spinning off swaps desks? Well, yeah, maybe that makes big institutions a little more stable. But swaps are really just a way of wrapping risk. It’s like if we had a panic because people died from poison toothpaste, and the response is to ban everything that comes in a tube! The root of the crisis is simple: Bad Investment Decisions. And you can’t regulate away human error.

In the book, you suggest you might try to continue to work on a far reduced schedule. Have you gone or do you plan to go back to work?

Well, if you consider the input and ideas that I provide to my friends at the firm work, then, yeah, I am sort of working in a reduced way. But I have also been dealing with moving, some personal developments, which have taken up time. Once that’s all done, I will take stock and decide whether to jump back in in some way or really hang it up for good. Having several months free of accountability was the only way to figure out what I really feel about the work. What it comes down to is, after some more time off, do I feel the same selective itch? And can I create a situation for myself that scratches that itch without scratching the large sections of myself that are still covered in scabs from my decade and a half in the business?

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