Hedge Hogging
Barton Biggs
Constable and Robinson
In January 2003 Barton Biggs, the Yale-educated former US Marine and Wall Street legend, left Morgan Stanley after working there for 30 years. At the age of 65, he did what every 30-something banker dreams of doing: he set up a hedge fund. Biggs also kept notes and has now published the book Hedge Hogging, which chronicles the whole stomach-churning experience.
Because Biggs has worked on Wall Street since 1963, made zillions for clients, knows virtually everyone running the world’s $60 trillion in tradable assets, he is intent on telling it like it is. reads like a compendium of scoops reporters missed while covering the go-go years of the 1960s, the 1970s’ stock market doldrums, the creation of the global capital market in the 1980s, the dot-com boom-and-bust at the dawn of the 21st Century, and the rise of hedge funds today.
Along with investors such as Bernard Baruch, Jesse Livermore and Warren Buffett’s mentor Benjamin Graham, Biggs includes in his pantheon of heroes one financial journalist, Jerry Goodman who, writing under the pseudonym of Adam Smith in the 1970s, alerted the public to Wall Street’s larger-than-life characters ten years before Tom Wolfe coined the phrase ‘Masters of the Universe’.
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Biggs aspires to write like Goodman. Here he is attending a cocktail party at a hedge fund gathering on the terrace of The Breakers Hotel in Palm Springs. ‘Germans with bulging eurobellies from family offices mingle with bloated Arabs in pale suits and white shirts, their handshakes cool and clammy as snakeskin… Wrecked old Texans with faces like road maps, sour breath and fitted Hawaiian shirts chatter with fast-talking private bankers from Miami with pompadours and slicked-back hairdos.’
Mixed in with the social observation comes advice on investing. ‘Although those quantitatively inclined would disagree,’ Biggs writes, ‘to me, investing is much more an art than a science. Intelligence, experience, diligence, a knowledge of history, an open mind, and an obsessive nature are all important ingredients for the successful hedgehog – as are intuition, imagination, flexibility, and maybe just a touch of the seeing eye.’
Along the way Biggs introduces us to Grinning Gilbert, who went to bed when the market moved against him. Grinning Gilbert’s wife, Sharon, was left to close her husband’s fund, fire his dozen employees and handle the sale of the family house in Greenwich, Connecticut.
Biggs portrays Peter the Great, the gangsta rap-leveraged buyout specialist who refers to his desk as the Battlestar Galactica, and who, according to an associate, is the only 50-year-old billionaire who still cheats at golf.
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Then there is the Greek-American hedge fund manager who quotes Ecclesiastes and thinks: ‘Gross corruption and greed on Wall Street and corporate America have poisoned the golden well of capitalism.’
Biggs may take his Wall Street cast of characters a degree or so too much at face value. Many come across as pampered, rich, white males fantasising about being crosses between SAS wet ops-types and Mick Jagger. Still, the tales are entertaining. Often they are instructive, especially when you can see through the pseudonyms.
‘Tim’, the London-based hedge fund manager who grew up in Kenya, for example, is possibly Nick Roditi, the London-based hedge fund manager who grew up in Rhodesia. For years Roditi was the ultra-private manager of George Soros’ Quota Fund. Today, Biggs reports, Tim runs $1 billion, ‘probably half of which is his’.
Tim works with one secretary in ‘a leafy suburb of London’ – probably Hampstead – in an office decorated with oriental rugs, porcelain, a Chippendale desk and a small plaque, which says ‘Totis Porcis’, or the whole hog. Tim’s ‘modus operandi is the exact opposite of the conventional, fiduciary wisdom,’ Biggs goes on. ‘He uses immense leverage, practices enormous concentration, and has no investment organisation.’ Tim ‘is convinced that hedge funds, because of client pressure, have become obsessed with avoiding monthly declines in net asset value. As a result they employ stop-loss limits and all kinds of risk-control mechanisms that mechanically make investment decisions for them. Most of these decisions are bad.’
The most intriguing character in Biggs’ book, however, is Biggs. At first glance, the former Morgan Stanley man turned hedge fund manager comes across as a conventional Wall Street figure. The more he writes, however, the more he surprises.
Biggs describes his upper middle-class childhood. His dad was the chief investment officer of the Bank of New York, which meant that he was ‘born with a silver investment spoon in his mouth’.
When Biggs was 18 his parents gave him a portfolio of 15 stocks worth $150,000. In 1958 Biggs opened a hedge fund after learning from A.W. Jones, the inventor of post-war hedge funds.
In 1973 Biggs traded riches for security, paying Morgan Stanley $300,000 to become a three per cent partner earning $50,000 a year.
One of his first investments after leaving Morgan Stanley in 2003 and setting up Traxis – a name which he cheerfully admits he made up and means nothing – was a bet that oil prices would fall. He offers a blow-by-blow account of what it felt like when oil prices went up instead and his neighbours started whispering behind his back that he was washed up. Biggs used a temporary dip in oil to get out almost whole.
So where does Biggs think the market is headed now? He respectfully reports the views of the bears who believe the current stock market surge is a sucker’s rally. But he counts himself a bull and says the 2003 market bottom signalled the beginning of a fundamental, albeit fragile, upswing.
In his last chapter Biggs turns his attention to, of all characters, John Maynard Keynes. Biggs is awed by Keynes. He sees Bloomsbury’s financial genius as not only the architect of the post-war world economy but also as one of history’s great investors.
In describing Keynes, Biggs reveals what has kept him young: curiosity. That quality blended with the authentic voice of Wall Street in which he writes guarantees Hedge Hogging a place on the short shelf of classics about investing.
