Confessions of a hedge fund analyst
A year-and-a-half ago there was an opportunity to make money on the shares of a troubled energy company. Enron was being taken over by Dynegy and the bonds were trading cheap. I thought it sounded crazy – Enron was clearly bankrupt – but the hedge fund’s two other analysts, healthy MBAs from the Midwest, liked to gamble. Returns were hard to come by in a saturated Mergers and Acquisitions market, so our boss, the portfolio manager, went for it too. The next day, the fund lost $800,000 when the bonds were sold in a panic.
‘You can’t score if you don’t shoot,’ and ‘You’ve got to be in it to win it,’ were repeated daily by three analysts, two traders from New Jersey, and our portfolio manager, the doppelgänger of Ariel Sharon. With thousands of funds chasing meagre returns, bets kept getting riskier. For 11 hours a day we searched for a windfall, staring at stacks of computer screens without blinking.
It wasn’t the life I had planned. I graduated film school with enough debt to consider a field about which I knew nothing. While temping at a hedge fund, an unregulated investment pool with lofty fees and million-dollar investment minimums, I accepted a full-time position. Three years later I became a vice-president at a larger one with $400 million in assets. We were Risk Arbitrageurs, investing in mergers and take-overs. We tried to work ourselves into a position to earn the ‘spread’ in share value between the start and the completion of the deal. And deal closing was everything.
All news was bad news and would provoke a variety of over-reactions. Rumour of a Securities and Exchange Commission investigation or antitrust (ie a government-ordered break-up of a monopoly) ruling would be yelled across the room. The analyst whose position was in flames would scramble to consult the boss before instructing the traders to buy or sell. The traders had their own ideas and like dogs could sense your fear or uncertainty. After eye-rolling they might execute your order by jamming their keyboard or bawling into a headset. In the face of a major disaster, the portfolio manager emerged from his office to pace and fret. ‘Do we own any of this?’ or ‘What’s the downside?’ he would bark before mandating liquidation.
We sat in one big room and there were no secrets. They shared arguments with my mother; I overheard grumblings about immigrants and taxes. Once we had to summon a unionized technician to adjust the thermostat – evidence of the bloodsucking tendencies of the working class. ‘Here go the liberals,’ my boss often complained. There was lengthy discussion of weekend golf injuries and the acquisition of tickets to Broadway shows was very competitive.
I was accused, only partly in jest, of being a Communist. It was never clear if it was because I was born in Canada, my father was from India or I was a vegetarian. After 11 September 2001, a giant American flag was tacked above my desk. I spent nights distraught about wasting my life and was ashamed to tell people what I did for a living. But I took the money, free dinners at unaffordable Manhattan restaurants, box seats.
Eventually it became too painful, the decimation of Wall Street on 11 September, the politically virulent environment that followed and the market volatility. My disillusion was growing and I was relieved when they laid me off with a generous severance. After five years near the centre of capitalism, I’d learned a small lesson: that the correlation between making vast sums of money and satisfaction is a myth.