This author has been meaning to publish a book review for Barton Biggs' “Hedge Hogging” for awhile now, but sometimes, it just takes a little bit more time for the message to sink in. Known as an authority on the world's financial markets, Barton Biggs is an ideal figure to discuss the ups and downs and the characters that he meets in the hedge fund and money management industry – having started his investment adventure at 18 and his own hedge fund with a partner in the 1960s. Biggs subsequently spent over 30 years at Morgan Stanley before (again) starting his own hedge fund (called Traxis Partners) with two other partners in June 2003 at the ripe-old age of 70 (proving that you never have to retire if you are doing something that you love).
The importance of reading this book has only just recently started to sink in – as many of our subscribers have written to me over the last few months asking me for “advice” on how to begin their own private investment practice and how fund managers are selected by pension funds, endowments, or foundations. Chapters 5 and 6 should serve as both an example and a reality check on how difficult it may be to start one's own fund. Even a legend like Biggs is not immune from the doubters and the grind – after all, most hedge funds do not ultimately end up achieving long-term success.
As if we need a further reminder, “Hedge Hogging” then serves to remind us that raising money may actually be the easy part – making and keeping that money can be infinitely more difficult. Absolute gains are one thing – but being able to consistently outperform your peers (and the S&P 500) and to be able to do it with low drawdowns is another. Unless you are managing your own family's money, volatility is a no-no. And unless you are managing money with a team of other fund managers (or actually managing the managers), it is difficult to consistently overperform your peers and achieve low drawdowns. In the new complex world post-globalization, one cannot be the “jack of all trades” and expect to succeed in managing money. Biggs riddles the book with examples of both successful and unsuccessful managers. In the end, he concludes: “Running a big hedge-fund complex is like being the coach of an NFL team. The smartest, best-organized, hardest-working team with the most talent and the most cold-blooded management wins. Nice, relaxed, friendly guys who are tolerant about mistakes finish last and go out of business.”
At the same time, “Hedge Hogging” is easy and a pleasure to read – the content can be deep but it is also filled with amusing anecdotes. One story that sticks in my mind involves a lunch meeting with Alfred Jones (essentially the father of the modern hedge fund industry) in 1964. Quoting from the book:
“His first question when we sat down to lunch was, “When you go to pee in a restaurant urinal, do you wash your hands before or after you pee?”
I was stunned. “Afterwards, sir.”
He looked at me sourly. “That's the wrong answer. You're a conventional thinker and not rational. I always wash before rather than after.”
The only criticism I have for the book is a lack of structure – in that Biggs likes to skip around to different investment topics and to whatever he wants to discuss at that particular moment. But this is fine with this author – as I tend to be a little bit of a “scatter-brain” myself.