More Money Than God

plastic superheroes in his office.

Asness freely recognized his debt to Jones s improvisation. His hedge funds, like just about all hedge funds, embraced four features that Jones had combined to spectacular effect. To begin with, there was a performance fee: Jones kept one fifth of the fund s investment profits for himself and his team, a formula that sharpened the incentives of his lieutenants. Next, Jones made a conscious effort to avoid regulatory red tape, preserving the flexibility to shape-shift from one investment method to the next as market opportunities mutated. But most important, from Asness s perspective, were two ideas that had framed Jones s investment portfolio. Jones had balanced purchases of promising shares with short selling of unpromising ones, meaning that he borrowed and sold them, betting that they would fall in value. By being long some stocks and short others, he insulated his fund at least partially from general market swings; and having hedged out market risk in this fashion, he felt safe in magnifying, or leveraging, his bets with borrowed money. As we will see in the next chapter, this combination of hedging and leverage had a magical effect on Jones s portfolio of stocks. But its true genius was the one that Asness emphasized later: The same combination could be applied to bonds, futures, swaps, and options and indeed to any mixture of these instruments. More by luck than by design, Jones had invented a platform for strategies more complex than he himself could dream of.

No definition of hedge funds is perfect, and not all the adventures recounted in this book involve hedging and leverage. When George Soros and Stan Druckenmiller broke the British pound, or when John Paulson shorted the mortgage bubble in the United States, there was no particular need to hedge as we shall see late

  David Brooks, The New York Times

Mallaby . . . effectively combines an insider's knowledge with a colorful storytelling ability . . . A lively, provocative examination of a little-understood financial realm.   Kirkus

A superbly researched history of hedge-fund heroes stretching back to the 1950s, it is a fascinating tale of the contrarian and cerebral misfits who created successful, flexible businesses in an otherwise conventional financial world.   The Economist

More Money Than God shines a fascinating light on what is still the most obscure route to becoming a billionaire the mysterious world of hedge funds. Sebastian Mallaby's rollicking tour of industry legends famous and otherwise tells the improbable story of A.W. Jones, the vagabond journalist-sociologist and daring anti-Nazi activist who, after the war, would create the first 'hedged' investment fund. From there, we get rip-roaring profiles of investing titans from the full-throated gambler Michael Steinhardt to the bold TmigrT George Soros and the courtly stockpicker Julian Robertson to the ill-fated intellects of LTCM and the hedge fund stars of the present day. Even as Mallaby entertains he advances an unorthodox yet compelling brief: rich as they are, hedge funds are probably the best vehicles society has for assuming risk. Any who disagree will have to contend with the evidence of the recent Wall Street collapse. If one shudders at the prospect of concentrating risk inside giant banks whose chieftains wager other people's money and cavalierly call for taxpayer bailouts then, as Mallaby points out, hedge funds are a necessary antidote.   Roger Lowenstein, author of America's Bank

Sebastian Mallaby takes us into the secretive world of hedge funds and the result is a wonderful story and an education in finance. The book is full of colorful characters playing high stakes' games. Throughout, with his customary intelligence, Mallaby helps us understand this important transformation of the financial industry.   Fareed Zakaria, author of The Post American World

When Alfred Winslow Jones started the first hedge fund, he had no idea where it would lead. Sebastian Mallaby, who must be the keenest student of hedge funds anywhere, now does and he shares it with you in this crackling good read.   Dr. Alan S. Blinder, Professor of Economics, Princeton University, and Former Vice Chairman, Federal Reserve

A fascinating history. Mallaby combines vivid description of key personalities and episodes with thoughtful discussion of the sources of advantage for different investment styles in different periods of financial history. I enthusiastically recommend this book to colleagues and students in academia and asset management.   John Y. Campbell, Chairman of the Department of Economics, Harvard University, and Partner, Arrowstreet Capital