The Invisible Hands: Hedge Funds Off the Record - Rethinking Real Money

467 Pages·2010·3.74 MB·English

by  Steven Drobny

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sound investment goals.
AAllong thhe way, TThhe IInviisiibblle HHandds allso: The crash of 2008 crushed “real money” investors (en-
—JARED DIAMOND from the Foreword of The Invisible Hands;

dowments, pensions, foundations, and family offi ces).
Professor of Geography and Environment Health Sciences, UCLA;
(cid:129) Examines some of the fundamental questions cur-
World markets—from real estate and equities to com-
Pulitzer Prize–winning author of Guns, Germs, and Steel
rently being asked by all investors as they struggle to
modities and credit—collapsed. Some of the world’s
H T
understand the new paradigm of the post-crisis world Author of Inside the Hou se of Money most venerable fi nancial institutions disappeared, while
e
PRAISE FOR d H many hedge fund, private equity, venture capital, and
(cid:129) Questions some core tenets of asset allocation and
g E real asset managers suffered immense losses. Yet, the
portfolio construction as these concepts are applied by e
“Drobny does it again!” world has not ended, and now, all investors must adapt
real money investors F
I to the new reality.
u
—Jim Rogers, author of A Gift to My Children
n N
(cid:129) Reveals how some of the best in the hedge fund busi-
“While many are too busy trying to determine ‘what just happened,’ the insights of these d Analyzing money managers who fared well in 2008—
ness are positioning themselves for the uncertain road s
either by posting strong performance or by preserving
ahead Invisible Hands provide a valuable forward-looking road map for managing institutional O V
capital—is a logical starting point. Global macro hedge
portfolios. With trillions at stake for our society’s pensions, endowments, and foundations,
f
(cid:129) And much more this book offers important lessons for any fi duciary charged with stewarding assets for f I funds are those money managers. Risk management is a
future generations.” th S key differentiator during crises, and global macro hedge
Page by page, The Invisible Hands provides investors and e fund managers anchor their investment processes in risk,
traders with the latest thinking from some of the best —Michael K. Barry, Chief Investment Offi cer, University System of Maryland Endowment R rather than targeting outsized returns.
e I
players in money management, highlighting the specifi c “Anyone looking for a better understanding of how to invest in turbulent waters will ben-
c B In The Invisible Hands, Steven Drobny—cofounder of
risk and return objectives of each, and discussing the efi t from this guided tour of the experiences of smart and creative money managers over o
evolution of certain styles and beliefs in money man- the last couple of years. Pick up a copy and enjoy!” rd Drobny Global Advisors and author of Inside the House
L of Money—again reaches out to his professional network
agement. This book will allow you to discover how suc- —
—Arminio Fraga, Founding Partner, Gávea Investimentos, and former of leading global macro hedge fund managers to better
cessful global macro hedge fund managers navigated the president of the Central Bank of Brazil R E understand how their risk management, investment, and
most signifi cant fi nancial crisis of our lifetime and learn e
how to incorporate certain elements of their approach “Drobny’s path-breaking work analyzes the defi ciencies of real money investors and th portfolio construction process enabled them to effectively
into your own investment endeavors. proposes antidotes gleaned from the techniques of top macro hedge fund managers.” in navigate the crash of ’08. With this book as your guide,
k H you’ll glean valuable insights from unparalleled access to
STEVEN DROBNY is cofounder of Drobny Global Advi- —Dr. John Porter, Managing Director, Global Portfolio and Liquidity Management, in these winners in order to adapt to the new fi nancial reality
sors (DGA), an international macroeconomic research Barclays Capital g A we all now face.

and advisory fi rm that counts many leading global hedge “Once again Drobny taps the most infl uential minds in investing to unearth some decidedly R
e The Invisible Hands begins by addressing the importance
funds as clients. Prior to starting DGA, Drobny worked uncommon wisdom and candid revelations. The Invisible Hands maps out the winners N
a
of “real money” management, examining its evolution
for Deutsche Bank’s Hedge Fund Group in London, Sin- and losers, empowering readers to navigate the transformation of the money management l

M and raising important questions about how portfolios
gapore, and Zurich. Drobny holds a master’s degree from industry currently in full swing.” D
the London School of Economics and Political Science o are constructed. In Part Two, the experts or “Invisible
—John Brynjolfsson, CIO of Armored Wolf, and former portfolio manager of the $80 billion n Hands”—ten anonymous global macro hedge fund man-
and a bachelor’s degree from Bucknell University. He is PIMCO Real Return practice e S agers—discuss how they approach money management,
the author of the critically acclaimed Inside the House of y —
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( c o n t i n u e d o n b a c k f l a p )
EAN: 9780470607534 ISBN 978-0-470-60753-4 MATTE FINISH
660077553344__ccoovveerr..iinndddd 11 22//88//1100 99::3322 AAMM
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THE INVISIBLE HANDS
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THE INVISIBLE HANDS
HedgeFundsOfftheRecord----
RethinkingRealMoney
Steven Drobny
Foreword by Jared Diamond
John Wiley & Sons, Inc.
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Copyright(cid:1)C 2010byStevenDrobny.Allrightsreserved.
PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey.
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LibraryofCongressCataloging-in-PublicationData
Drobny,Steven.
Theinvisiblehands:hedgefundsofftherecord–rethinkingrealmoney/
StevenDrobny;forewordbyJaredDiamond.
p. cm.
Includesbibliographicalreferencesandindex.
ISBN978-0-470-60753-4(cloth)
1.Hedgefunds. 2.Mutualfunds. 3.Investmentadvisors. 4.Portfoliomanagement.
I.Title.
HG4530.D7432010
332.64(cid:2)524–dc22
2009054061
PrintedintheUnitedStatesofAmerica.
10 9 8 7 6 5 4 3 2 1
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For the taxpayer.
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The whole problem with the world is that fools and fanatics
are always so certain of themselves, but wiser people so full of
doubts.
—Bertrand Russell
Investors are the big gamblers. They make a bet, stay with it,
and if it goes the wrong way, they lose it all.
—Jesse Livermore
Only after disaster can we be resurrected.
—Tyler Durden
Argue for your limitations and they’re yours.
—Richard Bach
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Contents
Foreword by Jared Diamond ix
Preface xv
PART ONE REAL MONEY AND THE CRASH
OF ‘08 1
Chapter 1 Rethinking Real Money 3
Chapter 2 The Researcher: Dr. Andres Drobny,
Drobny Global Advisors 33
Chapter 3 The Family Office Manager: Jim Leitner,
Falcon Management 53
PART TWO THE INVISIBLE HANDS 77
Chapter 4 The House 79
Chapter 5 The Philosopher 111
Chapter 6 The Bond Trader 149
Chapter 7 The Professor 169
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viii CONTENTS
Chapter 8 The Commodity Trader 205
Chapter 9 The Commodity Investor 235
Chapter 10 The Commodity Hedger 269
Chapter 11 The Equity Trader 299
Chapter 12 The Predator 327
Chapter 13 The Plasticine Macro Trader 349
PART THREE FINAL WORD 385
Chapter 14 The Pensioner 387
Conclusion 411
Acknowledgments 415
Bibliography 419
About the Author 427
Index 429