33 results back to index
Albert Einstein, asset allocation, Berlin Wall, Bonfire of the Vanities, Bretton Woods, buy low sell high, capital controls, central bank independence, Chance favours the prepared mind, commodity trading advisor, corporate governance, correlation coefficient, Credit Default Swap, diversification, diversified portfolio, family office, fixed income, glass ceiling, high batting average, implied volatility, index fund, inflation targeting, interest rate derivative, inventory management, Long Term Capital Management, margin call, market bubble, Maui Hawaii, Mexican peso crisis / tequila crisis, moral hazard, new economy, Nick Leeson, oil shale / tar sands, oil shock, out of africa, paper trading, Peter Thiel, price anchoring, purchasing power parity, reserve currency, risk tolerance, risk-adjusted returns, risk/return, rolodex, Sharpe ratio, short selling, Silicon Valley, The Wisdom of Crowds, too big to fail, transaction costs, value at risk, yield curve, zero-coupon bond
Meanwhile, in today’s uncertain world, global imbalances are becoming more pronounced while political, geopolitical, and social instability seem to be evolving more rapidly than traditional investing institutions can manage. The following chapters present the thinking of some of the best minds in the investment world about how they interpret these events and try to profit from them, using what remains the most open and flexible mandate in the investment world: global macro. CHAPTER 4 The Family Office Manager Jim Leitner Falcon Management Wyckoff, New Jersey he sign reads both “Falcon Management” and “Aikido Spirit” outside the sprawling suburban New Jersey house that Jim Leitner calls base for his family office when he is not on the ground scouring for investments in India, the Ivory Coast, or some other far-flung location. Leitner manages mostly his own money and has been doing so for years. As a result, his approach to global macro markets is different from most other fund managers in that he is not long an implicit put option.
We think the future is a combination of the best from the real money world and the best from the hedge fund world to create a new paradigm. The big thing that distinguishes the real money world from the hedge fund world is redemptions. Universities don’t have redemptions, nor do family offices for that matter. Both are going to be around for years so they invest for the long term. Meanwhile, the hedge fund industry invests for the one- to three-month time horizon, which subjects managers to taking inefficiency risk and missing out on opportunities that are longer term in nature. 59 THE FAMILY OFFICE MANAGER 8,000 180 7,000 160 140 Ghana All Share Index Guinness Nigeria 6,000 120 5,000 100 4,000 80 3,000 60 2,000 40 1,000 20 0 4 05 nJa t-0 Oc 4 l-0 4 Ju Ap r-0 3 n04 Ja t-0 Oc 3 Ju l-0 r-0 3 Ap 3 n0 Ja t-0 2 Oc Ju l-0 2 r-0 2 Ap Ja n0 2 0 FIGURE 4.3 Ghana Stock Exchange All Share Index and Guinness Nigeria PLC, 2002–2005 Source: Bloomberg.
—George Soros After a certain high level of technical skill is achieved, science and art tend to coalesce in esthetics, plasticity, and form. The greatest scientists are always artists as well. —Albert Einstein CONTENTS Foreword by Joseph G. Nicholas (HFR Group) ix Preface xi 1. Introduction to Global Macro Hedge Funds by Joseph G. Nicholas (HFR Group) 1 2. The History of Global Macro Hedge Funds 5 3. The Future of Global Macro Hedge Funds 31 4. The Family Office Manager: Jim Leitner (Falcon Management) 35 5. The Prop Trader: Christian Siva-Jothy (SemperMacro) 71 6. The Researcher: Dr.Andres Drobny (Drobny Global Advisors) 103 7. The Treasurer: Dr. John Porter (Barclays Capital) 133 8. The Central Banker: Dr. Sushil Wadhwani (Wadhwani Asset Management) 161 9. The Dot-Commer: Peter Thiel (Clarium Capital) 181 10. The Floor Trader:Yra Harris (Praxis Trading) 199 11.
Albert Einstein, Asian financial crisis, asset allocation, asset-backed security, backtesting, banking crisis, Bernie Madoff, Black Swan, Bretton Woods, BRICs, British Empire, business process, capital asset pricing model, capital controls, central bank independence, collateralized debt obligation, Commodity Super-Cycle, commodity trading advisor, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, diversification, diversified portfolio, equity premium, family office, fiat currency, fixed income, follow your passion, full employment, Hyman Minsky, implied volatility, index fund, inflation targeting, interest rate swap, inventory management, invisible hand, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, market microstructure, moral hazard, North Sea oil, open economy, peak oil, pension reform, Ponzi scheme, prediction markets, price discovery process, price stability, private sector deleveraging, profit motive, purchasing power parity, quantitative easing, random walk, reserve currency, risk tolerance, risk-adjusted returns, risk/return, savings glut, Sharpe ratio, short selling, sovereign wealth fund, special drawing rights, statistical arbitrage, stochastic volatility, The Great Moderation, time value of money, too big to fail, transaction costs, unbiased observer, value at risk, Vanguard fund, yield curve
This is perhaps the greatest lesson of all from the crash: change your views as facts change. It is important to recognize and accept when things don’t work out as you expect. If you are proven wrong, adjust your outlook accordingly. To persistently hold on to views, regardless of changing reality, is a recipe for failure and constant distress. Chapter 3 The Family Office Manager Jim Leitner Falcon Management “ The Family Office Manager” is the most popular chapter in Inside the House of Money. The original interview was assembled from a series of discussions with Jim Leitner, who described his approach as attempting to combine the best of hedge fund investing with the best of real money management. In light of what happened to the real money world in 2008, those conversations provided the inspiration for this book.
Table of Contents Title Page Copyright Page Dedication Praise Foreword Preface Part One - REAL MONEY AND THE CRASH OF ‘08 Chapter 1 - Rethinking Real Money I. Why Real Money? II. The Evolution of Real Money III. RETHINKING REAL MONEY—MACRO PRINCIPLES Chapter 2 - The Researcher Chapter 3 - The Family Office Manager Part Two - The Invisible Hands Chapter 4 - The House Chapter 5 - The Philosopher Chapter 6 - The Bond Trader Chapter 7 - The Professor Chapter 8 - The Commodity Trader Chapter 9 - The Commodity Investor Chapter 10 - The Commodity Hedger Chapter 11 - The Equity Trader Chapter 12 - The Predator Chapter 13 - The Plasticine Macro Trader Part Three - FINAL WORD Chapter 14 - The Pensioner Conclusion Acknowledgements Bibliography About the Author Index Copyright © 2010 by Steven Drobny.
Markets around the world, from real estate to equities to commodities to credit, posted huge declines, taking down with them some of the world’s most venerable financial institutions, a wide variety of alternative asset managers (hedge funds, private equity, venture capital, and real asset managers), and a host of real money accounts (pension funds, insurance companies, endowments, foundations, family offices, and sovereign wealth funds). Almost everyone lost money in 2008, and in many cases more than anyone imagined possible. Anger and confusion linger in the aftermath of the crisis, but are by no means limited to market players. Main Street is reeling as homes and jobs have been lost, savings have evaporated, and many assumptions governing the stability of modern society have been challenged.
All the Money in the World by Peter W. Bernstein
Albert Einstein, anti-communist, Berlin Wall, Bill Gates: Altair 8800, call centre, corporate governance, currency peg, David Brooks, Donald Trump, estate planning, family office, financial innovation, George Gilder, high net worth, invisible hand, Jeff Bezos, job automation, job-hopping, Long Term Capital Management, Martin Wolf, Maui Hawaii, means of production, Menlo Park, Mikhail Gorbachev, new economy, PageRank, Peter Singer: altruism, pez dispenser, popular electronics, Renaissance Technologies, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Sand Hill Road, school vouchers, Search for Extraterrestrial Intelligence, shareholder value, Silicon Valley, Silicon Valley startup, stem cell, Stephen Hawking, Steve Ballmer, Steve Jobs, Steve Wozniak, Thorstein Veblen, too big to fail, traveling salesman, urban planning, William Shockley: the traitorous eight, women in the workforce
But for all their rigidity, trusts remain the best bet for protecting against creditors, divorce, and bad investments, as well as for avoiding the estate tax. At the same time, more and more superwealthy families are also employing family offices to steer them in the right direction. Hamilton estimates there are about four thousand family offices in the United States today, an increase of about one thousand in less than ten years. The offices are customized, offering a range of services from investment decisions and tax advice to philanthropic research, prenuptial agreements, and help with heirs’ education. Some family members may not be wealthy enough to afford all of these services on their own, but as a combined force they have powerful advice at their fingertips. What the family offices excel at, says Todd Millay, is keeping the dividends rolling in. “The best way to make a small fortune is to start with a large one,” he says.
Hunt’s estimated $2 billion fortune was divided, albeit unequally, among fourteen children and forty-plus grandchildren. By 1995 there were 110 direct descendants of John D. Rockefeller, but only three, David Jr. and Laurance from the third generation and Winthrop Paul Rockefeller from the fourth generation, made it onto the Forbes 400. Sara Hamilton of Family Office Exchange, which advises some of America’s wealthiest families, including the Sulzbergers (publishing) and the Weyerhausers (lumber), tells of a Rockefeller family member who turned twenty-one and went along to the family office, only to discover that his inheritance was a mere $2 million. “He’s fifth or sixth generation, but everybody expects because his name is Rockefeller there’s a lot more there,” Hamilton says. “People expect these household names to have a tremendous amount of wealth when, in fact, they may not.
Others whose insights enrich the book included Rich Avanzino, president, Maddie’s Fund; Joe Breiteneicher, president, The Philanthropy Initiative; Kathy Bushkin, chief operating officer, United Nations Foundation; Chuck Collins, cofounder of Responsible Wealth; William Dietel, president, F. B. Heron and Pierson/Lovelace Foundation; Joan DiFuria and Stephen Goldbart, codirectors, Money, Meaning & Choices Institute; Sara Hamilton, of Family Office Exchange; Dr. Lee Hausner, of the family-wealth consulting firm IFF Advisors; John Healy, former president, Atlantic Philanthropies; Todd Millay, executive director, Wharton Global Family Alliance; Aryeh Neier, president of the Open Society Institute; Judith Stern Peck, director of the Money, Values and Family Life Project, Ackerman Institute for the Family; Tim Stone, president, and Ryan Nguyen, research manager, NewTithing Group; Celia Wexler, vice president for advocacy, Common Cause; and Rod Wood, Wilmington Trust.
Getting a Job in Hedge Funds: An Inside Look at How Funds Hire by Adam Zoia, Aaron Finkel
backtesting, barriers to entry, collateralized debt obligation, commodity trading advisor, Credit Default Swap, credit default swaps / collateralized debt obligations, discounted cash flows, family office, fixed income, high net worth, interest rate derivative, interest rate swap, Long Term Capital Management, merger arbitrage, offshore financial centre, random walk, Renaissance Technologies, risk-adjusted returns, rolodex, short selling, side project, statistical arbitrage, systematic trading, unpaid internship, value at risk, yield curve, yield management
Make sure you can speak to everything on your resume, and don’t list deals that you can’t speak about for at least 30 minutes. You don’t want to look like an idiot. You should be able to spin any experience that you’ve had into something that would apply to the job you’re interviewing for. See Resume F in Appendix B on page 168. Case Study 13: A Family Office Becomes a Stepping-Stone This person didn’t focus on a career in hedge funds early on. After completing a banking program he had two different jobs—one at a firm doing acquisitions and another at a family office doing public investing. ■■■ I was an economics major at a small liberal arts college and had no visions of hedge funds. Even though I didn’t have a finance background I interviewed at some investment banks and consulting firms and ended up getting into an investment banking analyst program.
And, of course: Why did you leave your previous fund? There were no trick questions, brainteasers, psychological tests, or handwriting analyses. At this point they really want to know your investment ideas. CASE STUDIES To follow are case studies of five people who broke into hedge funds later in their careers. Of the five examples, one joined from private equity, the second moved over from a family office, another switched from sell-side equity research, a fourth broke in after working in an investment bank, and the last transitioned in after working at a long-only asset management firm. Case Study 12: From Private Equity into Hedge Funds This person spent a couple of years at a private equity shop before making the transition into a hedge fund. This is a good example of someone who got into a fund a little later in their career. ■■■ Before hedge funds my entire career had been in private equity.
I finally received a verbal offer at a dinner with the head of the firm, nearly four months after my initial meeting. I wasn’t a stereotypical investor who began reading the Wall Street Journal at a young age and buying stocks for my own account. In my case, I benefited from my investment banking experience, which gave me a solid foundation in corporate finance, and also from my private equity investing experience at the family office where I worked. My advice to others who aspire to work in a hedge fund would be to get the investment banking training under your “I would recommend that those belt. I don’t think the particular group matters, as most will give interested in hedge funds figure you a solid foundation in finance, capital structures, M&A, and out what they like and don’t like.” financings. I would recommend that those interested in hedge funds figure out what they like and don’t like.
Running Money by Andy Kessler
Andy Kessler, Apple II, bioinformatics, British Empire, business intelligence, buy low sell high, call centre, Corn Laws, family office, full employment, George Gilder, happiness index / gross national happiness, interest rate swap, invisible hand, James Hargreaves, James Watt: steam engine, joint-stock company, joint-stock limited liability company, knowledge worker, Long Term Capital Management, mail merge, margin call, market bubble, Maui Hawaii, Menlo Park, Network effects, packet switching, pattern recognition, pets.com, railway mania, risk tolerance, Sand Hill Road, Silicon Valley, South China Sea, spinning jenny, Steve Jobs, Steve Wozniak, Toyota Production System
I’ve been trying to get my family more involved in technology, but it’s a hard sell.” “Well, it’s a tough sector, but I think it is where all the growth comes from in the next decade. But it’s volatile.” “Most people in the room will tell you it’s way too risky.” “Can I ask you a question?” I asked. “Sure.” “Who are all these people?” “Some individuals but mostly family ofﬁces.” “What does that mean?” I asked. “Well, there are so many children and grandchildren and cousins in wealthy families that usually some of the ones interested in ﬁnance form a family ofﬁce and manage the family’s wealth collectively. You know, allocate assets between ﬁxed income and private equity, pick managers, that sort of stuff.” “But what kind of families?” I asked. Everybody looked pretty normal, not substantial. “Big ones.” “Like what?” “See those guys over there?” “Sure,” I answered, checking out three guys huddled at the next table, poring over documents.
See competitive pricing Defense Department, 101, 184 Dell, 111, 206 Dell, Michael, 121, 162 Dickens, Charles, 93 Diesel, Vin, 249 Digital Equipment, 103 digital music distribution, 205–7 digital revolution, 124–28 digital watches, 127–28 Diller, Barry, 247 Doerr, John, 193, 195, 196, 197 DOS (operating system), 278 dot.coms, 209–16, 223–27, 228–29 Douglas Aircraft, 184 Dow Chemical, 236 Dreadnought (warship), 95 Drexel Burnham, 11 Druckenmiller, Stanley, 293 DSL chips, 204, 205 DVD players, 204, 253–55, 257, 259 DVD read/write drives, 81–82, 84 DVDs, 259 eBay, 247 Ebbers, Bernie, 290 Edify, 106 Efﬁcient Market theory, 176 Eﬂand, Greg, 127 Eisner, Michael, 164–65 Elantec, 80–84, 85, 170, 202–8, 247, 248, 263 Index elasticity, 42, 68, 77, 103 computer costs, 58, 121, 126, 128, 183 e-mail, 70 birth of, 187 design transmission by, 252–53, 258–59 Engelbart, Doug, 125, 185, 190, 197, 199, 247, 259, 279 accomplishments of, 117–22 England. See Britain Enron, 290 Ethernet, 139, 190, 191 Exar, 208 exchange rates, 164, 165, 276 Extreme, 140 Fabless Semiconductor Association, 269–70 fabs (fabrication facilities), 91, 129–34, 199, 250, 251 factories. See manufacturing Faggin, Federico, 126 Fairchild Semiconductor, 101–3, 124 family ofﬁces, 109–10 Fidelity Investments (Fido), 11, 27, 30, 31 ﬁle sharing, 190 Fleet Bank conference (1999), 175–79, 188 Fleet Boston Robertson Stephens conference (2000), 217–20, 225 ﬂying shuttle, 64 Forbes, 40, 195 Forbes ASAP, 195 Foundry, 140 Francis, Stu, 44 Full Service Network, 194 Fulton, Robert, 92 Index Gates, Bill, 121, 125, 126, 127, 258 GDP, 237, 274 GDS-II ﬁles, 252, 254 General Electric, 274 General Magic, 97–98, 142 General Motors, 172, 241, 243, 267, 269, 277 genomic sorting, 296 GeoCities, 213 George III, King, 51, 56 Ghana, 280, 281–83, 294, 295 gigabit companies, 139–40 Gilder, George, 183 Global Crossing, 183, 187, 290 GM.
See venture capitalists venture capitalists, 130, 138, 139, 144–45, 194, 197–98, 201 VentureStar, 3 Verity, 97 Versant, 60–63, 96 Vietnam, 281 Visigenic, 106 Vonderschmitt, Bernie, 129–31 voodoo economics, 276 Wall Street Journal, 216, 259 Wal-Mart, 78, 255 WANS, 188, 199 Warner Brothers, 71 warships, 95 watches, digital, 127–28 waterfalls (big-time trends), 73, 77–79, 225, 279, 295 Water Frame, 65 Watt, James, 53–55, 57, 65, 66, 78, 89, 91, 95, 125–26, 190, 268 wealth, 278, 280 creation of, 248, 257, 275–76, 296 family ofﬁces and, 109–10 intellectual property and, 263 meaning of, 233–35 weaving, 64–65, 66 Web. See Internet Western Digital, 128 Whitaker Investments, 176 Whitney, Eli, 67 wide area networks, 188, 199 Wilkinson, John, 51–52, 56–57, 78, 101, 268 William Morris Agency, 196 Windows, 197, 247, 259, 274, 276, 277 Winnick, Gary, 183, 187, 290 Winstar, 179 Wintel, 265, 277 wireless technology, 179, 296 worker training, 122 World Bank, 264 WorldCom, 225, 290 Worldtalk, 106 Wozniak, Steve, 128 Wynn, Steve, 50 Xanadu, 118 Xerox PARC (Palo Alto Research Center), 118, 189, 190–91 Xilinx, 130, 131 Yahoo, 92, 93, 136, 143, 223, 247 Yamaichi, 160 Yamamoto, Takatoshi, 154–61 yen-carry trade, 162–65, 168, 292 Z80 home computer, 127 Zilog, 127 Zona, Hank, 131 Zoran, 96 About the Author Andy Kessler is the author of the book that rippled through the financial world, Wall Street Meat: My Narrow Escape from the Stock Market Grinder.
Money Mavericks: Confessions of a Hedge Fund Manager by Lars Kroijer
Bernie Madoff, capital asset pricing model, diversification, diversified portfolio, family office, fixed income, forensic accounting, Gordon Gekko, hiring and firing, implied volatility, index fund, Jeff Bezos, Just-in-time delivery, Long Term Capital Management, merger arbitrage, new economy, Ponzi scheme, risk-adjusted returns, risk/return, shareholder value, Silicon Valley, six sigma, statistical arbitrage, Vanguard fund, zero-coupon bond
Although none were my closest friends, they were all people I knew quite well. I expected some of the natural scepticism that rich people often display towards ‘friends’ who ask for favours, but soon found that they had much more sophisticated ways of saying no. Nobody actually took offence or suggested that I was only friends with their money. On the contrary, they would try to help me by introducing me to either the main investment person at their family office (if they were very wealthy, with above say $100 million in assets) or, for the slightly less well-off, their private banker. Max Liechtenstein introduced me to LGT; one of the Rockefeller heirs introduced me to their fund, etc. As I followed up with these professional advisers, a common theme emerged. The advisers would often go out of their way to show that they already knew about Holte. It was just that they had decided that the investment did not fit their investment criteria for reasons that had nothing to do with Holte, but rather to do with the brilliant investment strategy they had planned for the family.
As if it hadn’t already done so. That evening on my way home from work I stopped to buy flowers for Puk to reinforce my commitment to our wedding. I was standing by the cash register with my ‘reduced to clear’ bouquet when Borut, a friend from college, saw me. ‘No wonder you get all the girls,’ he laughed. The race to find investors for $1–2 million meant hitting up the smaller funds of funds and family offices we had met while fund-raising and paying them special attention that many of them were not used to. When an investor with a potential investment of $1–2 million approaches a multi-billion-dollar hedge fund they might get a meeting with marketing person number six, but the George Soros equivalent is unlikely to find time in his schedule. At Holte Capital they would get all the love and attention they could desire.
A Chicago-based fund of funds decided to invest $2 million and committed to investing another $1 million the following month if there were also other investors investing more. They liked what we did and that our initial returns had no market correlation. The $2 million meant we could keep going at least another couple of months. The following month we built on the momentum. A UK fund invested $2.5 million, a Kuwaiti family office invested $1 million, and a New York-based fund of funds invested $750,000. With these new investments, our new friends from Chicago kept their commitment and invested a further $1 million. Excellent. From being a $3.5 million hedge fund on 31 January 2003 we went to work on the morning of 1 March running a hedge fund of around $11 million. Not quite a big-time hedge fund, but fast getting towards the break-even point where we could cover our expenses.
The Panama Papers: Breaking the Story of How the Rich and Powerful Hide Their Money by Frederik Obermaier
banking crisis, blood diamonds, credit crunch, crony capitalism, Deng Xiaoping, Edward Snowden, family office, high net worth, income inequality, liquidationism / Banker’s doctrine / the Treasury view, Mikhail Gorbachev, mortgage debt, offshore financial centre, optical character recognition, out of africa, race to the bottom, We are the 99%, WikiLeaks
By all appearances, this yacht is also held by a shell company in another tax haven. All perfectly organized by a professional family office. But is it normal to set up one offshore company here, one there, and another over there? In the world of the mega-rich, the answer is evidently: yes. [ ] At some point towards the end of the last century, a parallel universe emerged in which the ‘uber-wealthy’, a term used in America to describe the richest of the rich, park their assets somewhere offshore, simply as a matter of course. The number of very rich and very famous families in our data who have parked part of their assets in shell companies is in three figures. The asset managers of all the family offices, exclusive private banks and large VIP departments of the major banks assist with this. If you ask anyone employed in this secretive industry why the money almost automatically ends up offshore, you will be told that it certainly doesn’t have anything to do with tax avoidance or tax evasion.
In fact, according to the charity Oxfam, the top 1 per cent of the global population has more wealth than the rest of the world put together. It’s hardly surprising that a booming industry has formed around this 1 per cent, existing solely by adding to this tremendous wealth. Part of this industry is represented in our data, involving almost every country and thousands of companies. It’s the family offices, asset management companies, banks, investment advisers, tax experts, and of course Mossack Fonseca itself. All for the 1 per cent. [ ] One per cent. From that figure, an established political term has evolved to denote the richest 1 per cent of a country. In the US, the term was turned on its head to provide the slogan of a political movement: ‘We are the 99%’. This was chanted by supporters of the Occupy Wall Street movement; ‘99%’ was scrawled across placards and banners.
How to Kick Ass on Wall Street by Andy Kessler
Andy Kessler, Bernie Madoff, buttonwood tree, call centre, collateralized debt obligation, family office, fixed income, hiring and firing, invention of the wheel, invisible hand, London Whale, margin call, NetJets, Nick Leeson, pets.com, risk tolerance, Silicon Valley, sovereign wealth fund, time value of money, too big to fail, value at risk
It’s not easy and it’s not obvious and chances are if you ask a random person about it they will look at you with a blank stare and tell you to leave them alone. Another reason to pick the right mentor. I think your goal is to visualize and what the heck, actually draw a picture of how money flows or, as I like to say, sloshes around Wall Street. You need to see how the pieces are interconnected. Start with the asset managers on the buy side, the hedge funds, family offices, endowments, pensions, sovereign wealth funds, thrifts, insurance companies, venture capital firms, private equity firms, financial investors, rich dudes, who is servicing who and how does the money end up in the right hands. Then on the sell side, start connecting the dots between the bulge bracket firms, universal banks, broker dealers, wire houses, wealth platforms and intermediaries. And when a trade is executed, who touches it.
algorithmic trading, automated trading system, backtesting, corporate governance, Credit Default Swap, diversification, en.wikipedia.org, family office, financial innovation, fixed income, index arbitrage, index fund, interest rate swap, linked data, market fragmentation, natural language processing, quantitative trading / quantitative ﬁnance, random walk, risk tolerance, risk-adjusted returns, short selling, statistical arbitrage, Steven Levy, transaction costs, yield curve
STN currently has Passport, and SunGard’s BRASS and Broker Direct U2. 15.3 Order Management Systems The source for information provided in this section is Capital Institutional Services, Inc. Fourth Quarter 2005. Advent Moxy Moxy (see www.advent.com) is licensed by bank trust departments, money managers, broker-dealers, wrap sponsors, financial planners, hedge funds, mutual funds, corporations, family offices, and insurance companies. 176 Electronic and Algorithmic Trading Technology The range of assets under management is from $100 million to over $40 billion, with the typical client having between $3 to $5 billion in assets under management. Moxy is currently licensed at over 630 firms and has a presence in the United States, Europe, Canada, Mexico, Australia, and the Far East. Moxy runs on Microsoft SQL Server 2000.
Advent Software, Inc. is a provider of Enterprise Investment Management solutions, offering stand-alone and client/server software products, data interfaces, and related services that automate and integrate missioncritical functions of investment management organizations. Advent has licensed its products to more than 6,000 financial institutions in 36 countries for use by more than 60,000 concurrent users. The company’s common stock is traded on the NASDAQ National Market under the symbol ADVS. Antares Antares (see www.ssctech.com) is marketed and sold to buy-side money managers including hedge funds, family offices, institutional asset managers, proprietary trading desks, short-term (money market) desks, pension funds, and mutual funds. The range of assets under management for an Antares client is from $100 million for some of the smaller hedge funds, and up to $75 billion for the larger asset managers. The typical Antares client has $1 to $10 billion in assets under management. Antares has an open database client/ server (Sybase or Microsoft SQL Server) architecture, which runs on the Windows Server operating system and/or Solaris UNIX.
Portfolio Design: A Modern Approach to Asset Allocation by R. Marston
asset allocation, Bretton Woods, capital asset pricing model, capital controls, carried interest, commodity trading advisor, correlation coefficient, diversification, diversified portfolio, equity premium, Eugene Fama: efficient market hypothesis, family office, financial innovation, fixed income, German hyperinflation, high net worth, hiring and firing, housing crisis, income per capita, index fund, inventory management, Long Term Capital Management, mortgage debt, passive investing, purchasing power parity, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, Sharpe ratio, Silicon Valley, superstar cities, transaction costs, Vanguard fund
In this program, which Charlotte Beyer of the Institute for Private Investors and I founded in 1999, the investors themselves come to Wharton for a week to learn about how to invest their wealth. As of 2010, almost 600 ultra-high net worth investors have taken part in this program. This program has given me perspective from the investor’s side of the advisor-investor relationship. I have also had extensive experience as an advisor to the family offices of ultra-high net worth investors and as a consultant to pension funds and endowments. What I have learned is that investing isn’t easy. But as shown in this book, thoughtful asset allocation provides discipline to the investment process and gives the best chance of building and safeguarding wealth. The purpose of this book then is to help guide the investment advisor through all of the major decisions in designing a portfolio.
Marston has taught asset allocation in the CIMA investment management certificate program at Wharton since the program was founded in 1988. He has also given investment presentations throughout this country as well as in more than a dozen countries in Europe, Latin America, and Asia. Since 1999, he has directed the Private Wealth Management Program at Wharton, a program for ultra-high net worth investors. He also serves as an advisor to several family offices and investment companies. xvii P1: TIX/b FM P2: c/d QC: e/f JWBT412-Marston T1: g January 6, 2011 10:37 xviii Printer: Courier Westford P1: TIX/b FM P2: c/d QC: e/f JWBT412-Marston T1: g January 6, 2011 10:37 Printer: Courier Westford About the Book his is a book designed to be read by investment advisors. The book is rich in information about individual asset classes, including both traditional assets like stocks and bonds as well as alternative investments such as hedge funds, private equity, real estate, and commodities.
Markowitz (1952) introduced the efficient frontier, the combination of portfolio returns and risks that maximize return for a given risk. The efficient frontier is discussed in Chapter 8. 2. Ibbotson SBBI returns are reported in SBBI Yearbooks (©2010 Morningstar). See Note 5. 3. David Swensen has written two books of interest to investors. Swenson (2005) is written for ordinary investors while Swensen (2009, 2nd edition) describes investment strategies for institutional investors (or family offices). 4. Technically, there have been ten recessions since 1951 because the recession in the early 1980s was actually a double dip downturn with a recession from January 1980 to July 1980 followed by a second recession from July 1981 to November 1982. In Table 1.1, only the second deeper recession is examined. R R SBBI 2010 Classic Yearbook, ©2010 Morningstar. All rights 5. Ibbotson reserved. Used with permission.
The Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds by Maneet Ahuja, Myron Scholes, Mohamed El-Erian
Asian financial crisis, asset allocation, asset-backed security, backtesting, Bernie Madoff, Bretton Woods, business process, call centre, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, en.wikipedia.org, family office, fixed income, high net worth, interest rate derivative, Isaac Newton, Long Term Capital Management, Mark Zuckerberg, merger arbitrage, NetJets, oil shock, pattern recognition, Ponzi scheme, quantitative easing, quantitative trading / quantitative ﬁnance, Renaissance Technologies, risk-adjusted returns, risk/return, rolodex, short selling, Silicon Valley, South Sea Bubble, statistical model, Steve Jobs, systematic trading
When Cowen decided to raise money for a fund, the Robert M. Bass Group, then a client of the firm, offered to provide Cowen with virtually all of the capital. After Cowen refused to take all of the Bass capital, the siblings decided to leave the firm and go work for Bass. “Once we got to the Bass organization, we realized it was a pretty unique place. It’s difficult now to fathom, but back then the only people who really had capital were wealthy family offices,” remembers Lasry. The Robert M. Bass Group, later called Keystone, Inc., had been known as a breeding ground for some of the world’s top private equity investors, including David Bonderman, who went on to found Texas Pacific Group (TPG), and Richard Rainwater. When Marc and Sonia joined the Bass Group, they were given a portfolio of $75 million to invest in trade claims, bank debt and senior bonds.
Investors appreciate that level of focus on the portfolio, which is part of the reason Avenue has been able to continue to raise new funds over the years. The firm’s investor base has undergone a dramatic evolution from its start in 1995, when its capital came from friends and family. At the end of 2011, public and corporate pension fund capital comprised over 50 percent of the firm’s assets. Foundations, endowments, family offices, and insurance companies made up much of the remainder, with less than one percent drawn from high-net-worth individuals. Charles Spiller, Director of the Pennsylvania Public School Employees Retirement System, started investing with Avenue after an introduction from New York Life in late 2000 and has seen a 10-year track record in their private equity portfolio of between 15 percent and 17 percent.
The New New Thing: A Silicon Valley Story by Michael Lewis
Albert Einstein, Andy Kessler, business climate, Chance favours the prepared mind, data acquisition, family office, high net worth, invention of the steam engine, invisible hand, Jeff Bezos, Menlo Park, pre–internet, risk tolerance, Sand Hill Road, Silicon Valley, Silicon Valley startup, Thorstein Veblen, Y2K
He disliked stock brokersso much that he ignored their advice to diversify and kept all his wealth in Netscape and Healtheon. He disliked venture capitalists and investment bankers and, in general, the phalanx of financial intermediaries who sat between the creators of wealth and their just desserts. At first he decided that what he really wanted was what rich people have always had: a family office. The rich man's family office is normally a staff of people who do nothing but take care of the rich man's money. Money butlers. Pretty quickly, however, he realized he wanted more than a money butler. He wanted to be able to watch what his money butlers did. He wanted to be able to take in every aspect of his money at a glace, no matter where on earth he happened to be, and at what time. The Internet was perfectly suited to what he had in mind.
Hedge Fund Market Wizards by Jack D. Schwager
asset-backed security, backtesting, banking crisis, barriers to entry, Bernie Madoff, Black-Scholes formula, British Empire, Claude Shannon: information theory, cloud computing, collateralized debt obligation, commodity trading advisor, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, delta neutral, diversification, diversified portfolio, family office, financial independence, fixed income, Flash crash, hindsight bias, implied volatility, index fund, James Dyson, Long Term Capital Management, margin call, market bubble, market fundamentalism, merger arbitrage, oil shock, pattern recognition, pets.com, Ponzi scheme, private sector deleveraging, quantitative easing, quantitative trading / quantitative ﬁnance, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Sharpe ratio, short selling, statistical arbitrage, Steve Jobs, systematic trading, technology bubble, transaction costs, value at risk, yield curve
Ironically, based on the trades Lewis described, I drew a very different impression about the balance between luck and skill in driving the success of Cornwall Capital (Mai’s firm) than Lewis himself did. Lewis’s colorful narrative of Cornwall as a hedge fund started in a shed on a shoestring budget, trading a small brokerage account, gave no hint of the firm’s institutional context. The reality is a bit duller. Cornwall was originally founded as a family office to diversify the capital of Mai’s father, who ran AEA Investors, a prominent, long-standing private equity firm that was recently rated one of the 10 most consistent performing buyout fund managers in the world. Shortly after he started Cornwall, Mai was joined by Charlie Ledley, a former colleague from a private equity firm at which they had both worked. A third key principal, Ben Hockett, joined Cornwall in 2005 as head trader.
Although this particular trade was unusually profitable—Cornwall ultimately made about 80 times the initial premium they paid out for subprime default protection—it was entirely representative of the types of trades Cornwall seeks out. Beginning in May 2011, Cornwall switched to a new fund structure open to outside investors. Through the years, Mai had encountered several outstanding trade opportunities that could easily accommodate far more capital than his family office could invest. In a few of those instances, he explored the possibility of raising outside investor money to participate in the trade idea, but decided the lag involved was too long. The catalyst that finally convinced Mai to restructure the fund to accommodate investors was born of the frustration of being unable to participate in a rare pure arbitrage opportunity in 2008 because he lacked sufficient assets.1 Mai decided to open the fund to only a handful of like-minded, sophisticated investors with whom he could be reasonably transparent and share ideas, rather than seeking to maximize assets under management.
Based on the numbers in the book, it sounded like you multiplied your initial $110,000 stake more than a thousandfold, which sounds a bit incredulous. It is, though in fairness to Michael he had one major constraint in telling our story, which was that he had to leave my family out of it. My father has run one of the oldest leveraged buyout firms in the United States for over 20 years, and before that he ran the investment bank for Lehman Brothers. Cornwall Capital is a family office he and I formed together in 2002. The whole conceit of three dropouts lacking in direction and operating on a shoestring budget made good copy while preserving my family’s privacy, but it didn’t accurately reflect the fact that we had capital and a clear idea of how we wanted to evolve our investment approach. We did our first trade in my small Schwab account because we hadn’t finalized the structure of the family’s comingled investment vehicle.
Women Leaders at Work: Untold Tales of Women Achieving Their Ambitions by Elizabeth Ghaffari
Albert Einstein, AltaVista, business process, cloud computing, Columbine, corporate governance, corporate social responsibility, dark matter, family office, Fellow of the Royal Society, financial independence, follow your passion, glass ceiling, Grace Hopper, high net worth, knowledge worker, Long Term Capital Management, performance metric, pink-collar, profit maximization, profit motive, recommendation engine, Ronald Reagan, shareholder value, Silicon Valley, Silicon Valley startup, Steve Ballmer, Steve Jobs, thinkpad, trickle-down economics, urban planning, women in the workforce, young professional
I got a great deal of drive and competitive verve from him. My mother was extremely supportive and always told me I could do anything I set my mind to. Those were the people who continued to give me strength throughout my early background and career. I have a wonderful husband, four great step-children, and two “feline” children. My step-kids range in ages from twenty-two to thirty-two years old. My husband, Stewart Smith, manages investments—the family office—for his family. He is very involved in philanthropy and gives generously of his time, skill, and money. Ghaffari: Do you find it easy to balance work and the rest of your life? Ferracone: I don’t see it as work-life balance. I see it as successfully blending work-life priorities. I work extremely hard and a lot of hours. The entrepreneurial thing kind of lends itself to this. It has no boundaries.
Laura Roden Founder and Managing Director, VC Privé, LLC Born in Los Angeles, California. Laura Roden is founder and managing director of VC Privé, LLC, a boutique investment bank that, since its establishment in January 2007, has raised money for high-quality, alternative asset funds such as venture capital funds, hedge funds, and distressed debt funds. Her firm specializes in marketing funds to private investors, including high-net-worth individuals, family offices, foundations, endowments, and independent financial advisors. Ms. Roden holds Series 7, 66, and 79 licenses to sell securities and provide investment advisory services. Previously, Ms. Roden was managing director of The Angels’ Forum, a leading association of individual and corporate early-stage investors, and was president and CEO of the Silicon Valley Association of Startup Entrepreneurs (SVASE), the largest nonprofit in Northern California dedicated to helping technology entrepreneurs.
No One Would Listen: A True Financial Thriller by Harry Markopolos
backtesting, barriers to entry, Bernie Madoff, call centre, centralized clearinghouse, correlation coefficient, diversified portfolio, Emanuel Derman, Eugene Fama: efficient market hypothesis, family office, fixed income, forensic accounting, high net worth, index card, Long Term Capital Management, Louis Bachelier, offshore financial centre, Ponzi scheme, price mechanism, quantitative trading / quantitative ﬁnance, regulatory arbitrage, Renaissance Technologies, risk-adjusted returns, risk/return, rolodex, Sharpe ratio, statistical arbitrage, too big to fail, transaction costs
“With the amount of trading Madoff would have to do,” he told Ocrant, “you’d see those fluctuations—and they aren’t there.” Point by point Ocrant confirmed Frank’s claims about Madoff. And just as had happened to us, the more he learned the more intrigued he became. Madoff’s name began slipping into most of his conversations. He was on the phone one afternoon with Hunt Taylor, the former chairman of the Cotton Exchange who was then managing the family office for the Stern family, owners of Hartz Mountain. Whatever the original purpose of the call, eventually Ocrant found himself asking the now-familiar question: “Have you ever heard about Bernie Madoff managing money?” “God,” Taylor responded. “It’s funny you should mention that, because I just came back from a conference, and me and a bunch of guys were sitting around the table talking about that.
The acknowledged Madoff feeder funds—New York-based Fairfield Sentry and Tremont Advisors’ Broad Market; Kingate, operated by FIM of London; and Swiss-based Thema—derive all the incentive fees generated by the program’s returns (there are no management fees), provide all the administration and marketing for them, raise the capital and deal with investors, says Madoff. Madoff Securities’ role, he says, is to provide the investment strategy and execute the trades, for which it generates commission revenue. [Madoff Securities also manages money in the program allocated by an unknown number of endowments, wealthy individuals and family offices. While Bernie Madoff refuses to reveal total assets under management, he does not dispute that the figure is in the range of $6 billion to $7 billion.] Madoff compares the firm’s role to a private managed account at a broker-dealer, with the broker-dealer providing investment ideas or strategies and executing the trades and making money off the account by charging commission on each trade.
Connectography: Mapping the Future of Global Civilization by Parag Khanna
1919 Motor Transport Corps convoy, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, 9 dash line, additive manufacturing, Admiral Zheng, affirmative action, agricultural Revolution, Airbnb, Albert Einstein, amateurs talk tactics, professionals talk logistics, Amazon Mechanical Turk, Asian financial crisis, asset allocation, autonomous vehicles, banking crisis, Basel III, Berlin Wall, bitcoin, Black Swan, blockchain, borderless world, Boycotts of Israel, Branko Milanovic, BRICs, British Empire, business intelligence, call centre, capital controls, charter city, clean water, cloud computing, collateralized debt obligation, complexity theory, corporate governance, corporate social responsibility, credit crunch, crony capitalism, crowdsourcing, cryptocurrency, cuban missile crisis, data is the new oil, David Ricardo: comparative advantage, deglobalization, deindustrialization, dematerialisation, Deng Xiaoping, Detroit bankruptcy, diversification, Doha Development Round, edge city, Edward Snowden, Elon Musk, energy security, ethereum blockchain, European colonialism, eurozone crisis, failed state, Fall of the Berlin Wall, family office, Ferguson, Missouri, financial innovation, financial repression, forward guidance, global supply chain, global value chain, global village, Google Earth, Hernando de Soto, high net worth, Hyperloop, ice-free Arctic, if you build it, they will come, illegal immigration, income inequality, income per capita, industrial robot, informal economy, Infrastructure as a Service, interest rate swap, Internet of things, Isaac Newton, Jane Jacobs, Jaron Lanier, John von Neumann, Julian Assange, Just-in-time delivery, Kevin Kelly, Khyber Pass, Kibera, Kickstarter, labour market flexibility, labour mobility, LNG terminal, low cost carrier, manufacturing employment, mass affluent, megacity, Mercator projection, microcredit, mittelstand, Monroe Doctrine, mutually assured destruction, New Economic Geography, new economy, New Urbanism, offshore financial centre, oil rush, oil shale / tar sands, oil shock, openstreetmap, out of africa, Panamax, Peace of Westphalia, peak oil, Peter Thiel, Plutocrats, plutocrats, post-oil, post-Panamax, private military company, purchasing power parity, QWERTY keyboard, race to the bottom, Rana Plaza, rent-seeking, reserve currency, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Scramble for Africa, Second Machine Age, sharing economy, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, six sigma, Skype, smart cities, Smart Cities: Big Data, Civic Hackers, and the Quest for a New Utopia, South China Sea, South Sea Bubble, sovereign wealth fund, special economic zone, spice trade, Stuxnet, supply-chain management, sustainable-tourism, TaskRabbit, telepresence, the built environment, Tim Cook: Apple, trade route, transaction costs, UNCLOS, uranium enrichment, urban planning, urban sprawl, WikiLeaks, young professional, zero day
Like the sturdy iron Silk Roads stretching across Eurasia, these vectors form a new “permanent capital” with longer time horizons, greater ability to withstand volatility, and stronger appetite to invest globally. The world’s billionaires, whose total number has doubled since the financial crisis to more than two thousand, are emblematic of this trend. Billionaires are both individuals and instividuals—institutional individuals—that can operate on the scale of companies through their own family offices. Their financial orbits represent the world’s single largest pool of capital at $46 trillion. They are joined by pension funds whose investable capital is over $40 trillion. While European pension portfolios lead the way in infrastructure investments abroad, Asian funds (which represent half of the top twenty) are aggressively joining them in scouring ever more globally for returns to meet their rising domestic obligations, along the way lobbying aggressively for China, India, Nigeria, Turkey, Mexico, and others to raise their quotas for foreign investment in specific sectors such as real estate, telecoms, financial services, and infrastructure.9 Insurance funds represent another $30 trillion in assets that have been historically rooted in national portfolios but today have also become more like capital networks looking for greater exposure to local markets.
Furthermore, countries that export lucrative services such as computer programming, back-office research, and medical X-ray consultation get the double bonus of attracting far more foreign investment into these sectors: more investment in, more exports out. The cost of financing technology companies has also plummeted. Venture capitalists and Wall Street banks now coexist in a much larger funding ecosystem alongside family offices, angel investors, and crowd-funding platforms such as Kickstarter, collectively delivering more capital more effectively than cumbersome public markets did in the past. But the new economy needs the old economy: Digital services advance through modernized infrastructure. It is the combination of improved physical infrastructure and e-commerce that makes the supply chain world an increasingly seamless physical-virtual hybrid marketplace of goods, services, payments, and delivery.
Investment: A History by Norton Reamer, Jesse Downing
Albert Einstein, algorithmic trading, asset allocation, backtesting, banking crisis, Berlin Wall, Bernie Madoff, Brownian motion, buttonwood tree, California gold rush, capital asset pricing model, Carmen Reinhart, carried interest, colonial rule, credit crunch, Credit Default Swap, Daniel Kahneman / Amos Tversky, debt deflation, discounted cash flows, diversified portfolio, equity premium, estate planning, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, family office, Fellow of the Royal Society, financial innovation, fixed income, Gordon Gekko, Henri Poincaré, high net worth, index fund, interest rate swap, invention of the telegraph, James Hargreaves, James Watt: steam engine, joint-stock company, Kenneth Rogoff, labor-force participation, land tenure, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, margin call, means of production, Menlo Park, merger arbitrage, moral hazard, mortgage debt, Network effects, new economy, Nick Leeson, Own Your Own Home, pension reform, Ponzi scheme, price mechanism, principal–agent problem, profit maximization, quantitative easing, RAND corporation, random walk, Renaissance Technologies, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, Sand Hill Road, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spinning jenny, statistical arbitrage, technology bubble, The Wealth of Nations by Adam Smith, time value of money, too big to fail, transaction costs, underbanked, Vanguard fund, working poor, yield curve
Separate account management is usually highly customized and responsively provided, which means that qualifying clients normally ﬁnd such investment services attractive and convenient. In the past few decades, a broad system of private wealth management has been created, bringing the features of a family office to a wider, albeit still limited, audience. This system takes into account the complicated needs of wealthy individuals, providing for estate planning and, importantly, keeping an asset base secure. Unlike a dedicated family office, private banking does not involve an entire organization devoted to the wealth of a single individual or family. However, private banking does require investors to have a high level of assets, and it provides personally tailored investment advising and other services that commercial bank branches and retail brokerages do not offer.52 J.
Trend Commandments: Trading for Exceptional Returns by Michael W. Covel
Albert Einstein, Bernie Madoff, Black Swan, commodity trading advisor, correlation coefficient, delayed gratification, diversified portfolio, en.wikipedia.org, Eugene Fama: efficient market hypothesis, family office, full employment, Lao Tzu, Long Term Capital Management, market bubble, market microstructure, Mikhail Gorbachev, moral hazard, Nick Leeson, oil shock, Ponzi scheme, prediction markets, quantitative trading / quantitative ﬁnance, random walk, Sharpe ratio, systematic trading, the scientific method, transaction costs, tulip mania, upwardly mobile, Y2K
How could Swensen not understand a simple trend following system? This is a game of misses. The guy who misses the best is going to win.3 One trend trader countered: “If you are going to give a systems trader the label ‘black box’ then all those guys predicting the future, at least have the consistency to call them the crystal ball.”4 Wall Street needs a spin or a narrative to sell, and they all sell similar stories. Pension funds, family offices, fund of funds, and others who allocate money, like to herd. These gatekeepers always move in lockstep. They blindly follow the worst investing schemes, and continually knock sound strategies such as trend following—with terms like black box.5 Why? So many are motivated by what matters least. Namely, quick money (the quicker the better) at whoever’s expense. That’s how Many on Wall Street don’t want the financial world got so close to above average returns.
Affordable Care Act / Obamacare, algorithmic trading, Andrei Shleifer, asset-backed security, availability heuristic, bank run, banking crisis, Black-Scholes formula, bonus culture, Bretton Woods, call centre, Carmen Reinhart, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Graeber, diversification, diversified portfolio, Edmond Halley, Edward Glaeser, Eugene Fama: efficient market hypothesis, eurozone crisis, family office, financial deregulation, financial innovation, fixed income, Flash crash, Google Glasses, Gordon Gekko, high net worth, housing crisis, Hyman Minsky, implied volatility, income inequality, index fund, Innovator's Dilemma, interest rate swap, Kenneth Rogoff, Kickstarter, late fees, London Interbank Offered Rate, Long Term Capital Management, loss aversion, margin call, Mark Zuckerberg, McMansion, mortgage debt, mortgage tax deduction, Network effects, Northern Rock, obamacare, payday loans, peer-to-peer lending, Peter Thiel, principal–agent problem, profit maximization, quantitative trading / quantitative ﬁnance, railway mania, randomized controlled trial, Richard Feynman, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, short selling, Silicon Valley, Silicon Valley startup, Skype, South Sea Bubble, sovereign wealth fund, statistical model, transaction costs, Tunguska event, unbanked and underbanked, underbanked, Vanguard fund, web application
Lenders were often no better: like other auction sites, Prosper found that there was a small group of people whose goal was to win the auction no matter how low the rate they received as a result. This sort of foolishness is not just restricted to retail investors. MarketInvoice, an electronic platform in London that allows small firms to sell off their outstanding invoices at a discount, also used to run auctions. Its investors were not members of the public, but high-net-worth individuals, family offices, and specialist funds. Even so, it observed exactly the same kind of behavior, with investors determined to invest their allocation of money no matter what and bidding discounts down to minuscule levels. Prosper’s experiment with an auction system has long since ended. It now assesses borrowers itself and puts them into risk bands that come with a preordained interest rate attached. Lending Club, Zopa, MarketInvoice, and others do the same thing.
The Crisis of Crowding: Quant Copycats, Ugly Models, and the New Crash Normal by Ludwig B. Chincarini
affirmative action, asset-backed security, automated trading system, bank run, banking crisis, Basel III, Bernie Madoff, Black-Scholes formula, buttonwood tree, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, corporate governance, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, delta neutral, discounted cash flows, diversification, diversified portfolio, family office, financial innovation, financial intermediation, fixed income, Flash crash, full employment, Gini coefficient, high net worth, hindsight bias, housing crisis, implied volatility, income inequality, interest rate derivative, interest rate swap, labour mobility, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low skilled workers, margin call, market design, market fundamentalism, merger arbitrage, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, Northern Rock, Occupy movement, oil shock, price stability, quantitative easing, quantitative hedge fund, quantitative trading / quantitative ﬁnance, Ralph Waldo Emerson, regulatory arbitrage, Renaissance Technologies, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, Sharpe ratio, short selling, sovereign wealth fund, speech recognition, statistical arbitrage, statistical model, systematic trading, The Great Moderation, too big to fail, transaction costs, value at risk, yield curve, zero-coupon bond
LTCM also approached Julian Robertson of Tiger Management, but he declined. On August 26, Eric Rosenfeld and John Meriwether asked Warren Buffett for money. The next morning, Larry Hilibrand went to Omaha, Nebraska, to talk to Buffett. Buffett declined to invest because he thought the portfolio was too complicated. Myron Scholes called William Sharpe, another Nobel prizewinner in economics, to ask him for money from a family office that Bill Sharpe was advising. Again, LTCM’s trades looked too complicated. Despite the many negative responses, it seemed that LTCM had enough commitments for capital. On the anticipated closing day, August 31, George Soros’s Quantum Fund pulled out its large stake: $500 million. That was it. LTCM was desperate. Who would LTCM call next? In the end, a letter would seal its fate. The Meriwether Letter LTCM ended 1997 with $4.668 billion in capital; the partners controlled a little more than $2 billion.
To classify as a foreign private advisor means to have no place of business in the United States fewer than 15 U.S.-based clients and investors in the funds, have assets under management attributable to U.S. clients of less than $25 million or a higher amount approved by the SEC, and do not advertise themselves to the U.S. public as an investment advisor. Third, advisors to small business companies and family offices are exempt. Finally, advisors to one or more private funds with less than $150 million will not have to register, but will still have to file reports with the SEC. These rules will affect roughly 20% of the hedge fund world in terms of the number of hedge funds and about 97% in terms of assets under management. The registration will require hedge funds that qualify to report total assets under management, types of assets held, use of leverage, counterparty credit exposure, trading and investment positions, trading practices, valuation policies and practices, side letters or arrangement trading which treats different investors differently, and information the SEC deems to be in the public interest or required for systemic risk monitoring.
Currency Wars: The Making of the Next Gobal Crisis by James Rickards
Asian financial crisis, bank run, Benoit Mandelbrot, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, borderless world, Bretton Woods, BRICs, British Empire, business climate, capital controls, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, Deng Xiaoping, diversification, diversified portfolio, Fall of the Berlin Wall, family office, financial innovation, floating exchange rates, full employment, game design, German hyperinflation, Gini coefficient, global rebalancing, global reserve currency, high net worth, income inequality, interest rate derivative, Kenneth Rogoff, labour mobility, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, money: store of value / unit of account / medium of exchange, Network effects, New Journalism, Nixon shock, offshore financial centre, oil shock, open economy, paradox of thrift, price mechanism, price stability, private sector deleveraging, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, Ronald Reagan, sovereign wealth fund, special drawing rights, special economic zone, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, time value of money, too big to fail, value at risk, War on Poverty, Washington Consensus
The fact is, currency wars are fought globally in all major financial centers at once, twenty-four hours per day, by bankers, traders, politicians and automated systems—and the fate of economies and their affected citizens hang in the balance. Participation in currency wars today is no longer confined to the national issuers of currency and their central banks. Involvement extends to multilateral and global institutions such as the IMF, World Bank, Bank for International Settlements and United Nations, as well as private entities such as hedge funds, global corporations and private family offices of the superrich. Whether as speculators, hedgers or manipulators these private institutions have as much influence over the fate of currencies as the nations that issue them. To see that the battle lines are global, not neatly confined to nation-states, one need only consider the oft-told story of the hedge fund run by George Soros that “broke the Bank of England” in 1992 on a massive currency bet.
The Fear Index by Robert Harris
algorithmic trading, backtesting, banking crisis, dark matter, family office, Fellow of the Royal Society, fixed income, Flash crash, high net worth, implied volatility, mutually assured destruction, Renaissance Technologies, speech recognition
‘Should we take precautions on your behalf as well?’ Quarry laughed. ‘The only thing that keeps me awake at night is the thought of a paternity suit.’ ‘RIGHT,’ SAID QUARRY, when Genoud had gone, ‘let’s talk about this presentation – if you’re still sure you’re up for it?’ ‘I’m up for it.’ ‘Okay, thank God for that. Nine investors – all existing clients as agreed. Four institutions, three ultra-high net worths, two family offices, and a partridge in a pear tree.’ ‘A partridge?’ ‘Okay, not a partridge. There is no partridge, I concede that.’ Quarry was in great high spirits. If he was three parts gambler he was also one part salesman, and it was a while since that crucial part of him had been allowed its head. ‘Ground rules are: first, they have to sign a non-disclosure agreement regarding our proprietary software, and second, they’re each permitted to bring in one designated professional adviser.
Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff by Christine S. Richard
Asian financial crisis, asset-backed security, banking crisis, Bernie Madoff, cognitive dissonance, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, family office, financial innovation, fixed income, forensic accounting, glass ceiling, Long Term Capital Management, market bubble, moral hazard, Ponzi scheme, profit motive, short selling, statistical model, white flight
It was from Ackman and filled with books: Graham and Dodd’s Security Analysis, Peter Lynch’s One Up on Wall Street, Benjamin Graham’s Intelligent Investor, Lawrence Cunningham’s The Essays of Warren Buffett, and Thornton O’glove’s Quality of Earnings. These were Ackman’s favorite books on investing, and he wanted White to read them all. Ackman made his reputation on Wall Street as an activist investor, a high-profile role that requires a knack for showmanship. But those who know Ackman well say he is an analyst at heart. “He is the smartest analyst I’ve ever met,” says Rafael Mayer, managing director of Khronos LLC, a family office and fund of funds investor, and a friend of Ackman’s. “He looks at something and he just decomposes it.” That process began with questions, lots of questions, including the one Ackman had badgered White with so many times while they were fishing: “Why?” It was also the question Ackman had tried to answer when he looked at the MBIA reinsurance transaction now being investigated by regulators.
A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation by Richard Bookstaber
affirmative action, Albert Einstein, asset allocation, backtesting, Black Swan, Black-Scholes formula, Bonfire of the Vanities, butterfly effect, commodity trading advisor, computer age, disintermediation, diversification, double entry bookkeeping, Edward Lorenz: Chaos theory, family office, financial innovation, fixed income, frictionless, frictionless market, George Akerlof, implied volatility, index arbitrage, Jeff Bezos, London Interbank Offered Rate, Long Term Capital Management, loose coupling, margin call, market bubble, market design, merger arbitrage, Mexican peso crisis / tequila crisis, moral hazard, new economy, Nick Leeson, oil shock, quantitative trading / quantitative ﬁnance, random walk, Renaissance Technologies, risk tolerance, risk/return, Robert Shiller, Robert Shiller, rolodex, Saturday Night Live, shareholder value, short selling, Silicon Valley, statistical arbitrage, The Market for Lemons, time value of money, too big to fail, transaction costs, tulip mania, uranium enrichment, yield curve, zero-coupon bond
In any case, Scribe Reports was a business that was not well suited to marketing while I was at Moore, because Moore was a large and strong 201 ccc_demon_165-206_ch09.qxd 7/13/07 2:44 PM Page 202 A DEMON OF OUR OWN DESIGN competitor for investor dollars for most of my potential clients. I went from Moore to Ziff Brothers Investments, and while there I continued to pursue this venture. ZBI traded only with internal funds—those of the Ziff family, of publishing fame—in what is termed in the investment world a family office; it was never chasing after other hedge funds’ investor dollars. Not long after I joined ZBI I moved from risk management to portfolio management. I redirected the efforts of a small group of PhDs who had been providing quantitative analysis for the traditional portfolio managers toward running an internal portfolio based on quantitative trading models. While the trading center for Moore was macro strategies, at ZBI the center was equities, and the portfolio I managed was an equity portfolio.
Alex's Adventures in Numberland by Alex Bellos
Andrew Wiles, Antoine Gombaud: Chevalier de Méré, Black Swan, Black-Scholes formula, Claude Shannon: information theory, computer age, Daniel Kahneman / Amos Tversky, family office, forensic accounting, game design, Georg Cantor, Henri Poincaré, Isaac Newton, pattern recognition, Paul Erdős, probability theory / Blaise Pascal / Pierre de Fermat, random walk, Richard Feynman, Richard Feynman, SETI@home, Steve Jobs, The Bell Curve by Richard Herrnstein and Charles Murray, traveling salesman
His follow-up book, Beat the Market, helped transform securities markets. In the early 1970s he, together with a business partner, started the first ‘market neutral’ derivatives hedge fund, meaning that it avoided any market risk. Since then, Thorp has developed more and more mathematically sophisticated financial products, which has made him extremely rich (for a maths professor, anyway). Although he used to run a well-known hedge fund, he now runs a family office in which he invests only his own money. I met Thorp in September 2008. We were sitting in his office in a high-rise tower in Newport Beach, which looks out over the Pacific Ocean. It was a delicious California day with a pristine blue sky. Thorp is scholarly without being earnest, careful and considered, but also sharp and playful. Just one week earlier, the bank Lehman Brothers had filed for bankruptcy.
Brazillionaires: The Godfathers of Modern Brazil by Alex Cuadros
affirmative action, Asian financial crisis, big-box store, BRICs, cognitive dissonance, crony capitalism, Deng Xiaoping, Donald Trump, Elon Musk, facts on the ground, family office, high net worth, index fund, invisible hand, Jeff Bezos, Mark Zuckerberg, NetJets, offshore financial centre, profit motive, rent-seeking, risk/return, savings glut, short selling, Silicon Valley, sovereign wealth fund, stem cell, The Wealth of Nations by Adam Smith, too big to fail, transatlantic slave trade, transatlantic slave trade, We are the 99%
In either case, they skirt all the taxes they legally (and sometimes not so legally) can. They put their assets in a variety of exotic structures in a variety of exotic locales—Uruguay, Liechtenstein, the South Pacific island of Niué. The problem becomes taking care of your stuff. With a hundred million dollars, you might have bodyguards and assistants and a permanent staff to care for your homes. With a billion, you need someone like Santiago. With a few billion, you need a family office of your own, a whole company to manage your assets and affairs. Abilio Diniz’s occupies multiple floors of an office building in São Paulo. Sometimes not even that’s enough. I met a former management consultant named Natasha Pearl who tends to the trickier aspects of life for the ultrarich. She knows what numbers to call if you want to buy a racehorse or sell a diamond necklace. She knows discreet psychiatrists for troubled heirs and heiresses.
IBM and the Holocaust by Edwin Black
Challenges to one’s Aryan background were commonplace. Whether driven by a sense of national duty or ordinary fear, everyone was forced to confront their racial make-up. At the apex of racial grading was a bureaucratic entity attached to the Interior Ministry. This section began its existence before 1933 as the Nazi Information Office. Ultimately, after numerous name changes, it became known as the Reichssippenamt, or Reich Family Office, endowed with the final authority to decide who was Jewish or Aryan.71 Lists were distributed, exchanged, and updated continously, often in a haphazard fashion. To cope with the growing bureaucratic fascination with punch card records, senior Interior Ministry officials reviewed one fanciful proposal for a twenty-five-floor circular tower of data to centralize all personal information. The proposal was rejected because it would take years to build and stock.
Unreal Estate: Money, Ambition, and the Lust for Land in Los Angeles by Michael Gross
Albert Einstein, Ayatollah Khomeini, bank run, Bernie Madoff, California gold rush, clean water, Donald Trump, estate planning, family office, financial independence, Maui Hawaii, McMansion, mortgage debt, offshore financial centre, oil rush, passive investing, pension reform, Ponzi scheme, Ronald Reagan, Silicon Valley, stem cell, Steve Jobs, Steve Wozniak, The Predators' Ball, transcontinental railway
They alleged she asked Mullen to put together a gift list that totaled “someplace in the range of $10 million,” and that in a meeting with one of her lawyers after the new documents were drawn up, she upped her gifts to a maid and secretary and deleted Stockmar because “she had already done enough for Diane and … they had not been in close contact with each other for some time.” The response then recounted the sad end of Dolly’s life in great detail, her January 1987 visit to a glaucoma specialist that left her suicidal, her last visit to the family office that February, the hiring of round-the-clock nurses shortly afterwards, a March call to her lawyers from one of the chauffeurs saying Dolly wanted to revise her will again, and the way “Respondent Logan was asked to help guide Dolly’s hand to the line on which she should sign (since she could not see well enough to find the line).” One last curious feature of the executors’ response to Stockmar was their answer when asked whether Dolly believed Diane to be her daughter.
Who Stole the American Dream? by Hedrick Smith
Affordable Care Act / Obamacare, airline deregulation, anti-communist, asset allocation, banking crisis, Bonfire of the Vanities, British Empire, business process, clean water, cloud computing, collateralized debt obligation, collective bargaining, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, David Brooks, Deng Xiaoping, desegregation, Double Irish / Dutch Sandwich, family office, full employment, global supply chain, Gordon Gekko, guest worker program, hiring and firing, housing crisis, Howard Zinn, income inequality, index fund, informal economy, invisible hand, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, knowledge worker, laissez-faire capitalism, late fees, Long Term Capital Management, low cost carrier, manufacturing employment, market fundamentalism, Maui Hawaii, mortgage debt, new economy, Occupy movement, Own Your Own Home, Peter Thiel, Plutonomy: Buying Luxury, Explaining Global Imbalances, Ponzi scheme, Ralph Nader, RAND corporation, Renaissance Technologies, reshoring, rising living standards, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, shareholder value, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Steve Jobs, The Chicago School, The Spirit Level, too big to fail, transaction costs, transcontinental railway, union organizing, Unsafe at Any Speed, Vanguard fund, We are the 99%, women in the workforce, working poor, Y2K
Epitomizing the extremes of inequality in America today, this one family enjoys wealth equal to all the assets of the entire bottom 40 percent of the U.S. population—120 million people. In Upper Richistan and Billionaireville, Frank wrote, the super-rich and ultra-rich often compete with each other in conspicuous consumption. Their primary residence costs an average of $16.9 million. Many of these families set up “family offices,” where their personal management staff is dedicated to running their households, paying bills, arranging travel, and handling day-to-day needs. In this group, butlers are back in fashion. According to Frank, super-rich families spend up to $2 million a year on staff, $107,000 for annual spa bills, and up to $182,000 each on watches and $319,000 for cars. For investments, they don’t buy mutual funds; they buy timber, land, oil rigs, and office towers.
1948: A History of the First Arab-Israeli War by Benny Morris
More important, the Egyptians still held the Gaza Strip and the Faluja Pocket areas of Mandatory Palestine. They had established a continuous chain of fortified positions between Auja al-Hafir and Bir Asluj, just south of Beersheba, which effectively left the central and southern Negev under their thumb and Beersheba itself under potential threat. Israel, meanwhile, remained burdened by the crippling weight of mobilization: half its adult males were under arms, away from their families, offices, farms, and plants, and with no end in sight. The new state, ravaged by the war, needed its manpower and peace to pursue reconstruction and to absorb the masses of immigrants flooding its shores. Yoav had failed to resolve the strategic dilemma of "no war, no peace." David Ben-Gurion was still powerfully drawn to Judea and Samaria by historical-ideological and strategic considerations,' but international diplo matic considerations dictated caution and restraint.
The Unwinding: An Inner History of the New America by George Packer
Affordable Care Act / Obamacare, Apple's 1984 Super Bowl advert, bank run, big-box store, citizen journalism, cleantech, collateralized debt obligation, collective bargaining, Credit Default Swap, credit default swaps / collateralized debt obligations, deindustrialization, diversified portfolio, East Village, El Camino Real, Elon Musk, family office, financial independence, financial innovation, Flash crash, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, housing crisis, income inequality, informal economy, Jane Jacobs, life extension, Long Term Capital Management, low skilled workers, margin call, Mark Zuckerberg, market bubble, market fundamentalism, Maui Hawaii, Menlo Park, new economy, New Journalism, obamacare, Occupy movement, oil shock, peak oil, Peter Thiel, Ponzi scheme, Richard Florida, Ronald Reagan, Ronald Reagan: Tear down this wall, shareholder value, side project, Silicon Valley, Silicon Valley startup, single-payer health, smart grid, Steve Jobs, strikebreaker, The Death and Life of Great American Cities, the scientific method, too big to fail, union organizing, urban planning, We are the 99%, We wanted flying cars, instead we got 140 characters, white flight
Some of them grumbled that Thiel had brilliant ideas but couldn’t time trades or manage risk—he’d been predicting a crash in real estate for years, but when the moment came he was unable to take advantage. In mid-2010, with the bleeding unstanched, Clarium had to close its New York office and return to San Francisco. The moves were costly disruptions. By 2011, the fund’s assets were down to $350 million, two-thirds of it Thiel’s money, the entirety of his liquid net wealth. Clarium became a de facto family office. For the first time in his life, Thiel had failed at something he prized, publicly and spectacularly. He was humbled by it, and unlike at PayPal, where setbacks had triggered outbursts, he took losing well and kept an even keel with his staff. During the same period, his view of America began to darken. As he reconsidered the years since the seventies, years that had seemed so bright and hopeful, especially in Silicon Valley, even Facebook lost its glow.
affirmative action, British Empire, David Brooks, death of newspapers, deindustrialization, family office, Golden Gate Park, Google Earth, jitney, new economy, New Urbanism, Plutocrats, plutocrats, Ray Oldenburg, ride hailing / ride sharing, Scientific racism, Steven Levy, The Great Good Place, Thorstein Veblen, trade route, urban planning, We are the 99%, white flight
Their gifts have helped make New York City the spectacular metropolis it has become; take them away, and New York would be a more ordinary place.4 Besides their huge fortune and their commitment to civic missions that would justify their wealth and atone for past business ruthlessness and for notorious incidents like the Ludlow Massacre of 1914, their penchant for organization is also a legacy of the Rockefellers. Starting with the innovation of the Standard Oil Trust in 1883, the Rockefellers have been adept at using organizations to achieve their ends, from the family office in Room 5600 of the RCA Building that handled their investments, to foundations like the Rockefeller Foundation and the Rockefeller Brothers’ Fund that have directed their philanthropic endeavors, to auxiliaries like the Rockefeller Archive Center that generate knowledge about the family and its activities. They have also retained public relations consultants, lawyers, scientists, architects, and art historians who used their expertise to refine and perpetuate the mission of the family.
air freight, Albert Einstein, California gold rush, cognitive dissonance, desegregation, double entry bookkeeping, family office, feminist movement, full employment, ghettoisation, Indoor air pollution, medical malpractice, Mikhail Gorbachev, Plutocrats, plutocrats, Ralph Nader, Ralph Waldo Emerson, RAND corporation, rent-seeking, risk tolerance, Ronald Reagan, The Chicago School, the scientific method, Torches of Freedom, trade route, transaction costs, traveling salesman, union organizing, upwardly mobile, urban planning, urban renewal, War on Poverty
Indeed, his father had turned from Judaism to the Ethical Culture Society, and Joe Junior was very much the assimilationist, at ease in almost any social sphere. Indoctrinated early in the tobacco business and as a youngster attending leaf auctions abroad with his father, Joe Junior worked for a while after college in the tobacco fields of Wisconsin and on Cuban plantations before sharing a rolltop desk with his father in the family office. Over time, he would master the horticulture of cigar tobacco to the point where he could tell by the look, feel, taste, and smell of a leaf just where it grew, the nature of the soil that had nourished it, the density of the yield per acre, and what kind of fertilizer had been applied to it. He also moved the family beyond the business of buying and reselling Sumatran leaf for wrapping cigars and Cuban leaf for filling them by pushing his father in 1910 into buying land in the Connecticut River Valley to raise their own “shade” tobacco, grown under a veil of protective cheesecloth, for sale to cigar makers.