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06/29/2010

Book Review: More Money than God


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More Money than GodMore Money than God: Hedge Funds and the Making of a New Elite, the catchy title of Sebastian Mallaby's new book, highlights the increased importance of hedge funds. The author documents their rise to prominence, describing some of the key players, huge profits and losses, and their impact on currencies and governments. The potential of incentive compensation continues to make hedge funds an object of fascination for financial professionals.

Sebastian Mallaby’s in-depth research and clear writing style is engaging, and the book is sure to provide an education on money—both making and losing it—in a variety of ways. The reader gets a detailed picture of how some of the top hedge fund figures operate, including Michael Steinhardt, George Soros, Stanley Druckenmiller, Julian Robertson, Paul Tudor Jones, and James Simons. Both the successes and failures of these titans offer great insight and are highly instructive.

One of the attractions of Mallaby's book is the focus on reporting the often-overlooked details: When Druckenmiller was investigating the English pound for George Soros, for example, he noticed  that most British mortgages were not fixed. As a result, if the English government wanted to raise interest rates to protect their currency, the impact would immediately affect home owners. This insight was a factor in George Soros's famous profit from shorting the pound. For financial professionals this story shows the benefits of intense research. Research for trading is not often covered, but this anecdote exemplifies how it can be highly rewarding.

Mallaby points out that while many expected hedge funds to eventually contribute to a financial crisis, this didn’t happen in the recent crash. This, he concludes, was due to the “small enough to fail” status of hedge funds. Hedge funds are an entrepreneur partner business, whereas banks are heavily bonus-driven. Assets are constantly marked to market; the funds cannot slide in denial into disaster. The old-fashioned trader’s attention to inventory value turned out to save a lot of hedge funds from wiping out: these are people who act fast when they see a problem.

With great insight into the lucrative world of hedge funds, More Money Than God is one of the best, most engrossing of the current financial books.

–Bill Hayes

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Comments

This sounds fascinating and I'm not even involved in hedge funds. I'm defintely going to check this one out. Thanks!

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