As an adviser to global hedge funds, Steven Drobney enjoys rare access to this secretive world. His new book shines a spotlight on it
Looked at in a certain light, hedge funds are more like religious cults than financial institutions. Like cults, they claim to know arcane secrets that will deliver immense payoffs for those in the know. Like cults, they're reluctant to expose more than the vaguest details of these for public scrutiny. And, like cults, they demand a good deal of your money for letting you into the circle of initiates. On balance, it's probably easier to write books that shed light on Scientology than on this opaque, secretive world.
But if any writer should have enough access to do so, it's Steven Drobny. Co-founder of Drobny Global Advisors, a macroeconomic advisory firm for several global hedge funds, he works with some of the top hedge fund managers and has parlayed these relationships into the series of interviews on investment strategy that make up most of this book.
Although the title suggests that this is a look at hedge funds in the broad sense, in fact, Drobny concentrates on one particular stream. These are the global macro' funds, which can essentially be described as those funds that aim to produce outsize, absolute returns by investing anywhere, in any assets and using any instruments. This was the original ethos of hedge funds, before the term became such a buzzword that thousands of new investment funds began branding themselves hedge funds, even though their strategies often bore no relationship to global macro.
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Drobny charts the history of the global macro approach, tracing it from the investment strategies of economics giant John Maynard Keynes and the enormous funds, such as Quantum and Tiger, that evolved from equities and commodities trading after the breakdown of the Bretton Woods agreement freed up world markets. He and his interviewees then expound on the wide range of strategies that exist under the macro banner, before looking at the next stage in the funds' evolution, dubbed global micro' just as global but working with many smaller, morediversified bets.
It makes for an interesting read with excellent investment insights. The one minor caveat is that the picture that emerges is not true of the hedge fund industry as a whole. While George Soros's Quantum averaged a return of over 30% a year for more than three decades, that's far more than your average overpaid, modern hedge fund manager will achieve. In cult terms, those in this book may be very benevolent but there are plenty of others out there who are more likely to lead you into financial mass suicide.
Inside the House of Money by Steven Drobny will be published by John Wiley on 15 June and costs £19.99
Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.
Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.
He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.
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