Confessions of hedge fund manager
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By Michael L. McManus
I am a hedge fund manager and trader. I am thirty five years old. I have three homes, one super condo in Mid-Manhattan, a beach home on the coast of Long Island, and a condo on the beach in Boca Raton Florida. I play golf about 100 days a year, go sailing in my two yachts, go snow skiing in Colorado and Utah, and jet over to Europe for occasional shopping. My wife enjoys that part especially. My kids who are 10 and 12 years old are in the best private schools and they reside at the schools in New England. We see them at holidays, and believe me, that is enough.
I happened to grow up fairly rich. My dad was a stockbroker, but he was old fashioned style, just basically sold and bought stocks and bonds at a profit always. That was his rule. Some of my classmates were not rich, however. They had a modest background and were limited in their life experience as a result. When I would go mountain climbing in Peru in summer, or just surf in Hawaii, they would work in factories or internships for their summers. So limiting.
So, I went to one of the best Ivy League schools for my bachelor and MBA degrees. Dad had to pull some strings to get me in, and he made a contribution to the university. No problemo! I sailed right through, though I had to cut many classes to get my pilots license so I could pilot Dad’s jet to Florida. I took a few off the radar trips to Columbia, ha-ha, but Dad never knew about that. I was really lucky during my master’s degree. I found a grade grubber nerd type from Nebraska who took some of the tests for me. I paid him a small amount. He wanted more but I threatened to expose him so he settled for what I was willing to pay. Classes were so big, no one knew who was taking the test!
My professors, especially the finance professors, taught me a lot. They always said that if we were smart enough to get in to that university, so we were smart enough to outsmart many to become millionaires by the age of 35. Ha, I did it when I was 32. He taught us about derivative markets, synthetic bond markets and tertiary tier investments. In his own research, he said he was working on a foolproof way to make huge sums of money while never letting investors know we were using their money to gross about 20 to 25% profit. If we arranged the books so that they got 5% they were happy as a clam and never knew the whole story. My professor used to laugh and say, “What they don’t know will never hurt them”. Plus, everyone can’t go to an Ivy League business school.
While I was in school I got into two arguments with my ethics professor and my marketing professor over this same issue. I debated this in class with them. I simply said that as long as our marketing classes taught us to be super competitive and to try to outsmart the competitor, what was the difference in the investment area? Why couldn’t we outsmart the investor? Someone has to win and someone has to lose. Right? So with all this desire to have stuff like three homes, boats, cars and jets, it is us who must win. What good are we to investors if we lose more than they gain?
I got a lot of this attitude from my finance professors. They always had a devilish twinkle in their eye and always told me not to worry about Paul Volker and his criticism of the esoteric and elevating elegance in financial engineering. Volker was an old man and had not shifted to the new economic thinking. So I was lucky. My professors drummed into us that we were the smartest and therefore we owed it to him, our mentor, and our school and our family name to be the smartest of anyone, even, if sorry to say, our customers. After all, we are not in this only to have to borrow thousands for our kids’ education, sweat all our lives to pay off one mortgage, and sit in hot, stinky trains back and forth to work. No way! We are in this for keeps.
There is an interesting principle that operates. When dealing with rich customers you better be rich yourself, otherwise, no respect. The NFL Commissioner has a glory administrative job with big perks and is always entertaining the billionaire class who own football teams. Why should he only make a six figure salary? It would strip him of any sense of importance. That is why we get paid really large salaries when we work for hedge funds on Wall Street. And, you should see the Christmas bonuses! The last five years they averaged 30-40 % of our annual! That is how I bought my first plane.
I pity my classmates who went to work for banks, ordinary commercial banks, in cities other than the Big Apple. Places like Philly, Boston, even Washington. Work their butts off, and still need to borrow for their kids’ college education. Most of them will never go to Bermuda for vacation, let alone for “business” and most have no idea where the Cayman Islands are. And the ones who end up in Washington are less smart yet make their money the really dirty way ― campaign contributions.
So, they ask where the root of evil on Wall Street comes from? It does not come from a single office on Wall Street! It emanates from the financial wizard engineers disguised as professors on just a few campuses within 100 miles of Manhattan. They taught me a lot.
Written by an anonymous hedge fund manager and trader on Wall Street. I think I will send a small contribution to my university. It is the politically correct thing to do.
Michael L. McManus is not a hedge fund trader/manager, though knows and follows the careers of a few. He writes exclusively and twice monthly for The Korea Times, and serves a few universities in the Seoul area as professor and advisor. Comment is very welcome at mcmismism@aol.com.