THE DAILY TELEGRAPH
THURSDAY, SEPTEMBER 25, 2008
| V
The Daily Telegraph
FOCUS CAREERS IN INSURANCE AND FINANCIAL SERVICES
holds-barred attitude to investing. Hedge funders could predict anything from the prices of live hogs to interest rates. “Investment management has traditionally been based on a ‘buy and hold’ approach — assets such as shares are bought in the hope that their price will rise over time,†says Andy Gibb, head of resourcing for Man Group, one of the largest global hedge fund companies, managing assets in excess of US $70 billion. “While this works when the market is buoyant, it’s a problem when there’s a downturn in the economy, such as now.†“Hedge funds are the highest profile sector of an alternative investment system — one that traditionally was able to overcome the limitations of making a decent people who can arrange a meeting with a Russian oligarch. But a surprising number of them are quite geeky.†A subtle approach that is no doubt paying dividends right now. Regardless of personality, though, successful hedge funders are defined by the fact that they eat, sleep and think the market. “They are so focused on what they do and have an innate ability to understand risk,†says Nimmo. Hedge fund management requires the brightest and most driven individuals. And, it is these more impressive traits that are being scrutinised by scientists. Dr Anthony Ledford, director of research for Man’s $25 billion AHL hedge fund heads up a team of scientists at the Man Research Laboratory as part of the OxfordMan Institute of Quantitative Finance. The institute is unique in that it brings the commercial and academic worlds of quantitative financial research under one roof. Their systematic approach to hedge fund management is a far cry from the aggressive Wall Street Gordon Gekko stereotype now in the global spotlight. “We work in a very particular area of the hedge fund world — building the ‘brains’ of complex computer models that are empowered to actually trade on financial markets,†explains Ledford. “The models trade on hundreds of different commodities simultaneously 24 hours a day and are able to respond to real-time price information. By trading on anything from the price of orange juice to oil, the fund can exploit rises and falls across markets while minimising risk.†“Our approach to the AHL fund we manage is very different to the larger-than-life hedge fund managers that you hear about in the press,†says Ledford. “Ours is a more principled, organised and systematic form of trading and no single person makes trading decisions.†As the hedge fund market matures and diversifies, could this new breed of hedge funder — with a background in physics, statistics and applied sciences — be the moneymakers of the future?
Grotesque stereotypes aside, hedge funders are essentially bright, driven individuals
Old stock: Michael Douglas and Charlie Sheen in Oliver Stone’s 1987 film Wall Street, which portrayed the dark side of high finance. In reality, traders are more likely to be maths and science graduates
H OVERTHEHEDGE?
ONCE THE SEXIEST JOB IN THE CITY, HEDGE FUNDERS ARE FAST BECOMING PERSONA NON GRATA. NATASHA MANN CONSIDERS ONE OF THE MOST ICONIC ROLES IN FINANCE
edge funds are essentially private investment companies, typically headed up by former traders from the City or other global financial centres. They invest money for wealthy individuals and financial institutions in, well, virtually anything so long as there’s a profit to be made. Up until the recent ban on short-selling (where the hedge funder tries to predict the value of stock shares in the hope of repurchasing them later at a lower price), they were defined by a no-
return in a falling market,†says Gibb. “Provided you accurately predicted the market, you could enjoy a healthy return.†While it might seem illogical that money can be made when the chips are down, alternative investment now plays an increasingly important part in the long-term plans of institutional investors, not to mention ultrawealthy private investors. Although most of us won’t ever have the vast sums required to invest directly in hedge funds, if you have a pension plan there’s a very good chance your provider is involved in one. But who are these mysterious moneymen whose common practice is being seriously questioned. “Let me tell you something about these guys,†says Ian Nimmo, managing director of Turnstone Asset Management, London. “You could phone some of them up and say: ‘I’ve got really exciting news for you. I’m going to give you £25 million pounds to invest.’ And they can turn round, shake their head and say ‘No, sorry, not interested’. There have been more people wanting to give them money than some have the capacity to manage.†The “hedgie†stereotype is a larger-than-life risk-taker with an ego to match. “You do get some ebullient, self-confident, big personality types,†agrees one city insider. “Those guys tend to be macro commodity traders; tycoon types with the clout to access the powerful. They are the kind of
OUTSIDE THE BOX
IT‘S ONE OF THE SMALLEST DEPARTMENTS IN GOVERNMENT BUT HM TREASURY IS A CENTRAL FORCE
Although it no longer sets departments, with only 1,200 ll eyes are on Her interest rates, it does set an Majesty’s Treasury staff, yet it is responsible for inflationary target, which the formulating and implementing at the moment. Bank of England takes into the Government’s financial and Its headquarters, account before deciding change. economic policy. in ultra-modern The Treasury’s stated aim is: offices overlooking “to raise the rate of sustainable St James’ Park in growth, and achieve rising London, are firmly prosperity and quality of life with in the spotlight as economic and employment the financial sector struggles opportunities for all.†to deal with the credit crisis. According to Jonathan Loynes, What the Treasury decides to chief European economist at do — whether baling out failing Capital Economics, a consultancy banks with huge taxpayer-funded in London, HM Treasury’s role handouts, or lightening tax loads is set to grow as the markets on homebuyers — could sway the become more regulated in the long-term view. wake of the financial crisis. Its emergency measures have “In the future, there is likely already included helping to to be more government negotiate the deal which saw intervention in financial mortgage giant HBOS become practices — for good or for ill — part of Lloyds TSB. and the Treasury will be at the A job in the Treasury then, forefront of that.†may be the ideal route for someone who likes the idea of being in the thick of things and who would enjoy the challenge of working at a speedy pace. According to the Treasury’s HR department, “We strive to do the right thing, based on a high level of integrity, impartiality and knowledge, and understanding when we need to get things done at pace.†Headed up by Chancellor, Alistair Darling, the Treasury works in close harmony with the Bank of England. HM Treasury punches far above its weight. It is one of the smallest governmental In the hot seat: Chancellor Alistair Darling outside Downing Street
HM Treasury’s role is set to grow as the markets become more regulated in the wake of the crisis
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POLICING THE MONEY MEN
THE WIDE-RANGING RECRUITMENT POLICY OF THE FINANCIAL SERVICES AUTHORITY — THE AGENCY SET UP BY BRITISH BANKING BUSINESSES TO ENSURE GOOD PRACTICE — IS A GOOD EXAMPLE OF HOW A CAREER IN THE SECTOR NEEDN’T BEGIN AND END ON THE TRADING FLOOR
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nce dismissed as a toothless watchdog, the Financial Services Authority is now baring its fangs. Beyond its recent controversial move to temporarily ban short selling, long-term regulatory issues still need to be kept in check. The problem of insider trading — where people trade shares on the basis of being privy to inside information — is, according to city insiders, still rife. Some estimates
have even suggested that about a fifth of results announcements and a third of takeovers are preceded by insider trading. The FSA was set up in 2000 to try and help bring problems such as these under control. It is independent of government but has statutory powers to regulate financial services and is accountable to Treasury ministers and Parliament. Funded entirely by the 29,000 firms in the UK that fall under its umbrella, in the past three months alone, the FSA has imposed
swingeing fines on more than a dozen firms for bad practice. Its list of offending companies includes not just smaller financial traders but some of the bigger guns, too. There have also been dawn raids on individuals suspected of malpractice. Four years ago the FSA’s remit was broadened to include other areas of financial services, including the mortgage business and general insurance activities. The Treasury appoints the FSA Board — the current chairman is Sir Callum McCarthy — which sets
overall policy, but day-to-day management and personnel is the responsibility of the executive. “We have a wide variety of people working at the FSA from an equally wide range of backgrounds, including experts from the legal profession, actuaries and accountants,†says Jane Cathrall, acting head of human resources at FSA. “We are actively recruiting at the moment and are particularly interested in people with a background in areas such as risk management, compliance and
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DID YOU KNOW? TOP HEDGEFUNDER FACTS
μ There are 7,000 hedge funds in the world μ The term hedge fund originates from the phrase “hedging your bets†μ The Australian Alfred Winslow Jones is credited with setting up the first hedge fund in 1949 μ Hedge funder John Paulson earned an estimated £1 billion in 2007 μ A typical hedgefunder’s fee is two per cent annual management charge, plus 20 per cent of profits
banking. However, because we engage with a wide range of stakeholders in industry and Parliament, and have many dealings with the media, we are particularly interested in people who can combine technical competence with the ability to build good relationships.†www.fsa.gov.uk
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