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by Sebastian Mallaby, July 8, 2010
In the 1990s magazines drooled over the extravagance of dot-com millionaires, but in the 2000s, the spotlight was on hedge funds. Ken Griffin, the creator of Citadel Investment Group, bought himself a $50 million Bombardier Express private jet and had it fitted with a crib for his 2-year-old. Louis Bacon, the founder of Moore Capital, acquired an island in the Great Peconic Bay, put transmitters on the local mud turtles to monitor their mating habits, and hosted traditional English pheasant shoots. Steven Cohen, the boss of SAC Capital, equipped his estate with a basketball court, an indoor pool, a skating rink, a two-hole golf course, an organic vegetable plot, paintings by van Gogh and Pollock, a sculpture by Keith Haring, and a movie theater decorated with the pattern of the stars on his wedding night 16 years earlier. The hedge-fund titans were the new Rockefellers, the new Carnegies, the new Vanderbilts. They were the new American elite—the latest act in the carnival of creativity and greed that powers the nation forward.
And what an elite this was. Hedge funds are the vehicles for loners and contrarians, for individualists whose ambitions are too big to fit into established financial institutions. Cliff Asness is a case in point. He had been a rising star at Goldman Sachs, but he opted for the freedom and rewards of running his own shop; a man who collects plastic superheroes is not going to remain a salaried antihero for long, at least not if he can help it. Jim Simons of Renaissance Technologies, the mathematician who emerged in the 2000s as the highest earner in the industry, would not have lasted at a mainstream bank: He took orders from nobody, seldom wore socks, and got fired from the Pentagon’s code-cracking center after denouncing his bosses’ Vietnam policy. Ken Griffin of Citadel, the second highest earner in 2006, started out trading convertible bonds from his dorm room at Harvard; he was the boy genius made good, the financial version of the entreprenerds who forged tech companies such as Google. The earliest pioneers of the industry were cut from equally bright cloth. Julian Robertson staffed his hedge fund with college athletes half his age; then he flew them out to various retreats in the Rockies and raced them up the mountains. ...
Like the Rockefellers and Carnegies before them, the new moguls made their mark on the world beyond business and finance. George Soros was the most ambitious in his reach: His charities fostered independent voices in the emerging ex-communist nations; they pushed for the decriminalization of drugs; they funded a rethink of laissez-faire economics. Paul Tudor Jones, the founder of Tudor Investment Corporation, created Robin Hood, one of the first “venture philanthropies” to fight poverty in New York City: It identified innovative charities, set demanding benchmarks for progress, and paid for performance. Bruce Kovner emerged as a godfather of the neoconservative movement, chairing the American Enterprise Institute in Washington; Michael Steinhardt bankrolled efforts to create a new secular Judaism. But of course it was in finance that these egos made the most impact. The story of hedge funds is the story of the frontiers of finance: of innovation and increasing leverage, of spectacular triumphs and humiliating falls, and of the debates spawned by these dramas.
Excerpted from More Money Than God: Hedge Funds and the Making of a New Elite by Sebastian Mallaby. Reprinted by arrangement with The Penguin Press, a member of Penguin Group (USA), Inc. Copyright © June 2010. Read an interview with Sebastian Mallaby.
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