Hedgehogging

About the Author

Barton Biggs was the former chief global strategist for Morgan Stanley before retiring in 2003. He then co-founded Traxis Partners, one of the largest new hedge funds of 2003. Biggs' extensive experience in the investment world, combined with his insightful commentary, provides a deep dive into the intricacies of hedge fund management in his book, Hedgehogging.

Main Idea

Hedgehogging: An Insider's View of the Highly Competitive, Lucrative World of Hedge Fund Management offers a detailed exploration of the hedge fund industry. Biggs shares his personal experiences and observations to highlight the intense, high-stakes environment of hedge fund management. The book delves into the characteristics, challenges, and strategies of professional investors, or "hedgehogs," providing readers with a comprehensive understanding of what it takes to succeed in this volatile field.

Table of Contents

1. The New Hedgehogs, Once Golden Boys
2. Short Selling Oil
3. The Odyssey of Starting a Hedge Fund
4. Hedgehogs Come in All Sizes and Shapes
5. The Violence of Secular Market Cycles
6. The Battle for Investment Survival
7. Nature's Mysticism and Groupthink Stinks
8. Once You Have a Fortune, How Can You Hang On To It?
9. Three Investment Religions: Growth, Value, and Agnostic
10. Bubbles and the True Believer

The New Hedgehogs, Once Golden Boys

Hedge fund managers, once considered golden boys, face a tough and often unforgiving environment. For every success story, there are several tales of failure. The volatility and high stakes of the hedge fund business mean that many funds do not survive. Biggs highlights this through the story of Grinning Gilbert, a hedge fund manager who experienced both rapid growth and a dramatic downfall.

"Hedge funds are blamed for every spasm in the financial markets, and there is a perception that they often act together in vicious conspiracies to destabilize the world." - Barton Biggs

Grinning Gilbert

Grinning Gilbert's story is a cautionary tale about the volatile nature of hedge funds. Despite his initial success, Gilbert's fund faced significant challenges, including high overhead costs and declining investments, leading to its eventual liquidation. His story underscores the importance of resilience and adaptability in the hedge fund industry.

Grinning Gilbert, always with a smile on his face, epitomized the highs and lows of hedge fund management. Initially succeeding by focusing on tech and internet stocks in the late 1990s, Gilbert saw his fortunes rise rapidly. By 1999, he was managing $500 million. However, the downturn of tech stocks and the overhead of managing a larger fund took its toll, and by 2001, his fund was in deep trouble. This narrative illustrates the precarious balance hedge fund managers must maintain between aggressive growth and risk management.

Short Selling Oil

The partners at Traxis Partners experienced the challenges of short selling oil. Despite their extensive analysis, they misjudged the market, leading to substantial losses. This example illustrates the difficulties and risks associated with hedge fund management.

"The analysis was for naught, they misjudged demand, failed to anticipate the intensity of the hurricane season and political developments, and were less respectful than they should have been of market psychology and its effect on price momentum." - Barton Biggs

In 2004, Traxis Partners decided to short oil, expecting prices to fall. Their analysis was thorough, considering world production, inventories, and consumption patterns. However, they failed to anticipate several critical factors, including a harsh hurricane season and geopolitical tensions, which caused oil prices to rise instead. Their persistence in holding the short position despite rising prices led to significant losses, highlighting the unpredictability and risk inherent in hedge fund strategies.

The Odyssey of Starting a Hedge Fund

Starting a hedge fund is a demanding and stressful process. Biggs describes the journey of Traxis Partners, from raising capital to building the necessary infrastructure. The process is filled with challenges and uncertainties, but it also offers opportunities for substantial rewards.

Big-Time Money Raising at The Breakers

The quest to raise money for a hedge fund is competitive and intense. Biggs describes the high-stakes environment of Morgan Stanley's hedge fund conference at The Breakers, where hedge fund managers compete to attract investors.

"Everybody was on the make. The presentations were grindingly repetitious." - Barton Biggs

Raising capital is a critical phase in starting a hedge fund. Biggs recounts his experience at Morgan Stanley's hedge fund conference, a key event for attracting investors. The competition is fierce, with numerous managers vying for the attention of potential investors. This environment requires not only a solid investment strategy but also exceptional presentation and networking skills to secure the necessary funding.