Hot Potato

I have never understood the fascination that investors have for meeting star portfolio managers in person. Okay, sure, I know that human beings like to be dazzled; bumbling amateurs get vicarious gratification out of associating with market wizards, even if nothing productive comes out of the association. And I concede that if you’re going to hand out millions of dollars to a hedge fund then the very least you deserve is a meeting with the principals, not with some wet-behind-the-ears MBA droid.

But insisting that the CEO be at your beck and call, 24 hours a day, 7 days a week, 52 weeks a year, for the entire duration of your investment? That’s not just self-centered, it’s actively perverse. Because of an unintended (but perfectly foreseeable) consequence: if every investor behaves the way you do, the star portfolio manager will end up spending all his time meeting investors, while the actual trading is done by the aforementioned wet-behind-the-ears MBA. As a rational investor, would this be your preferred outcome?

Of course most investors are not rational, and so this is precisely the outcome that eventuates in 9 out of 10 cases. Most fund principals recognize this fact and have made their peace with it, because they also know the answer to a very fundamental question: what is the role of the hedge fund manager? Is it to make money? No, absolutely not. The role of the successful hedge fund manager is to raise pots of money; and, having raised it, to keep it. That’s the way to make fat management fees and fatter bonuses; generating profits is of secondary import. And that’s why most managers are only too happy to spend their days and nights fielding investor phone calls when they could be better served watching markets.

Unfortunately, Sopwith is blessed with a manager who does not feel the need to do this. Our CEO had the good sense or good luck to start a technology company which he took public just before the dotcom crash. He then founded a real estate company which he sold to a bank just before the housing crash. As a result of these two transactions, our CEO is a multibillionaire. In fact, his net worth is more than that of the fund itself, and way more than any particular individual investment in the fund. Naturally he feels disinclined to waste his time mollycoddling investors for chump change.

With the CEO not interested in marketing, the role of investor relations at Sopwith has in recent months taken on the aspect of a hot potato. Our COO would have been perfect for the job – she’s sincere, hardworking and dedicated – but unfortunately she has all the communication skills of a gnat. Our CFO is just the opposite – he’s suave, sophisticated and a slick talker – but he has the minor disadvantage that he does not understand finance. As for our traders, they have zero interest in being torn from their Bloomberg screens to meet investors, and frankly this is just as well. Our traders are a bunch of antisocial misfits united by a single characteristic, the alleged ability to make money. Finally, there’s our risk manager, an Oxbridge don, who is independently wealthy and wouldn’t be seen dead grubbing around for money like the lower classes.

The hot potato has therefore been bouncing around our offices for some time. But finally it has found a home, in the eager and slightly manic hands of the juniormost person on our desk: Jimmy the Kid.

Jimmy is keen. He is enthusiastic. He is sincere. He is motivated. He is also utterly clueless about what it is that we do. But that doesn’t matter; as long as he can keep investors off everyone else’s back we don’t give a damn. And this he proceeds to do, with almost touching enthusiasm.

Wait, I hear you say: isn’t this just the wet-behind-the-ears MBA tactic all over again? Won’t investors be peeved at being fobbed off with a nonentity like Jimmy?

Have no fear, gentle reader: the geniuses in Sopwith’s upper management have already formulated a plan to head off this possibility. The plan is either insanely brilliant, or brilliantly insane – I don’t yet know which – and it can be outlined in one sentence: if investors want to meet a senior employee, then a senior employee is what we’ll provide.

Yes. They have promoted Jimmy the Kid to upper management. This utter newbie is now our "Head of Investor Relations"; a member of the "steering committee"; a managing director and an equity-holder in the fund to boot. Of course these titles are meaningless; none of these positions have any power or any responsibility, but Jimmy doesn't know that – and neither do our investors. I wonder for whom the penny will drop first?

To be continued...