Institutional Investor's Alpha Magazine - June 2008 - (Page 30)

ALPHA HALL OF FAME Does this mean that you must constantly make a macro judgment? The view I started with and embodied in Caxton’s fund was that business cycles were very important and that they occurred all over the world, and it was useful to observe them and to take advantage of the opportunities across four different asset classes. Which four asset classes? market opportunities get arbitraged out somewhat. Fifteen years ago, I might have traded some things that we don’t trade at all now. Like what? I don’t try to outguess the employment statistics on the ﬁrst Friday of every month, because everyone is watching the numbers coming out. So now you must seek out undiscovered information somewhere else. Outside the U.S.? Equities, ﬁ xed income, commodities and currencies. The raison d’être of the company is to observe the nature of the macro cycle across multiple economic and political zones and to take advantage of the character of each business cycle so that we would have multiple business cycles to trade. We trade Asia dif- We’ve always looked outside the U.S., but in the past decade non-U.S. markets have become so much more liquid. There are many more opportunities in emerging markets. But we also ﬁnd plenty of opportunities in U.S. and developed markets. U.S. markets are still more liquid than almost any other market, and that opens up opportunities. What role have hedge funds played in the rapid run-up in oil prices? Hedge fund participation in the oil price rise has been somewhat smaller than I would have expected. The price of oil is elevated for reasons that have much more to do with fundamental demand out of China and India and other places. The weak dollar has added to it. Are hedge funds beaten up on too much? I think so. Hedge funds are part of the demonization of ﬁnancial markets. I think it’s a tradition in American politics to blame the banking community. This tendency goes all the way back to the famous William Jennings Bryan speech that ended “you shall not crucify mankind upon a cross of gold.” This was essentially an anti-inﬂation policy that was thought to beneﬁt bankers against the interest of the average man — the gold standard policy. And now in the present period of extreme tension on ﬁ nancial matters, it’s hardly a surprise that people blame the participants in the ﬁ nancial markets. Hedge fund managers often get blamed because their proﬁts are seen to be large. It’s easy to confuse public policy problems such as a collapse in the credit markets with ad hominem complaints about hedge fund managers who have made correct market bets. But in reality, the hedge fund manager didn’t cause the problem. ferently than we trade Europe or the U.S. And we could be long or short across multiple asset classes and regions. Until the late ’90s, this was not widely done. Does the tremendous amount of money in hedge funds now make it more difﬁcult than ever to exploit inefﬁciencies? Politicians are looking closely at the taxes that hedge fund managers pay — or don’t pay. Yes. The crowded nature of the hedge fund community has changed the character of trading so that you can see waves of risk-taking and derisking coming from the hedge funds themselves. When there were ten or 15 very active hedge funds, it didn’t matter what they did. When there are 10,000 hedge funds, it does matter. They move the markets. In addition, 30 • INSTITUTIONAL INVESTOR’S ALPHA • JUNE 2008 I think it’s an absolutely legitimate public policy question: What’s the right tax policy? It’s a good thing to have a public debate on that. No single policy will make everyone happy. I can’t say I like writing large checks to the IRS, but I am very happy that good trading has put me in a position to do that. The best policy would probably be to have an extremely simple tax rate for all income. But our tax code is tens of thousands of pages long, and it creates a lot of problems. — Interview by Stephen Taub

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - June 2008

Investor's Alpha Magazine - June 2008 Contents Letter From the Editor Longs & Shorts Cover Story: Alpha Hall of Fame Bruce Kovner Michael Steinhardt Kenneth Griffin Louis Bacon Steven Cohen George Soros James Simons Seth Klarman Julian Robertson Jr. Jack Nash Leon Levy Paul Tudor Jones II Alfred Winslow Jones David Swensen Looking Ahead: Back to the Future Research Center: Europe Hedge Fund 50 Unhedged: Let the Sunshine In

Institutional Investor's Alpha Magazine - June 2008

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