Institutional Investor's Alpha Magazine - June 2008 - (Page 40)

ALPHA HALL OF FAME hark back to the ’70s to get an equivalent sense of loss of U.S. control. At that point in time, though, the U.S. had no natural economic rivals. Now there are a number of emerging markets, like the BRICs — Brazil, Russia, India and China — that are vying for power and showing economic leadership. They may, in time, rival U.S. global dominance. How worried are you? Especially about inﬂation. The U.S. has gotten out of a number of really difﬁcult economic situations where inﬂation was a pressing issue, so there is an expectation that we’re going to get out of this crisis, too. But I’m very concerned, given the negative savings dynamic that a good part of success is predicated on showing up and putting in time. The second great trade, or a great exit, was in the last week of the Nasdaq rally in March 2000. We were really worried about what the Fed was going to say, so we sold close to $2 billion of Nasdaq futures just before the bottom fell out. Now that sounds great, but I had told my head trader earlier in the week to get rid of all of our technology longs we had been riding for months. But he didn’t sell anything that week, so we ended up with a lot of dot-com equity on our balance sheet. Not executing the entire trade cost us dearly, however beneﬁcial selling at the peak of the market. The lesson was, Don’t rely on others when you are really sure. The last one, last year, was probably where we made the most absolute money, and that was in subprime. We traded around the position very poorly and yet made a ton of money. The lesson was that picking the right investment will trump any lousy trading around it. Worst trade? I have probably blanked them out of my mind — not enough memory for them. What’s it like to work for you? We run a laissez-faire, entrepreneurial shop. I started my career in futures, and the rallying cry was always free markets for free men, so I’ve tried to create an open architecture here for traders to test their ideas and thrive. I think that we have a good understanding of risk, but we take a different approach to it. We prefer to see what our traders want to have as their individual risk proﬁles, and then we ﬁt our assets around those to modify our net exposure. Should hedge fund managers give back? in the U.S. and the inability of our politicians and people to acknowledge that we have the ﬁ nancial structure of a thirdworld economy dependent on leverage and dissaving, coupled with an addiction to foreign goods and oil. Other competing economies are much more disciplined. What was your best trade? They should, and they do, probably more so than other pockets of wealth, perhaps because after mastering the markets on their wits, they believe their wealth is replicable. In 1992 we founded the Moore Charitable Foundation, which aims to conserve and protect our natural resources. Conservation remains underfunded relative to other charitable causes, and the organizations we support are working to slow the loss of Earth’s resources. What’s the most pressing issue facing the world? I’m lucky enough to have more than one. The ﬁrst was a complete market malfunction. In the crash of ’87, I happened to be short Nikkei contracts, and as we were ﬁ nishing up and closing the books late on that Monday night, the Nikkei futures opened at 4,000 — it had closed the night before at 28,000! I bought shares to close the short position between 8,000 and 18,000. It was incredible buying the second-largest stock market down by almost two thirds. Had I not been in the ofﬁce during those 15 minutes after the market opened, I would have missed it. The lesson was 40 • INSTITUTIONAL INVESTOR’S ALPHA • JUNE 2008 A Malthusian population explosion intersecting with globalization. We have encouraged all 7 billion of the world’s inhabitants to live like Westerners, and now that they have taken the bait, we are realizing it is impossible on this small Earth. The ﬁrst big hit has been to the environment; the next, which we are witnessing, is to energy prices, and it is leading to food shortages and eventually more famines. Governments are only starting to address the problem, and the planet’s most inventive and powerful economy, America’s, is leading only from the rear, if at all, given our present administration. — Interview by Loch Adamson

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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