Morgan Stanley's Biggs Shares Pain of Top Hedge-Fund Players

Date: Friday, January 6, 2006
Author: Jeffrey Burke- Bloomberg.com

Jan. 6 (Bloomberg) -- One day in 2001, an affable hedge- fund manager known as Grinning Gilbert realized that his wager on tech stocks had turned into a black hole threatening to devour his net worth of $20 million. He went home and stayed in bed for a week, living on toast and soup. He lost his grin but salvaged a few million by liquidating the fund and selling his trophy home in Greenwich, Connecticut.

Memorable characters populate ``Hedgehogging'' (John Wiley, 308 pages, $26.95, 16.99 pounds), Barton Biggs's ``collection of disparate reflections and anecdotes'' about the loosely regulated, highly leveraged world of hedge funds and the professional investors who rise and fall with them.

The amount of money under management in these funds worldwide has soared to more than $1 trillion currently from $36 billion in 1990. Top managers can aspire to fortunes in the fairytale range of $500 million.

A 30-year veteran of Morgan Stanley and a well-regarded financial writer, the 73-year-old Biggs also has been running his own hedge fund, Traxis Partners, since 2003. It has been a bumpy ride, and the experience, along with his CV, make him well-suited for helping ``others understand the intensity, stress, foibles, and insecurities of the men and women who manage other people's money.''

No Golf

This is a business that bets heavily with borrowed money and often craps out. About 1,000 hedge funds went under in 2004, according to Biggs.

So why plunge into such a maelstrom in your eighth decade? Biggs says he was ready to leave Morgan Stanley but not to retire -- no interest in golf or ``cruises to the Greek Isles.'' Above all, he adds, ``I was doing it because professional investing is the best game in the world, and I relished the competition.''

The trials of starting and running Traxis weave through about half the book. Raising money was a months-long challenge, beginning with his first trip to Morgan Stanley's hedge-fund conference, an event that ``attracts the biggest, richest collection of hedge-fund buyers in the world, ... all obsessively searching for the new messiah: a boy George Soros.''

`Anorexia Richiosa'

These buyers aren't his favorite people, as shown by a few lines from a long acerbic passage: ``Former investment bankers exchange distinguished lies with portly ex-diplomats, permanently deformed by self-importance.... Retired, vastly rich investors with private jets, homes in three climates, and Botox- smoothed foreheads name-drop and talk about their golf games as their bored wives and sleek and skinny girlfriends, social X- rays suffering from `anorexia richiosa,' babble about dude ranches and plantations.''

After Traxis got going, he and his partners ``were tortured unmercifully by a short position we took in oil in May 2004, when the price was about $40 a barrel.'' He says they ``misjudged demand, failed to anticipate the intensity of the hurricane season and political developments.''

The ``agony and despair of being wrong'' leads to physical and mental pain. Friends turn against you. You ``wake up in the night sweating.'' One of his partners had a recurring nightmare about being totally incoherent in a client meeting ``trying to explain our oil short.''

Thatcher and Bismarck

Away from Traxis, the book offers a fund of fundamental investment information and advice, although Biggs says it ``is not a how-to primer.'' His main interest and amusement are the real players, like Soros or Warren Buffett or Julian Robertson of Tiger Management, and the quasi-real, like Grinning Gilbert. Biggs uses pseudonyms and composite characters to label types and disguise others.

Moving from hedgehog profiles to investment homilies and historical interludes, the book has the leisurely manner of a good conversationalist. Biggs composes a hymn to the economic policies of Margaret Thatcher as easily as he graces with a Shakespearean couplet a story on the usefulness of jewelry in Hong Kong during World War II.

His look at how Otto von Bismarck grew rich in the 19th century with uncommon access to insider information touches on the prince's passion for timberland as a safe investment. That in turn triggers thoughts of ``David Swensen and the very sensible way he is trying to lower expectations for the returns from the Yale Endowment,'' which Swensen manages.

Biggs graduated from Yale in 1955, taught English at a prep school, played semiprofessional soccer ``and tried to write the Great American Short Story.'' Then, ``bored with playing soccer and getting rejection slips for my stories,'' he went to his father, who was chief investment office of Bank of New York, and told him he wanted to be an investor. The young man joined E.F. Hutton in 1961, starting at $7,200 -- a year.

To contact the writer on this story:
Jeffrey Burke at  jburke21@bloomberg.net.