Metronome, The by D. R. Bell Read Free Book Online Page A

left academia I went to work on Wall Street as a quant, basically an analyst developing and programming trading models. As a quant, you make an OK salary, but to do well you have to move into trading or, even better, become a hedge fund manager. But it’s hard to become one, as that is everyone’s goal. So, in April of last year, when an acquaintance asked me if I’d be interested in co-managing a fund with him, I jumped at the chance.”
    “Who was this acquaintance and why did he offer you such an opportunity?”
    “His name is Martin Shoffman. We moved in the same social circle; Karen and I went out with Martin and his wife Sarah together a few times, and became friends. He was more of a sales person, did not have a strong analytical background. He told me he wanted me as a partner because we complemented each other and the prospective investors wanted to see a well-rounded management team.”
    “And what happened after?”
    “Martin did have investors, although it was really just one large investor putting up the bulk of the money.”
    “Who was that large investor?”
    “It was a Cayman Islands limited partnership, very secretive, we only met their attorneys. But their money was real. Their main requirement was that Martin and I should put our own ‘skin in the game,’ as their attorneys put it.”
    “And you did?”
    “Yes. Martin and I mortgaged our houses in order to put up the money.”
    Yakov is silent.
    “We opened in May with over a hundred million in funds,” I continue. “We’d been doing well for a while, but in February things turned sharply against us. It felt like some of our leveraged positions were being pressured by a large player. In particular, I thought that the housing market was overheated and went against it, but the value of our positions has declined. I wanted to cut our losses, but Martin thought we’d be kicked out as the fund managers and we doubled down instead. The fund lost a lot of money that quarter, and the major investor’s attorneys descended on us. Turns out there was a provision in the funding agreement allowing the majority investor to liquidate the fund for poor performance and to have priority on recovering their money.”
    “What does it mean?” asks Anya.
    “The fund was closed, they took over the assets, Martin and I lost everything.”
    “Everything?”
    “Yes. We mortgaged our houses and put everything we had into the fund.”
    “That was rather risky, wasn’t it?” Yakov spreads his hands in wonderment.
    “Yes,” I admit. “We were afraid of missing our chance at running a fund and risked too much.”
    “Was that a typical provision?”
    “No, it was not. I am not a lawyer, in the initial excitement I did not read some of the fine print, counting on our attorney catching things like this.”
    “Did you have an attorney review the agreement?”
    “Martin did.”
    Yakov wonders out loud. “Your partner gets you into a bad agreement, and then encourages you to take big risks. How much of a partner was he?”
    “I am not happy about his decisions, but he lost his house just like I did. And his marriage broke up like mine.”
    Yakov ponders things for a while.
    “Sometimes you do a physical experiment, and the results neatly fit one theory. Then you do another experiment, and the first theory does not look like such a sure thing, while some of the seemingly random data points in the first set don’t look so random. Your description looks entirely logical. But when I combine it with the events of the last few days, I am not so sure. You may want to recheck some assumptions back in America.”
    He gets up.
    “I am sorry. It’s late for an old guy like me. Let’s sleep on it. As a Russian proverb goes, ‘Morning is wiser than evening.’ Good night.”
     
    Once he leaves the room, Anya says, “So where are your kids now? You have a boy and a girl, right?”
    “Yes, Simon and Jennifer. They are both at the University of Southern California