"I don't know why I get paid this much either, it's crazy!" Photo by Jon Feingersh/Getty Images
I vividly remember the valedictorian from my high school class saying he was going to Princeton to "study the stock market." It was the most mad I'd ever felt in my life. For one thing, "the stock market" is not a fucking major; also, this guy was basically blowing an opportunity to study under Toni Morrison that I'd never get studying English at a state school in Florida. Being the insufferable 16-year-old that I was, I yelled out, "Asshole!" which promptly inspired him and his girlfriend to unfriend me on Facebook. I don't regret it, though, because if I've learned anything in the past ten years, it's that the Wall Street Guy may be the single American professional archetype it's socially acceptable to despise.
In fact, the only people who seem to catch even more shit than Wall Street bankers these days is a similar but somewhat more exotic species: the hedge fund bro.
The task of the hedge fund manager—if we're being formal—is to find places for rich individuals and institutions, like pension funds and universities, to put their money. If you don't live in a big city like New York, you may not know any of these guys, but they're some of the wealthier and more influential people in the country. Former (and possible future) First Daughter Chelsea Clinton's husband Mark Mezvinsky, for example, is deep in the hedge fund game, though his firm has had a rough go of it lately after one of its funds invested heavily in Greece of all places. In theory, hedge fund guys (they are almost always men) are supposed come up with strategies that don't depend on the whims of the stock market; traditionally, that's meant taking both long and short positions, which is to say betting on some things and against others.
But in the last decade or so, as the number of hedge funds has ballooned, managers have begun flipping the script.
Some Americans seem to dislike financial professionals because they appear to get filthy rich performing nebulous alchemy that serves to make rich people richer. When it comes to hedge funds, that first part is beyond dispute: according to an annual ranking released on Tuesday, the top ten hedge fund managers in the world took home more than $10 billion last year. But the crazy part is that five of the top 25 earners in the field actually lost their investors money. That revelation comes amid a growing effort by activists to get public pensions to ditch hedge funds, which typically charge exorbitant fees and often deliver returns that aren't any better than sticking money in an index fund and forgetting about it. Every year, there's a three-day conference to celebrate the industry, but the Wall Street Journal described the latest iteration, which just wrapped up, as "anything but festive."
"The hedge-fund model is under challenge," one manager remarked on Wednesday. "It's under assault."
If the hedge fund bro is increasingly reviled by activist types and growing less and less useful to the 1 percent, does that mean he'll vanish from the Earth? I asked Mark Melin, a former investment banker and professor at Northwestern University, to walk me through what the future holds for some of the most privileged men in America.
VICE: I think the idea of the hedge fund guy is mystifying to a lot of people. What does he do all day? Is he just shaking hands and collecting cash?
Mark Melin: A fair amount of it is networking, but a lot of that happens after work. They read a lot of research. They do work hard. They're very well informed about what's going on. They're looking at the world for opportunities that most people don't necessarily see. The win percentage on that could be spotty. I have a personal hobby of trying to find bands before they become popular, trying to find a band that can jump above the rest. I'll get a couple wins but I'll get way more losses.
So what they do every day is try to figure out where the markets are going, and there's a lot of communications between hedge fund managers. They look at the positions of each other. They're trying to figure out how to maneuver within the markets, is the bottom line.
So how did things go wrong for these guys?
The quote that best sums it up is, "Hedge funds aren't hedging." Hedge funds were designed to be a counterbalance to the stock market. But what's happened recently is that hedge funds have been exposed as nothing more than long exposure to the stock market. In my opinion, 2008 was a disaster for a lot of hedge funds, going forward is the funds that actually hedge.
This interview has lightly edited and condensed for clarity.
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