Barton Biggs’s Hedge-Fund Heroes Pile Up Zeroes in Gilded Fable

The cover jacket of "A Hedge Fund Tale" by Barton Biggs. Source: Wiley via Bloomberg

Meet Mickey Cohen, a hedge-fund hero in January 2007.

He’s got the Gulfstream V, the New York penthouse, two exes and Vanessa, a 25-year-old girlfriend who works at Sotheby’s. He even has started dabbling in Old Masters.

“I figure I’m in my Baroque period,” Mickey declares one day. “Baroque is gorging, exuberantly collecting glorious women, houses, art, even wine.”

You know his story won’t end well.

Mickey is a secondary character in Barton Biggs’s new book, “A Hedge Fund Tale of Reach and Grasp.” The moral of this fable is clear: To thrive and survive, investment pros need more than skill and tenacity, Biggs says. They also must tame their hubris and emotions that can flip from ecstasy to despair.

Biggs, 78, should know. As a young analyst, he ran a model portfolio for hedge legend Alfred Winslow Jones. He went on to become chief global strategist for Morgan Stanley and cofounder of hedge fund Traxis Partners LLC. He lives in hedgehog central -- Greenwich, Connecticut -- and he peppers the story with references to Goldman Sachs Group Inc., Warren Buffett and meals at the Four Seasons and Le Bernardin in Manhattan.

Biggs is always informative. He has absorbed both the wisdom of markets and the teachings of value investor Benjamin Graham. So it pains me to report that his latest book is a damp squib. Though his narrative traces a dramatic story -- the great hedge-fund gold rush and bust -- it’s told in the forced fictional style of David Chilton’s “The Wealthy Barber.” This approach may deter readers familiar with Biggs’s quirky and original “Hedgehogging” and “Wealth, War and Wisdom.”

Jock Dream

The hero of the story is Joe Hill, a good kid from an old mill town in Virginia. His father is black, his mother white. As Joe grows up, he develops a talent for football and a knack for numbers. Though Joe makes plenty of bad decisions, as adolescents do, he eventually gives up his jock dream of playing pro ball and heads to Wall Street. Before long, he’s wowing his boss at Grant & Company Asset Management with his stock picks.

One thing leads to another, and Joe ends up joining fellow value investor Mickey Cohen at Bridgestone, a Manhattan hedge fund whose co-founders sound like Glenn Dubin and Henry Swieca, the creators of Highbridge Capital Management LLC. One founder is a name-dropping extrovert who schmoozes with investors; the other is an introvert who keeps his shades drawn, fixates on his computer screens and belongs to Club Kosher, a network of Orthodox Jewish professionals. Joe and Mickey’s fund resembles the Highbridge Long/Short Equity Fund.

Roman a Clef?

The parallels to real people and funds soon make you wonder whether Joe is as imaginary as Biggs says. All too often, the book reads like a roman a clef, a notion that Biggs encourages in the introduction.

“I use disguises to mask identities,” Biggs writes, all but daring us to a game of Name That Hedgehog.

We meet, for example, Tom Hadron, a hedge-fund legend who got his start trading cotton -- “a good old Southern boy who likes to hunt.” Sounds like Paul Tudor Jones to me. Then there’s one “really big” manager, FAC founder Steve Brown, who has “an ice rink with its own Zamboni.” Must be Steve Cohen of SAC Capital Advisors LP.

Bridgestone and Highbridge aren’t one and the same, of course. Their addresses are different, and Bridgestone’s co-founders knew each others as teenagers in the Bronx, not Washington Heights. As for the Highbridge Long/Short Equity Fund, its return surged 40 percent in 2007, according to a Bloomberg News report; Joe and Mickey’s fund drops 31 percent.

Greenwich Mansion

Until then, Joe and Mickey had been getting very wealthy very fast. By the end of 2006, Joe’s capital account in the fund has topped $150 million, and he and his wife have settled into a mansion in Greenwich. Then the fund descends into the vortex of the subprime crash, investor withdrawals, and the rush to deleverage amid fear, uncertainty and doubt.

“I thought we had the model, the algorithm that would work forever,” Joe laments as he surveys the wreckage.

Biggs excels at explaining financial dealings in simple terms. He’s no novelist, though, and his didactic narrative veers between melodrama and corniness.

“Happiness is like a snowflake,” Joe reflects as it starts snowing one night. “Catch it in your hand and suddenly it is gone.”

If you want an inside look at hedge funds, you might be better off with Scott Patterson’s “The Quants” or Sebastian Mallaby’s “More Money Than God.” Still, Biggs may have the makings of a Hollywood movie here.

“A Hedge Fund Tale of Reach and Grasp” is from Wiley (319 pages, $24.95, 16.99 pounds, 20 euros). To buy this book in North America, click here.

(James Pressley is a book critic for Muse, the arts and leisure section of Bloomberg News. The opinions expressed are his own.)

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