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Barton Biggs Shines a Light on Hedge Funds

The hedge fund industry is one of the fastest growing corners of the investment world. It's also one of the most secretive. As a rule, hedge fund managers don't talk to the press much. So when former Morgan Stanley executive Barton Biggs decided to write a book about his experiences running a hedge fund, it raised a few eyebrows on Wall Street.

Biggs was head of investments at Morgan Stanley and well entrenched in the Wall Street establishment. He was nearly 70 when he left the firm in 2003 to start Traxis Partners. Biggs says he left Morgan Stanley, in part, because he was tired of managing people. He wanted to be managing money.

"I was chairman of the mutual funds [at Morgan Stanley] and I was spending more time going to meetings, and less time being an investor," Biggs said.

Biggs was also intrigued by the idea of returning to the hedge fund world, where he worked early in his career.

Hedge funds are investment vehicles that cater to rich people and big institutional investors. They use a variety of strategies to maximize return and minimize risk, strategies like shorting, a bet that an investment will lose value in the future. Hedge funds are lightly regulated and their relative independence gives hard-core investors like Biggs an opportunity to test their insights.

Biggs won't give precise figures on how his fund is doing. It reportedly earned a respectable return of 15 percent last year. Madhav Dhar, Biggs' partner at Traxis, says Biggs likes the intellectual challenge of running a fund.

"He lives and breathes this stuff," Dhar said. "He always has, ever since I've known him."

Biggs has been doing something few fund managers would invest their own time in. The former creative writing major at Yale has been keeping a journal. His new book, HedgeHogging, is the result of his habit.

The book chronicles some of the indignities of hedge fund life, like having to make sales pitches to bored multimillionaires at investor conferences. The most memorable passages involve some of the people Biggs knows.

"I think that's the fascinating thing about the business; it's the people," Biggs said. "The very brilliant and often eccentric and obsessive people in this business."

Take, for instance, an intensely competitive fund manager named Richard. Richard is as smooth as they come, according to Biggs' account. He has a smooth, cultured Harvard veneer, wears fancy suits and talks with a hint of a Boston accent. Biggs details how Richard persuaded some unsuspecting colleagues to buy a stock that he knew was a dog, then unloaded his own shares right before the stock crashed. Just because you're a snake, Biggs writes, doesn't mean you're not a moneymaker. Biggs says he tells these stories for a reason.

"I'm trying to, first of all, disabuse the public [of the notion] that hedge funds are an automatic road to riches for the investors," Biggs said. "I'm also trying to disabuse professional investors [of the notion that] it's very risky to start a hedge fund."

Biggs says hedge funds charge high fees and if they don't do well right away, investors quickly pull their money out. Many funds fail as a result. Biggs describes the hedge fund industry as a grossly overpopulated losers game with too many funds chasing too few profits. But he says he doesn't at all regret his decision to start a fund.

"When you're doing well, not only are you getting paid extremely well, but you really feel like you're walking on top of the world," Biggs said.

But there are also long slumps and spectacular flameouts. For that reason Biggs says he generally supports recent efforts by the Securities and Exchange Commission to begin regulating hedge funds.

Biggs notes that many mutual funds and pension plans these days invest in hedge funds. The public needs to be protected from the bad bets these funds may make. One way to ensure that happens, he says, is to do what he's done in his book: shine a little more light on the way hedge funds operate.

Copyright 2023 NPR. To see more, visit https://www.npr.org.

Jim Zarroli is an NPR correspondent based in New York. He covers economics and business news.