Hedge Fund Manager Interviews

[BSD]

Found these via the Dummy Trading Master Chairman Maoxian:

CLICK: Market Folly: Hedge Fund Manager Interviews

Excerpt from Paul Tudor Jones:

“It’s a hell of a lot easier to get an information edge on one stock than it is on the S&P 500. When it comes to trading macro, you cannot rely solely on fundamentals; you have to be a tape reader, which is something of a lost art form. The inability to read a tape and spot trends is also why so many in the relative-value space who rely solely on fundamentals have been annihilated in the past decade. Markets have consistently experienced ‘100-year events’ every five years. While I spend a significant amount of my time on analytics and collecting fundamental information, at the end of the day, I am a slave to the tape and proud of it.

[I come] from that period of crazy volatility [in] the late ’70s and early ’80s, when the amount of fundamental information available on assets was so limited and the volatility so extreme that one had to be a technician … When I got into the business, there was so little information on fundamentals, and what little information one could get was largely imperfect. We learned just to go with the chart.

There is no training — classroom or otherwise — that can prepare for trading the last third of a move, whether it’s the end of a bull market or the end of a bear market. There’s typically no logic to it; irrationality reigns supreme, and no class can teach what to do during that brief, volatile reign. The only way to learn how to trade during that last, exquisite third of a move is to do it, or, more precisely, live it — a sort of baptism by fire. One has to experience both the elation and fear as markets move five and six standard deviations from conventional definitions of value.

Fundamentals might be good for the first third or first 50 or 60 percent of a move, but the last third of a great bull market is typically a blow-off, where the mania runs wild and prices go parabolic.”

Thing to always remember I suppose is that markets can remain fundamentally irrational for a whole while longer than your pockets will allow you to survive.

Let a bubble be a bubble, and just go along for the ride.

We're not in this to teach markets a lesson, but to make money.

 

[BSD]

"The Kings of Cash

Institutional Investor

By Stephen Taub


John Paulson earned a record $3.7 billion last year to top Alpha's ranking of the 50 most highly paid hedge fund managers. The Paulson & Co. chief surpassed perennial powerhouses George Soros and James Simons, who ranked second and third, at $2.9 billion and $2.8 billion, respectively. The top 25 on the list earned an average $892 million, up from $532 million in 2006.

Paulson rocketed to No. 1 in Alpha's seventh annual survey by shorting the subprime mortgage market. He, Soros, Simons and the others who earned more than $1 billion — Philip Falcone and Kenneth Griffin — led what may well prove to be the greatest display of individual wealth creation in any year in the modern history of finance.

The enormous riches being generated by hedge funds come at a time of extraordinary distress in financial markets, as millions of homeowners face potential foreclosure and the U.S. plunges into recession (see “Market Paranoia”). Undoubtedly, the huge paydays chronicled here are sure to cause a heightened level of envy and resentment toward hedge funds, and will draw additional scrutiny by Washington, which is already weighing whether to increase regulation.



Consider:

• Five of the managers on this year’s list each made more in 2007 than the $1.2 billion that JPMorgan Chase & Co. agreed to pay for the almost failed 85-year-old Bear Stearns Cos.

• When we published our inaugural list, in 2002, Soros led the way with $700 million, a showing that this year would have put him at No. 9. Back then it took $30 million to crack the top 25; this year, $360 million.

• The grand total earned by the top 25 in our 2003 ranking, almost $2.8 billion, was less than what any of the top three managers made this year and less than one fifth of what the top ten made altogether ($16.1 billion).

• Though we doubled the size of our list from 25 to 50 this year, longtime New York–based star managers Mark Kingdon of Kingdon Capital Management and Raj Rajaratnam of Galleon Group both miss the cut, despite each making about $200 million. This year’s minimum: $210 million."

LINK: Institutional Investor

 

[Jaydee]

I like these BSD, keep them coming if you find any more.

Regarding Paul Tudor Jones. Here are some of his ideas from Market Wizards:

Contrarian attempt to buy and sell turning points. Keeps trying the single trade idea until he changes his mind, fundamentally. Otherwise, he keeps cutting his position size down. Then he trades the smallest amount when his trading is at its worst.

Considers himself as a premier market opportunist. When he develops an idea he pursues it from a very-low-risk standpoint until he has been proven wrong repeatedly, or until he changes his viewpoint.

Swing trader, the best money is made at the market turns. Has missed a lot of meat in the middle, but catches a lot of tops and bottoms.

Spends his day making himself happy and relaxed. Gets out if a losing position is making him uncomfortable. Nothing’s better than a fresh start. Key is to play great defense, not great offense.

Never average losers. Decreases his trading size when he is doing poorly, increase when he is trading well.
He has mental stops. If it hits that number, he is out no matter what. He uses not only price stops, but time stops.

Monitors the whole portfolio equity (risk) in realtime.

He believes prices move first and fundamentals come second.

He doesn’t care about mistakes made 3 seconds ago, but what he is going to do from the next moment on.

Don't be a hero. Don't have an ego. Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead.

 

[BSD]

Glad you liked that Jay.

Good excerpts from his Market Wizards interview, too.



This is an interview PTJ gave a while back that I still have on file, interesting nugget of information is that he started his hedge fund with no more than US$ 300K in 1983:

"Paul Tudor Jones II is the president and founder of Tudor Investment Corporation, and was featured in Jack D. Schwagers classic "Market Wizards".

This is an edited transcript from the interview, which was held at Paul Jones's office in Greenwich, Connecticut on January 13, 2000, by Joel Ramin

[email protected]

Q: Can you briefly describe your background?

A: I went to high school at Memphis University school. My father went to Virginia Law School so he steered me to the University of Virginia. I went to Virginia from 1972 to 1976, majored in economics and had a great time. I really loved UVa. I graduated and went to work for Eli Tullis who was a Virginia graduate from New Orleans. He was a cotton speculator, maybe the biggest cotton speculator, and he gave me a job on the former New York cotton exchange and I began literally two weeks after I graduated from school. That�s how I got into the futures markets.

Q: What sparked your original interest in trading?

A: I went to New York and saw the floor of the commodities exchange and there was such an energy level there and so much excitement that I knew that was the place for me. I�ve always liked action and the exchange seemed like a perfect home for me.

Q: When did you decide you wanted to run a fund?

A: In 1976 I started working on the floor as a clerk and then I became a broker for E.F. Hutton. In 1980 I went strictly on my own as what they called a local and did that for about two and a half years and had two and a half wonderfully profitable years, but I really got bored. I applied to Harvard Business School, got accepted and was about to go. I literally was packed up to go and then I thought, �this is crazy�, because for what I�m doing here, they�re not going to teach me anything. This skill set is not something that they teach in business school. So I didn�t go, I stayed, but I was really bored because there wasn�t the personal interaction that was something that I craved and having colleagues and being in a clean atmosphere and that was when I started my fund. All through growing up I�ve been involved in team sports and fraternities and in school I was involved in a whole variety of activities all of which were team oriented and when I was on my own I was printing money every month, but I wasn�t getting the psychic satisfaction from it

Q: How would you describe your general investment philosophy?

A: I think I am the single most conservative investor on earth in the sense that I absolutely hate losing money. My grandfather told me at a very early age that you are only worth what you can write a check for tomorrow, so the concept of having my net worth tied up in a stock a la Bill Gates, though God almighty it would be a great problem to have, it would be something that�s just anathema to me and that�s one reason that I�ve always liked the futures market so much, because you can generally get liquid and be in cash in literally the space of a few minutes. So that always appealed to me because I could always be liquid very quickly if I wanted to. I�d say that my investment philosophy is that I don�t take a lot of risk, I look for opportunities with tremendously skewed reward-risk opportunities. Don�t ever let them get into your pocket - that means there�s no reason to leverage substantially. There�s no reason to take substantial amounts of financial risk ever, because you should always be able to find something where you can skew the reward risk relationship so greatly in your favor that you can take a variety of small investments with great reward risk opportunities that should give you minimum draw down pain and maximum upside opportunities.

Q: How do you measure your performance?

A: You�ve got to look at good traders historically. If a trader can on average annually deliver two to three times their worst draw down, then that�s a very good track record, and I�d say that that�s what I try to do. If I thought that for the funds that I managed that 10% would be the worst that I would tolerate in a given year then hopefully I�d annualize two or three times that and that�s probably what I�ve done. Maybe a little below that in the �90�s and a little above that in the �80�s.

Q: What�s your competitive advantage as a trader?

A: The secret to being successful from a trading perspective is to have an indefatigable and an undying and unquenchable thirst for information and knowledge. Because I think there are certain situations where you can absolutely understand what motivates every buyer and seller and have a pretty good picture of what�s going to happen. And it just requires an enormous amount of grunt work and dedication to finding all possible bits of information.

You pick an instrument and there�s whole variety of benchmarks, things that you look at when trading a particular instrument whether it�s a stock or a commodity or a bond. There�s a fundamental information set that you acquire with regard to each particular asset class and then you overlay a whole host of technical indicators and that�s how you make a decision. It doesn�t make any difference whether it�s pork bellies or Yahoo. At the end of the day, it�s all the same. You need to understand what factors you need to have at your disposal to develop a core competency to make a legitimate investment decision in that particular asset class. And then at the end of the day, the most important thing is how good are you at risk control. Ninety-percent of any great trader is going to be the risk control.

Q: Can you give an example?

A: Certainly. The one on a percentage basis that�s been the most profitable for me was the crash of 1987. There was a tremendous embedded derivatives accident waiting to happen in the crash of �87 because there was something in the market that time called portfolio insurance that essentially meant that when stocks started to go down it was going to create more selling because the people who had written these derivatives would be forced to sell on every down-tick. So it was a situation where you knew that if you ever got to a point where the market started to go down that the selling would actually cascade instead of dry up because of the measure of these derivative instruments that had been written. And in the crash of �87 you had an overvalued market and you also finally had a situation where every down-tick would create more selling and I think I understood the dynamics of that. The crash was something that was imminently forecastable to somebody that understood the measure of derivatives and how large they had grown in such a relatively short period of time and the impact that it would have on a relatively unknowing and na�ve market. And the same exact thing happened in 1990 in Japan.

Q: So what is your opinion of the US equity markets now?

A: Clearly there are parts of the US equity markets that we�ve never seen anything like it anywhere in modern times in terms of valuation. The question is what�s the trigger event that gets you to mean revert and whereas you had specific derivative inspired events in 1987, I don�t see that now. So how long can these levels of overvaluation persist? I would think rather than seeing any type of really sharp break, what you might see prospectively is something that looks a lot more like �68 to �73 did where you had big rolling corrections and rotations and a market that doesn�t really make any upside progress but with a lot of volatility that traverses big ranges.

Q: Do you have any specific catalysts that you�re looking for?

A: I think you�re finally getting interest rates at a level where they�re extraordinarily negative for equities. You look at every bear market and they�ve always basically occurred because of an up-tick in inflation and an up-tick in interest rates. We�re definitely at a point where rates are high enough where they�re going to have a big impact on equities. When you look at the volatility we�ve had in the past month in the NASDAQ for instance, every time I�ve seen volatility like that, I don�t care what the market was, whether it was soybeans in �76 or �83 or whether it was silver at the top in 1980 or whether it was some of the biotech stocks at the top earlier in the �90�s, when you get that kind of volatility you know that generally that�s associated with a top. The best you can hope for if you�re long is to look at some type of significant long term sideways action where the markets consolidate before moving higher or generally speaking allow that those have done their thing and we will have topped for years and years to come. I�m probably more of a subscriber to the latter theory.

Q: How big was your fund when you started and how much money does your company have under management now?

A: Right now we have about five or six billion dollars under the management of several large traders including myself. Back in �83 we started with $300,000.

Q: Do you like managing so much more money?

A: I don�t like managing it at all. The smaller it is the greater you can do because there is no slippage and greater liquidity.

Q: It was widely published that in 1987 you reportedly made between $80 million and $100 million � more than anybody on Wall Street. How did that make you feel?

A: At the time, I was young enough to enjoy that. I was in my early 30�s and that was exciting, but the older you get you realize that at the end of the day the amount of money you have has absolutely zero bearing on how you feel about yourself and the quality of your life. It becomes a very shallow measure of a person�s worth. I have a great wife and four great kids now and that would be my crowning achievement.

Q: Is there more risk in the stock market now than ever before?

A: Certainly in the stock market, there are some stocks with valuation levels that mankind has never seen before so one would think that they have a lot more risk. It�s funny, but I�m actually not the best person to ask about the stock market. You see, our company is just a group of 280 individuals, all of us are basically united under one purpose, and everybody has pretty much the same MO, young professionals with kids, generally very conservative. Really all my capital is tied up in this company, so on the one hand I think to myself my gosh the concept of owning stocks is anathema to me because of the fact that I always want to be liquid, so a lot of our investments typically are things with a very short lifespan like derivatives, not owning stocks. So as far as risk in the stock market, that�s not my core competency, so I�m really not a great person to ask.

Q: Can you comment on the life of your fund�s returns since you began investing?

A: Our returns have definitely flattened out since the �80�s. But if you look at my risk adjusted returns, they�re very similar and I�m probably the same exact trader as I was 15 years ago. What�s different has been my own personal appetite for risk and volatility. I think that probably happens with a lot of people as they get older. Everything is a function of leverage, how much of a draw down are you willing to tolerate, how much leverage do you want to put on. When I was younger, I had much greater draw downs, much greater draw down frequency, much greater leverage. So again, I�m probably the exact same trader as I was 15 years ago, it�s just less risk, less return.

There are exceptions to the rule, but the normal progression of most traders that I�ve seen is that the older they get something happens. Sometimes they get more successful and therefore they take less risk. That�s something that as a company we literally sit and work with. That�s certainly something that I�ve had to come to grips with in particular over the past 12 to 18 months. You have to actively manage against your natural tendency to become more conservative. You do that because all of a sudden you become successful and don�t want to lose what you have and/or in my case you get married and have children and naturally, consciously or subconsciously, you become more conservative. If there�s one thing in our company that we probably will spend more time working on in the year 2000 than we ever spent historically, it�s that as a group we all came to be overly conservative and we need to leverage up more within our company and I�m probably the worst offender. So now I have a whole variety of portfolio measures that I sit down with every afternoon, to try to hit some benchmark leverage measures to make sure I deliver what my investors unequivocally deserve in terms of the opportunity to get the kinds of returns they�re used to.

Q: What are some perceptions and priorities of yours that have changed over the years?

A: I think there�s a natural progression that everyone goes through. The older you get, the more you�ll realize that a quality life is one that has an extraordinary balance in it. The guy that�s working at 75 years of age and still running a company, that doesn�t have any appeal to me because I think his life is out of balance. If the only thing that he can find that�s that satisfying to him is being involved in a profession with something, I think you�ve got to have more balance. In my 20�s all I cared about was being financially successful and today I look to strive for a more balanced life. In that context though, when I come to work I�m as competitive as anybody you�ll meet and I clearly look forward to the day when I have the best performance of my peers, the macro hedge funds, for the year, which hopefully will be this year.

Q: What was the best and worst year you ever had?

A: The worst year was probably 1993. I only returned 1.6%. Never had a down year. And my best years, well I fortunately cut my teeth in two great bear markets, the �87 bear market and the 1990 Japan bear market and there�s no question that that�s biased me a bit. I returned about 200% in 1987 and 80% or 90% in 1990. I worked 80 hours a week and clearly I�m not doing that without trying to be number one. All my friends are in the business, and I wish them all well, but everybody�s got a competitive spirit.

Q: Are you more naturally bearish or bullish?

A: Bearish, I think. I would have difficulty asking anyone to pay 10 or 20 times earnings for my earnings capability for the rest of my life. I would think you�re crazy to do that even though it might be a great deal, so the concept of paying one-hundred-and-something times earnings for any company for me is just anathema. Having said that, at the end of the day, your job is to buy what goes up and to sell what goes down so really who gives a damn about PE�s? If it�s going up you�re supposed to be long it. But there�s no question that it�s just easier for me to leverage with some degree of conviction the short side of some markets.

Q: When are you going to retire?

A: I have a son that just turned three and I would unequivocally continue to trade until he went to college. At that point I think I�d probably be airborne hunting and fishing all over the globe every day in my life. I don�t even necessarily need to be hunting and fishing, I just love to be out doors.

Q: What do you think is going to happen to your company when you do retire?

A: I could get run over by a truck tomorrow morning and the company would go on and wouldn�t miss a beat. We�ve got the best business model there is on the street for doing this.

Q: Who are you going to vote for in the presidential election?

A: I think the biggest issue facing America, unequivocally, is campaign finance reform. When you sit down and talk about gun control or charter schools or whatever, all those issues, it�s impossible to have politicians actually vote their conscience when they�re all unequivocally conflicted because of the fund raising necessities they have and the amount of money they take. Until you have campaign finance reform and term limits, we�re dealing with a whole group of elected officials who are incapable of making any independent and honest decisions. So McCain, Bradley, I�ll vote for either one of them. I�ll vote for any politician that�s going to sign the dotted line to get the money lenders out of the temple. I think that if you look at the 13,000 registered lobbyists in Washington, what chance do you or I have of having a voice in government unless you�re willing to write a big check? Because that�s what all those guys are doing. I�ll tell you from my conservation battles down in Florida. The entire sugar industry in Florida, which is destroying the Everglades, they have one business. Their business is not growing sugar. Their business is paying off every politician that they can see simply so that they can continue with a subsidy that does nothing but take money out of every Americans pocket and put it in theirs.

Q: You were close to getting that legislation to go your way, weren�t you?

A: Right. And they spent forty some-odd-million dollars to fight us. Forty million dollars that they probably got through some extraordinarily inequitable and unfair and offensive subsidy that they have done an excellent job of paying off every politician in Congress for. Campaign finance for me is the key issue. It�s funny, McCain is a great example. He�s probably way too conservative for me, but I�d vote for the guy in a heart beat because there�s no doubt in my mind that he more so than anyone would probably go in and attack the vested interests there in Washington that completely distort and destroy our political process.

Q: Would you ever run for political office?

A: No. I�ve got a family and kids and I couldn�t be away from them that much.

Q: Let�s play a word association game. I�ll say a word and you say whatever comes to mind.

Q: Technical analysis

A: Made well over half the money that I�ve made in my lifetime.

Q: Fundamental Analysis

A: Made the rest.

Q: Are you better at one or the other?

A: Probably technical analysis.

Q: Market efficiency

A: No such thing.

Q: Long Term Capital Management

A: Icarus.

Q: Black Monday

A: It was like watching a natural disaster from the sidelines. I was intimately involved in that day, but the macro implications of what was happening overwhelmed any personal considerations that I had.

Q: Warren Buffet

A: His aversion to paying taxes made him a great investor.

Q: Kids

A: The most fun you�ll ever have.

Q: Environment

A: The second most fun you�ll ever have.

Q: The Internet

A: A wonderful delivery mechanism that�s overhyped.

Q: Day Traders

A: 95% losers.

Q: The University of Virginia

A: The most balanced education a person can receive and I�m not talking about just academic education, but all the other touch points that go with that; character building, ethics, exposure, etc�

Q: Wall Street

A: The last great frontier. I went there with nothing. You can go there with nothing and do whatever you want to do.

Q: What do you think you�ll be most remembered for?

A: I don�t think anybody will remember me.

Q: What do you hope you�ll be remembered for?

A: I think Teddy Roosevelt�s greatest legacy is the national parks system, so on a micro level anything that I could do to protect natural resources, I think, would be the best legacy that I could leave my kids.

Q: If you were writing a story about Paul Tudor Jones, what one question would you ask him?

A: If you could do one thing differently, what would you do?

Q: And what�s the answer?

A: When you look at the wealth creation in the Internet in the past decade, it would have required me to literally completely change my stripes and move over in a different world from macro analysis and trading a whole variety of instruments to going into building a business in a brave new world in the Internet. So I look back and I see the wealth creation that we�ve seen the past three years of which we�ve fortunately, derivatively been able to enjoy here at Tudor because we have our whole Boston office that�s dedicated towards private equity and that did an extraordinary job last year. But I guess, everyone that works on Wall Street today, particularly given our industry reliance on computers, knowing that that entire explosion occurred right under your nose, everyone has got to say, �My gosh, what if eight or 10 years ago I had made a decision to completely focus and be in the middle of technology? Instead of sitting in front of a screen, what if I had gotten on a plane and gone and played the venture capital game out in California every day?� I�d argue that many of the people that benefited from it probably were in the right place at the right time and got very fortunate and there probably aren�t but a handful of people that actually had the vision to go do it and the ones that actually did, I take my hat off to them and applaud. But I�ve always said, I�d just as soon be lucky as good and there are a whole variety of people that were just in the right place at the right time who did extraordinarily well and I�m happy for them. But I always do play the �what if� game. What if you�d taken your full repertoire of talents and skills and been involved in that from day one? Could you have been Bill Gates or could you have been whatever empire builder there was? "

Sorry for the question marks, no idea what sparked them.

 

[BSD]

Thanks to Chairman Mao who has unearthed this write-up about Paul Tudor Jones:

"Greenwich's Paul Tudor Jones: 'Adapt or die'


By Kathrine Burton
Bloomberg News

May 9, 2004


In the first year that Jim Pallotta joined Tudor Investment Corp. in Greenwich, the $9.4 billion hedge fund firm founded by Paul Tudor Jones, he learned how his boss managed to rack up one of the best performance records of any hedge fund manager.

Pallotta said he was talking to Jones one day in 1994 at about 6 p.m., when Jones told him he had made a large bet that the U.S. dollar would rise against the yen. "It's my favorite position," Pallotta remembered him saying.

When Pallotta woke up the next day, he looked on the Bloomberg Professional service and saw the dollar had gotten crushed. He called Jones, expecting the worst. Instead, Jones told him he had woken up in the middle of the night, seen something that changed his mind and reversed his wager so he would make money if the dollar tumbled.

"He made a killing," Pallotta said.

Jones, a blue-eyed, Memphis, Tenn.-born trader who looks younger than his 49 years, is set to expand his business into Asia, with plans to open a trading office in China. And he's looking to add other seasoned fund managers in the United States and Europe to the 45 who trade such things as commodities, U.S. and European equities, global bonds and the yen.

Jones has posted an annualized return of about 26 percent since opening his flagship Tudor BVI Fund in 1986, investors say. Few managers of hedge funds -- loosely regulated investment pools marketed to institutions and wealthy individuals -- can boast as strong or as steady a performance.

"You adapt, evolve, compete or die," said Jones.
By following that rule, Tudor has managed to increase its assets more than 30,000-fold since Jones opened his first fund, with $300,000, two decades ago.

The one-man trading office he started in Manhattan now has about 300 employees, with headquarters in Greenwich, and offices in Boston, Washington, London and Epsom, England. Tudor, the world's seventh-largest hedge fund group, has 35 equity partners.

As Tudor grows, so does the need to generate profit to keep the organization running and the traders happy. In 1985, Tudor's first full year of trading, Jones returned 136 percent, followed by 99 percent in 1986 and 200 percent in 1987.

Expanding to China

As funds get larger, the ability to make such outsized returns diminishes, because with bigger investments, it's more difficult to get in and out of positions.

Since 1995, when Tudor BVI became a multistrategy fund -- expanding beyond futures contracts to include such investments as stocks and private equity -- the funds' returns have averaged about 18 percent a year, investors say.

Jones said China is the next place to look for profits. "China is set to overtake the U.S. in GDP supremacy in our lifetime," Jones said, pointing out that Chinese gross domestic product growth has an effect on everything from commodities prices, because China is a huge manufacturer, to U.S. interest rates, because the country buys U.S. bonds.

Some money managers, including billionaire investor George Soros, aren't as confident about making money in China, even while the country's economy grew 7 percent to 9 percent in each of the past three years.

"China is in an incipient asset bubble, and it's very difficult to find vehicles for investing," Soros, founder of the $8.3 billion Quantum Endowment Fund, said in a televised interview with Bloomberg News in January.

Jones says Tudor has already turned a profit in China, where it has made private equity investments since 1993. Some of the investments have been through or with Cathay Investment Fund Ltd., a private equity pool run by an affiliate of Greenwich-based hedge fund firm Paloma Partners LLC.

In the 1990s, Cathay and Tudor invested in China Yuchai International Ltd., one of China's largest diesel engine makers, and held stakes in a food company and a drugmaker. Tudor President Mark Dalton, who joined the firm in 1988, declined to name the companies or comment on performance numbers.

In 1994, Tudor opened a Shanghai office run by Kyle Shaw. That lasted until Shaw left for Hong Kong in 1997 to open his own fund.

Through Shaw, Tudor successfully invested in a Shenzhen-based construction pro- ducts company in 1997, said Dalton, who declined to provide additional details.

"For the last 10 years, we've gone through a crawl, walk and run process (in China), and now it's time to act," Jones said.

Chief Operating Officer John MacFarlane, Dalton and Jones are each planning trips to Asia over the next few months, including stops in Taipei, Singapore, Beijing and Shanghai to find an executive who can lead their expansion there, Dalton said.

Jones, who wears two braided African bracelets on his wrist next to a Rolex, said he feels more pressure to perform well now than when he started the fund, because he has almost three dozen partners whose net worth and annual pay are tied to the performance of the funds.

Partners and employees are the largest investors in Tudor investment pools, he said. That isn't unusual for large funds that have been in existence for a long time. "It is really easy in this company to beat yourself up if you are doing poorly, because we have so many people taking risks successfully," he said.

'Pulling the trigger'

During Tudor BVI's 18-year history, Jones has more than doubled the average annual return of the Standard & Poor's 500 Index. His track record is similar to that of Bruce Kovner, who runs Caxton Associates LLC, which controlled $12 billion in assets at the end of last year, making it the largest hedge fund management firm in the world.

Kovner has returned about 25 percent a year since 1986 in his so-called macro funds, which try to chase macroeconomic trends in interest rates, international trade and production by betting on stocks, bonds, currencies and commodities.

James Simons has produced returns of about 35 percent a year since 1988 in his $5.2 billion Medallion Fund. He trades futures contracts, agreements to buy or sell assets at a set date and price, which Jones traded exclusively when he first started.

Within a decade of opening Tudor, Jones decided he needed to surround himself with other traders who had complementary skills to share the burden of managing his clients' money. That approach differed from the management style of Julian Robertson and Soros, the hedge fund giants of the 1980s and 1990s, who tended to give their employees less responsibility for investment decisions.

Dwight Anderson spent five years at Robertson's Tiger Management LLC before joining Tudor. "At Tiger, nothing material went into the portfolio unless it went through Julian," Anderson said.

His next job was at Tudor, where he managed the Ospraie commodities fund from July 1999 through last year. "At Tudor, you are pulling the trigger," he said. Anderson left Tudor because he wanted to run Ospraie as a stand-alone fund. Tudor remains his largest investor.

Even Soros, who left day-to-day management of his flagship Quantum fund in 1989, weighed in regularly with his investment views. By the late 1990s, Soros and Robertson ran the largest hedge fund management firms in the world, with more than $20 billion in assets each.

By 2000, both men had lost billions of dollars from bad bets and client defections. Soros scaled back the risk level in his trades for several years; today, he's again near the top of the hedge fund heap. Robertson closed Tiger.

Giving traders autonomy and responsibility may be the key to Tudor's longevity, said David Smith, a Tudor client. "The people who have survived have branched out into new investment areas," said Smith, chief investment director of multimanager funds at GAM Ltd., a unit of UBS AG that farms out $17.5 billion to hedge funds.

"To adapt to the new world order, you need new skills," he said. Tudor, for example, was one of the first macro managers to develop an expertise in trading stocks, Smith said.

Smith adds that hedge fund managers sometimes get too greedy and lose discipline and creativity, which is one reason that GAM generally doesn't stay with a fund manager. "Managers often become distracted by the financial reward, and they lose their ambition," he said.

Tudor has been a GAM manager since 1994. "They've never relaxed," Smith said. "They've had a great strength in Europe, and now they have to push into Asia."

Playing the odds

Tudor opened its first European office, in London, in 1992, and it now has two offices in the London area, with about 80 employees. They include a seven-person stock investment team, a leveraged buyout group and traders who specialize in macro trading, bets on emerging markets and trades in the debt of troubled companies.

Jones said he didn't always expect to be a trader. After he graduated from high school in Memphis in 1972, he went to the University of Virginia, where his father had earned a law degree. He said he considered being a journalist.

His father ran a financial and legal trade newspaper, and Paul, who was editor of his high school paper, used to write articles under the byline Eagle Jones. He said he was drawn to managing hedge funds because he's always loved games and odds.

In college, he says, he routinely played poker. These days, he's more likely to play Monopoly with his four kids, he said.

When he read an article during college about Richard Dennis -- who started with $400 and became a millionaire by making bets at the Chicago Board of Trade on moves of commodities such as soybeans, corn and sugar -- he said his future was fixed.

"That's my dream job," Jones said he thought at the time. "He was standing in an arena physically and mentally competing with hundreds of other bright and talented people in an ultimate test of wits."

After graduating with a bachelor's degree in economics in 1976, Jones asked his uncle Billy Dunavant, a cotton merchandiser, to help him get a job as a trader. He said his uncle sent him to Eli Tullis, a cotton trader in New Orleans, who gave Jones a job on the floor of the New York Cotton Exchange.

From there, Jones became a commodities broker at E.F. Hutton & Co., trading futures on the cotton exchange for clients. In 1984, he decided it was time to start his own company. "I wanted the camaraderie of working with folks, and my appetite was such, wherever there was opportunity, I was going to go," he said.

Jones has mellowed since his early days in New York. In the 1980s, he made appearances with Bianca Jagger and Christina Onassis, had a chauffeured car and flew invitees to his 3,000-acre preserve on Chesapeake Bay. He described himself in an interview in the Wall Street Journal in May 1988 as "a cowboy in the purest sense."

In the late 1980s, he let a camera crew follow him around for a documentary called "Trader." Now, he and his wife, Sonia, an Australian former model he married in 1989, try to avoid publicity.

Jones said the biggest battle in his current trading life is against being too conservative. "You get so you really want to avoid drawdowns because they are so painful," he said, using trader's jargon for losses.

While some fund managers aren't easily thrown off a position once they take it -- even if it's losing money -- Jones, who said he spends 90 percent of his time trading, sees no point in suffering if a bet moves against him. "All day long, I try to find a happy place," he said.

If he starts losing money, he says, he gets out. About half of Jones's trading depends on technical analysis, using historical price charts to predict market moves, he said. He's even endowed a professorship at the University of Virginia to teach students about technical analysis concepts.

Jones's toughest time in recent years was in 1999, when he had trouble trading stock indexes and currencies. "Personally, I contributed squat," he said. "I was completely, totally wrong -- and early -- that the Nasdaq would break." Even though Jones barely made any money for Tudor BVI that year, other Tudor traders did. In Boston, Pallotta's portion of the fund returned 98 percent.

"We have 45 portfolio managers, and at any one time, a handful will have markets that present good opportunities, while other portfolio managers are inactive or playing good defense," said MacFarlane, who joined Tudor in 1998. The approach lets Tudor traders practice patience, Jones said.

"If you don't see anything, you don't trade," he said. "You take risk only when you see an opportunity."

Limiting losses

Managers are given plenty of leeway. The nine-person management committee meets each quarter to discuss which portion of the assets of the $3.8 billion Tudor BVI Fund each manager will trade.

Over the past few years, about 60 percent of the assets have gone to Jones and other macro traders. An additional 30 percent is dedicated to global equities, and the balance to other strategies, such as the trading of stocks of merging or distressed companies.

The trader then is left alone. Each manager has a maximum loss level; the risk management department monitors positions to ensure traders stay within limits. If losses exceed the limits, the top executives will meet with the trader to discuss what actions should be taken, Jones said.

MacFarlane, who's responsible for risk management, said he recalls three times in five years when traders exceeded their limits, causing management to tell them to sell their positions.

Tudor pays well, basing compensation on the revenue traders generate and the expenses they incur, said Dalton, Tudor's president. Initially, traders get about 15 percent of their profits, which is generous compared with other hedge funds.

"That's designed to grow over time until it's competitive with having one's own firm," Dalton said.

"They don't scrimp on compensation," said Ivo Felder, head of hedge fund investments at RMF Investment Management, a unit of Man Group Plc, a Tudor investor. "On the trading side, that's very important, because that's what generates returns."

Jones's decision to give other traders the opportunity to manage their own funds came as assets grew to $775 million in 1991, almost triple what they were three years earlier. "You learn early in life that 50 percent of everything you do is wrong," Jones said. "It's great to have other people's opinions for you to rely on."

In 1992, Jones and Dalton decided they needed to expand by opening a London office to trade in European markets. They started looking for a U.S. stock picker, and as they asked around, the name Jim Pallotta kept coming up, Dalton said.

Pallotta had been managing stocks for almost a decade at Essex Investment Management Co. in Boston, a firm that manages money for individuals and institutions. Pallotta said he met Jones for what was supposed to be a half-hour breakfast. Two-and-a-half hours later, it was clear they shared the same trading philosophies.

"You don't lose money," said Pallotta, who grew up in the north end of Boston, where his father worked three jobs. "You just shrink the book when you don't know what's going on."

Now Pallotta manages the $6 billion Raptor Fund, the largest fund in the Tudor universe. Raptor, which was started in August 1993, has posted an average annual return of about 21 percent since then. About 90 percent of that money is from outside clients, with the rest contributed by Tudor BVI and other Tudor funds.

A year after Pallotta joined, Tudor hired Tom Bannatyne, 42, from London-based brokerage firm S.G. Warburg Plc, where he was director of European equities, to trade European stocks.

Since then, Tudor has added a private equity group in Boston and, last spring, a London-based buyout team, which purchases controlling interests in companies, often using borrowed money. Now Tudor runs two private equity funds and a European buyout fund in addition to Raptor, Tudor BVI and a futures fund.

It invests in about a half dozen outside hedge funds, Dalton said.

Proven track records

Even though Tudor funds are generally closed to new investors -- and usually return capital to clients every few years -- Jones said he's still looking for experienced traders with strong track records.

Areas in which he might expand include mortgage-backed securities, federal agency bonds and corporate bonds, including distressed, high-yield and investment-grade issues, MacFarlane said.

It's not easy to get hired by Tudor, Jones said. Traders must have a proven track record of gaining at least 20 percent a year and generally have returns that don't vary much from year to year. And they must be focused on managing risk, he said.

"What we are looking for is traders who are capable of recognizing when they are 100 percent wrong and reducing their risk," Jones said.

And the person has to be a team player. "We have a very collegial culture," MacFarlane said. "There is no room for territorialism or not sharing. Many times, that's caused us to pass on hiring a moneymaking portfolio manager."

All of the traders share information, whether they work in the commodities, bond, currency or equity markets, Pallotta said. Recently, he said, he sent a message to all of the traders saying his group surveys had found slowdowns in the trucking and packaging industries that were much greater than expected.

Jones contributes to environmental causes such as protecting the Everglades in Florida and raptors in Zimbabwe. His biggest commitment outside his business and family is the Robin Hood Foundation, a charity he started in 1988 with the goal of eradicating poverty in New York.

The nonprofit is unusual because the 25-member board pays all of the foundation's expenses, so 100 percent of the money raised goes directly to charities Robin Hood chooses. If one of the 100 or so organizations it funds doesn't meet its goals or mission, the dollars stop flowing.

"I was a child of the 1980s," Jones said. "It was a period of excess and very egocentric." Jones said something about the stock market crash of Oct. 19, 1987, changed American culture and made the "me generation" less selfish.

For Jones, the crash was perhaps his greatest moneymaking moment: His fund returned 62 percent that month. Jones said he had been expecting stocks to plummet since the middle of 1986 and saw patterns in stock indexes very similar to price movements in 1929.

After the market dived 5 percent in heavy trading the previous Friday, Jones said, he expected the worst.

So he bet against stocks and bought more bonds than he ever had, wagering that the Federal Reserve would take action that would send bond prices higher. It also was that day that he dreamed up the idea of Robin Hood.

"I thought we'd be in a depression," he said. Jones says that's one time he was thankful for being wrong.

Copyright © 2004, Southern Connecticut Newspapers, Inc."

LINK: Maoxian - You Adapt, Evolve, Compete or Die

 

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Good stuff BSD - can learn a lot from it.