More Money Than God: Hedge Funds and the Making of a New Elite

Imagine a man who defies convention, weaving through the tumult of early 20th-century politics, only to emerge as the architect of a financial revolution. This man, with a past steeped in Marxist activism and clandestine missions, turned his restless spirit towards the chaotic world of investing. At the dawn of the hedge fund era, he crafted a strategy that was as innovative as it was daring: balancing the risks of owning stocks with the protective shield of short selling, all while amplifying potential gains through leverage. This blend of long and short positions, combined with borrowed capital, allowed investors to pursue higher returns with controlled risk. It was a concept so ahead of its time that it laid the groundwork for an entire industry.

But the genius did not stop there. Recognizing the misalignment of incentives in traditional fund management, he introduced a performance fee—taking a slice of the profits rather than a fixed charge. This created a powerful motivation for fund managers to excel, aligning their financial success with that of their investors. Yet, this pioneer was not one to flaunt his methods. Shrouded in secrecy, his fund operated quietly, inviting only trusted friends and intellectuals into its fold. This cloak of mystery, born of necessity to evade regulatory constraints and protect competitive edges, seeded the aura of exclusivity and intrigue that hedge funds carry to this day.

His approach was not without challenges. The stigma against short selling lingered, and the market’s unpredictable nature meant that even the best strategies could falter. Nevertheless, his fund’s performance was extraordinary, outpacing rivals and reshaping the landscape of investment management. This story of innovation, secrecy, and daring risk-taking sets the stage for the hedge fund saga that follows—a saga of brilliance, controversy, and transformation.

As we close this chapter on the origins, we prepare to journey into the next phase, where new players harness block trading and contrarian instincts to navigate the turbulent markets of the 1970s.