MORE MONEY THAN GOD

A history of hedge funds that also looks at their role in the recent market crash.

Using his extensive background in international finance, Washington Post columnist and Council on Foreign Relations senior fellow Mallaby (The World’s Banker: A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations, 2004, etc.) effectively combines an insider’s knowledge with a colorful storytelling ability. What we now know as hedge funds began in the late 1940s as a “hedged fund” invented by a low-profile investor named Alfred Winslow Jones. By then nearing 50, Jones had traveled the world before becoming a Fortune magazine writer. In clear, accessible language, Mallaby explains how Jones devised a specific combination of buying and selling stocks simultaneously, which allowed him to capitalize on bull and bear markets alike—i.e., he hedged against market downturns while riding higher on market upturns than most other money managers. After relating the Jones saga, the author provides a mostly chronological account of later investors who earned billions from variations on the Jones model. Mallaby avoids the sex-drugs-and-rock-’n’-roll aspects of the fast pace and fabulous wealth within the hedge-fund realm to concentrate on the buy-and-sell philosophies promulgated by the “boys.” And it is indeed a boys’ world—in more than 400 pages of text, no significant female players emerge. In the final third of the book, Mallaby explores the role of hedge funds in the horrific collapse of markets during the first decade of the 21st century. The author explains why he believes hedge funds are less of a risk to the markets than banks and insurers that grew too big to fail. One caveat: Hedge-fund managers usually invest lots of their own money, which means they lose wealth when clients lose wealth.

A lively, provocative examination of a little-understood financial realm.