Tiger Woman on Wall Stree (9 page)

She smiled sympathetically and flipped to a painting by Picasso of an old man playing a guitar. “Have you even heard of art for art’s sake?” she asked me. “True art is divorced from any moral or utilitarian function. It can have a message, or it can exist without one.”

She told me that what made a painting “good” was up to the viewer. She explained that people often considered a painting such as the Picasso in front of me great because it provoked an emotional response in them. “Don’t think of art in binary terms of good and bad,” she said, looking into my eyes. “Think of how it affects you.”

In the end I received a B in the class, but I didn’t mind much. I felt as if I had gained a distinctly different way of looking at the world around me, part of my Americanization: analyzing
my surroundings through emotion as well as through deductive reasoning.

In China, I had been taught tomes on what to think but never how to think. Questioning and commenting on things were considered signs of idiocy. Thinking back on when my elementary school teacher taught us “The Little Match Girl,” I remember being told that it was an allegory for the selfishness of a capitalist society, and suddenly my education seemed incredibly easy. Sure, I had slaved to memorize all that information, but I never had to think about why it was important to do so.

That conversation with my professor has stayed with me vividly to this day. The concept I learned from that discussion—that learning how to think was just as important as or even more important than learning what to think—has been hardwired in the back of my brain ever since.

Other concepts are permanently etched there, too, such as
results versus method
and
logic versus emotion
. Success cannot be solely about one or the other. Both are needed in order to create something of value, whether it is a work of art, a research paper, a relationship, governance—anything.

In short, I was finally learning to see the complexities in the world around me—something that would have a massive impact on my Wall Street career.

New York, 2000

I
REALIZED MY DREAM OF WORKING ON
W
ALL
S
TREET IMMEDI
ately after graduating from college, when I was recruited by the investment bank Credit Suisse First Boston. I moved to New York City to start my job as an analyst.

My first apartment in the city was in Murray Hill on Thirtieth Street between Park Avenue and Lexington Avenue, 10 blocks from my office. I chose the apartment’s location strategically because I knew how much time I would be spending at work.

I walked into my first day of work on lower Madison Avenue in June 2000. The building was impressive, with a cafeteria, a full-service print shop for the copious marketing materials the bank produced, a fitness center, a spa, and hair and nail salons. A line of limos waited outside of the building 24/7 to ferry bankers to the airport.

I called it the “prison,” or sometimes, when I was feeling generous, the state-of-the-art prison. The whole idea behind this
full-service institution was to maximize the hours the employees stayed inside the building. The setup worked well: at Credit Suisse, a 90-hour workweek was considered easy.

As a sell-side analyst, I devoted 80 percent of my time to preparing pitch books—the deal proposals that senior bankers used to market the firm. I often found myself at my desk at 3 a.m. still working on the books, changing periods and commas in presentations, adjusting the font size from 10 to 12, and switching the font color from green to blue, then to greenish blue.

My first weekend at Credit Suisse, I was called into the office at 6 a.m. on Saturday to compile financial profiles on a dozen fiber-optics communications companies. I slaved in the office for 20-plus hours, as Saturday turned into Sunday. Then I was informed that the project had been made up, just to test my work ethic.

It took me about a week to come to what now seems like an obvious conclusion, something that is as true in China as it is in the United States: bankers are ultimately no different from used-car salesmen, except for the bankers’ fancier suits. Bankers are paid to stoke interest in the market and close transactions—the bigger the deals and the faster they close, the better. They have no incentive to care about the consequences of the deal or even whether their clients lose or gain in the long run, because they only make money by closing the deal itself. I realized that the glamorous investment banking profession is the ultimate relationship business; it’s about whom you know more than what you know. I wanted a career where my analytical ability could set me apart from my competition—and drive how much money I could make.

  *  *  *  

I got my opportunity in the spring of 2001. I was recruited to join Fiduciary Trust International, one of the oldest money management firms in the country, to launch a stock portfolio that would be investing in Asia. I became a stock analyst, tasked with researching
and identifying small and fast-growing companies in the developed markets of Asia and then buying stocks at attractive prices in whatever market they were listed, be it Hong Kong or Tokyo. My performance was benchmarked against the index of that specific market. I covered Japan, Hong Kong, Singapore, South Korea, Australia, and New Zealand.

I spent my first few months on the job learning how to decode the flood of investment information on my Bloomberg terminal, while also fielding dozens of calls from brokers, analysts, and market strategists from Goldman Sachs, Salomon Smith Barney, Nomura, CLSA, and others. It seemed as if everyone had stocks to peddle. Back when I was at Credit Suisse, my job had been to make these calls to help sell a company to individual investors or corporate acquirers. Sell-side analysts are paid to be optimists, dressing up a company to maximize the odds of completing a transaction. Thankfully, I was now on the other end of the phone and free to be my analytical self.

One undeniable perk of working for a big asset management firm was the almost-unlimited access to analysts, conferences, industry events, and management meetings. Since firms like Fiduciary Trust place a large volume of trades with brokers, and therefore pay high commission fees, we would gain extra privileges as preferred clients.

A few months into my new job, I was flown to Asia to visit companies, which was a critical component of the stock-picking process. Fiduciary had a rule that we wouldn’t buy a company’s stock until we visited the company on its own turf. I once flew to Tokyo, for example, and researched a company that owned pachinko parlors by using my corporate account to play a few hours of the pinball-like betting game. I also visited consumer electronics companies in Seoul; real estate conglomerates in Hong Kong, where I was invited to attend a horse race with one of the CEOs; and medical device companies in Sydney.

Working for Fiduciary was an interesting ride, and it gave me my first exposure to the investment world, along with skills that later helped me in my hedge fund career. But I was starting to run out of steam. I had been on an adrenaline high for years, slaving through college and working nonstop while traveling around the world. I felt as if I had been running on a treadmill since the first day I arrived in the United States, and I needed a break. I decided to take what young people on the Street called a “paying vacation.” So I applied and was accepted to Columbia Business School in New York City.

While I did take some interesting classes at Columbia Business School, made friends, and relaxed a bit compared to working, the biggest advantage was having the free time to acquaint myself with a very entrepreneurial Wall Street business model: the hedge fund.

On the surface, hedge fund managers picked stocks just the way I had in my former job. But the mostly young men who ran these funds seemed sharper, hungrier, and more eager to bet big than anyone else on Wall Street. The high-stakes hedge fund world was just more entrepreneurial. It was becoming increasingly common for talented analysts and portfolio managers to leave their jobs at more established firms to start their own funds. Since firms were springing up and shutting down all the time, the industry appeared fragmented and chaotic compared with the more traditional world of mutual funds. But the more I learned about the hedge fund business model, the more it made sense why so many people were drawn to running their own fund.

Mutual funds and hedge funds are different animals, with distinct purposes and cultures. Mutual fund managers charge their clients a percentage of their total assets under management,
with management fees typically ranging from 0.5 to 1.5 percent. The performance of the fund is then benchmarked against other indexes that track the performance of the market as a whole. If the Standard & Poor’s Index rises 8 percent this year, for example, and a mutual fund delivers a 10 percent annual return, that mutual fund is considered to have performed well. As long as a fund outperforms the market—even when the market is down and the fund loses money—investors are generally satisfied.

But things work much differently for hedge fund managers, who are incentivized to deliver absolute returns regardless of the market direction. Investors expect a hedge fund to deliver a positive return even when the S&P goes straight to hell’s basement. To get that kind of return, investors have to pay a lot more to the talented “hedgies”—shorthand for hedge fund managers—than they would to a mutual fund manager. Hedge fund fees have two components: a 2 percent management fee on the total assets under management plus another 20 percent in performance fees, with performance defined as the return on the fund’s portfolio.

For example, let’s say a hedge fund manages $100 million of assets, including stocks, bonds, or other securities. The manager makes a 2 percent management fee, or $2 million, regardless of his or her performance. Typically that $2 million would be spent first on operating expenses such as office rent, a research budget (including the subscription fee for the Bloomberg terminals and other data and research providers), trips to attend conferences and visit companies, and salaries for analysts and staff.

The fund then makes another 20 percent on any appreciation of the assets under management. Let’s say, hypothetically, a fund delivers a 10 percent return on its investment of $100 million and the fund earns $10 million. Then 20 percent of that return, or $2 million, would be distributed among the team as bonuses, along with funds from the management fees left over from operation
expenses. In time, I came to see that the smaller a fund is, the more focused the managers are on generating positive returns so they can earn that extra 20 percent fee.

One strange quirk of the business is that hedge fund managers also typically invest in the same fund they are managing. They are general partners, meaning they run the show and have full liability for the acts and debts of the partnership. General partners can invest in their own fund or not, but in either case they can stand to lose everything if their operation goes under. In contrast, investors are limited partners, meaning they don’t have control of the partnership and are liable only up to the amount of their investment. I always thought it unwise to put one’s financial and human resources in the same basket, but more often than not investors prefer or even expect their money managers to have some “skin in the game” to prove their commitment to delivering strong returns.

The hedge fund world seemed to be fiercely competitive, a place where, in theory, the best and smartest survived and thrived.

It sounded like my kind of workplace.

  *  *  *  

When I joined the Aurarian team in 2005, it felt like I became part of a new family. It was a small operation with only four people: CEO Jason Gold (whom I had interviewed with), a trader, a marketing officer, and me. Our four desks were clustered together, facing one another in the center of our office. There was still a sense of privacy, however, since each of us had four enormous computer monitors staring back at us. Given the close quarters, it wasn’t a place where anyone could keep a secret or catch up on errands like paying a Con Edison bill or booking a dinner date. Even our phones were interconnected so that anyone could patch in on a call at any time, with or without notice.

Jason and I in particular kept in constant contact by talking and texting throughout the day and night on our BlackBerries, instant messaging on the Bloomberg terminal, calling over the phone, and, of course, peeking around our monitors to speak face-to-face. Our close proximity made it easier for Jason to train me personally on the secrets of his unique methods of investigative research, which he had perfected at SAC Capital. The process involved interviewing the senior management of target companies, then cross-checking information with third parties to verify what those senior managers had said.

The team would initially identify targets by meeting with the senior management of companies, attending trade shows and conferences, and screening stock charts on our Bloomberg terminals. We called ourselves a “bottom-up” investment firm, which meant that we chose companies by analyzing their individual businesses rather than using strategies based on macroeconomic trends and government policies.

When we identified possible targets, we would begin digging into the background of the company and the credibility of its management team. To do so, we would talk with customers, suppliers, competitors, regulators, and government agencies.

On paper, this method might not seem unique. But Jason was truly rigorous in how we went about it. When I worked at Fiduciary, for example, I would make two phone calls to verify the legitimacy of a business model. But at Aurarian, I had to make at least 10 calls to complete the same task.

Jason was adamant that I master all the investigation techniques he had learned at SAC. His former employer used to hire ex-CIA and ex-FBI investigators as consultants to teach analysts how to effectively interview management teams. Known as “elicitation techniques,” these methods were used to discreetly draw out additional information from people without raising any suspicion that you were after specific facts. Jason trained me in the same
methods: how to relax interviewees, how to monitor nuanced shifts in body language, when to speak and when to pause to induce information, and how to phrase my questions.