The godfather takes on new role

Stanley Fink has been dubbed "the godfather of the hedge fund industry". Born in 1957, the Cambridge graduate enjoyed a meteoric career in the financial markets.

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This included the turbulent days of the City of London's Big Bang, the rise of the hedge fund business, and the subprime mortgage market's bubble and subsequent burst.

When he joined ED&F Man, it was best known as a trader of sugar and other agricultural products, with a small operation in futures broking and some hedge fund activities.

When he retired as the group chief executive in 2007, 21 years later, it was considered the largest hedge fund in the world. When he started running the hedge fund part of the business, it made an annual profit of US$23 million (Dh84.4m). When he left, it was making a profit of $2 billion.

"We grew the assets and profits a hundred-fold in about 11 years," he says. "It's always better to be a revenue generator rather than an overhead."

He is now the chief executive of International Standard Asset Management (Isam), a smaller, private hedge fund operation with just 30 employees, 10 of whom are significant shareholders.

"I always think people who could lose you serious money should be shareholders," he said.

He is quite soft-spoken for a large man, but when he talks, even prime ministers listen, because he is also treasurer of Britain's Conservative Party. He has a law degree and is a qualified accountant.

He worked for Mars and Citibank before joining Man. He thinks life would be better "if we all took a 20-year gap year after university, then worked until we dropped".

He is a keen philanthropist, giving money to a number of charities, with special interest in children, poverty and health.

"I set up a trust and planned to give away the income. I have ended up giving away most of the capital," he says.

He has been married for more than 30 years and has three children. He was asked about hedge funds, rogue traders, and having one's head sawn open and a tumour removed.

Q&A

q What's all this godfather business? Do you do a mean Marlon Brando impression?

a It came at a time when the hedge fund industry was secretive and I was fairly open and willing to talk to the press. It was a positive thing, like a godparent, nothing to do with horses' heads in beds.

q Why walk away from a business making $2bn?

a It's a two-fold answer. First, I was very ill in 2005. I had a brain tumour. I have a scar across my head, and spent three months in hospital. It was benign but was blocking the spinal fluid in my skull. I lost the ability to speak and [it was] scary because I was in the middle of Botswana at the time. I was off work for three months, and it was doubtful if I would get back my memory and intellect - the jury is still out there [laughs].

I made a pretty remarkable recovery, but I found it very exhausting. I decided to step down into a non-executive role. But there were some decisions made that I didn't agree with. I didn't like the idea of being responsible for things I hadn't agreed to. There were two or three areas, including the treatment of certain people who had been loyal employees. In another case, it was an acquisition that the group wanted to make, and I also thought we should have gone into environmental finance. It was a series of decisions where one felt you were being assumed to agree with things you didn't. There was nothing really wrong, but more a series of style changes. When you've been used to running the ship, it's not easy to give your baby up to somebody else. The only honourable thing to do is to leave.

q So you set up Isam. What is it, exactly?

a It is a technical trader, a hedge fund, with about $700m under management. I didn't want to go and copy what we did at Man. Various people had done so, and I didn't respect them for their plagiarism. We have a black box and use algorithms to gain positive results over time. We call ours a "glass box" because we are very transparent about what we do.

q In layman's terms, what are you doing?

a We look at the movement in about 50 of the world's most liquid futures markets and we are looking for trends across multiple time scales. This includes futures on stock markets, bonds, commodities and currencies. People used to think markets moved at random, but we have realised there is a tendency for a serial correlation. The reason it works is raw data comes out on markets. People get the data simultaneously but interpret the data at different speeds.

q I understand it's been a bad quarter for hedge funds.

a For us it has been an OK quarter, slightly up. We made money in September when most people lost money.

q What's going on in financial markets?

a You're seeing a movement away from the industrial markets to commodity producers. Traditional ways of investing - buying the S&P or the FTSE and wait 10 years and it will go up - no longer applies. They have broken down. European countries are under stress because of the euro. Also, long-term yields on bonds are just 3 per cent, while inflation is 3 per cent so they are giving you nothing. People are looking for alternatives that give real return. While some hedge funds disappointed in 2008, they are back in demand.

q Where is this leading?

a The beauty of our industry is that it's like driving [while] looking out of the rear-view mirror. The system takes a view; we don't have to. Our method of trading is technical, not fundamental. We tend to look at data. When I tell people the UK stock market has not gone up or the Japanese stock market has not gone up for 30 years, they are amazed. But they are ignoring the data.

q Could you wake up one morning and find a rogue trader has lost you $2bn, similar to UBS?

a We could lose 4 or 5 per cent of the fund's value on any given day, but we couldn't have unauthorised trading, because every trade is settled in cash, and by following the cash I know what is happening.

q Where should one invest if not with your fund? Where are the opportunities?

a You need to build a portfolio linked to your risk tolerance. But diversity is the key. The future is inherently uncertain, so I would say have some land and property, some bonds and cash, some equities in industries you think will do well, but diversity is key. Don't put all your eggs in one basket.

rwright@thenational.ae