white men with money

Know Your Hedge-Fundese


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Hedge-fund managers use a lot of lingo. The reason they do this is to trick you into thinking what they do is really complicated, and you are too dumb to understand it. Because after all, if everyone knew what “g-7 crosses” were, everyone would start trying to make piles and piles of money, and then there wouldn’t be as much left for hedge-fund managers! But n+1 was not fooled by their trickery. Recently, they sat down a hedge-fund manager and wrung out of him the meaning of some of his people’s most confounding words. After the jump, a starter guide to the Secret Language of Money.

carried out What happens to a trader when a seemingly smart trade goes horribly awry. “Like, basically, they’re carried out on a board, they’re dead.”

money-good: “If you buy a bond, you’re going to get back your principle. It’s money-good. You’re going to get a hundred cents on the dollar back.”

stat-arb: Statistical arbitrage, a.k.a. quantitative trading, a.k.a. “black-box trading.” The computerized trading of thousands of stocks based on a set of models manned by “guys with a lot of physics and hardcore statistics backgrounds who come up with ideas about models that might lead to excess return and then they test them and then basically all these models get incorporated into a bigger system that trades stocks in an automated way.”

black box: The computers that do the trading.

a ten-sigma event: An event that is ten standard deviations from the mean. “Meaning it’s basically impossible, you know? But it’s kind of a joke, because returns are very fat-tailed, so the joke that we always say is, ‘Oh my God, today I had a loss that’s a six sigma event! I mean that’s the first time that’s happened in three months!’ It’s like a one in ten-thousand-year event.” [Ed. note: Er. Hilarious.]

Interview with a Hedge Fund Manager [n+1]

Know Your Hedge-Fundese