market folly

Today we're reviewing The Invisible Hands: Hedge Funds Off the Record, the latest valuable book from author Steven Drobny. Many of you will already be familiar with Drobny from his popular first book, Inside the House of Money. Drobny heads Drobny Global Advisors, a macroeconomic advisory firm that has many leading global hedge funds as clients. Needless to say, if you want a great book on hedge funds, he's your guy.

Right off the bat we can tell you we wildly enjoyed reading this solely for the vast amount of information and advice divulged. The Invisible Hands is divided into three parts. The first section deals with "real" money management, a.k.a. the institutional investing of endowments, pensions, & family offices and brings up some very prudent questions regarding portfolio construction. This part of the book includes commentary from Jim Leitner of Falcon Management. Those of you who have read Inside the House of Money will recall that the Family Office chapter in that book which focused on Leitner was one of the most popular. This is an extension of their conversation updated to focus on the market crisis and we found it very insightful given the fact that many endowments did not fare well during the downturn. Additionally, the section also details views from Dr. Andres Drobny of Drobny Global Advisors.

The second section of the book is probably the most entertaining as it features interviews with various global macro hedge fund managers. The chapters are divided into various archetypes Drobny has bestowed upon each manager, including: The House, The Philosopher, The Bond Trader, The Professor, The Commodity Trader, The Commodity Investor, The Commodity Hedger, The Equity Trader, The Predator, and The Plasticine Macro Trader. Needless to say, there is something for everyone in this section of the book as all kinds of global macro hedge fund strategies are detailed. The insight divulged in part two of The Invisible Hands is priceless.

One possible pitfall to potential readers could be the fact that each hedge fund manager's identity is hidden. Before reading the book, we were slightly skeptical that this aspect would diminish credibility. For those of you who may be hesitant, we'll go ahead and allay those fears for you right now. We were quickly proven wrong upon sampling the worthwhile words of wisdom each manager had to offer. We also had the chance to ask Drobny himself about this and he highlighted a very prudent point: without anonymity, this book would have never been written. Drobny mentioned to us that, "Normally, people don't get access to sit down and have a chat with managers at this level so the anonymity allowed that to happen."

This just goes to reinforce how secretive and guarded the hedge fund world is. Each bit of information comes at a price, and this time the price you pay is identity. As such, it's a no-brainer to take insight masked by anonymity over no information at all. The book not only contains wisdom from managers who survived the crisis unscathed, but also from those who prospered. As far as personal favorites go, Chapter 13: The Plasticine Macro Trader steals the show. You'll start the book casually wondering who some of these managers are and you'll end the book really wanting to know all their identities. We have a very good guess as to who Chapter 13 is, but we'll wait for that manager to "out" themselves. But if you want a hint: we've covered this eclectic manager on the site numerous times before.

The Invisible Hands concludes with part three and an interview with The Pensioner. This final chapter turns back to "real money" managers and highlights a successful pension fund manager that did not lose money in 2008. Those of you further interested in the topics of risk management and portfolio construction will find this last section compelling.

Many books that have come out of the financial crisis focus on learning from mistakes. Drobny's book, on the other hand, pinpoints managers who fared well in 2008 as they were either able to preserve capital or grow it. The book targets global macro funds because their foundation is anchored by the tenets of risk management rather than returns. This allows readers to learn from those who found success during a time when many others failed.

All in all, we treasured The Invisible Hands: Hedge Funds Off the Record and highly recommend it to anyone looking to learn from top hedge fund managers. We found the book's particular focus on global macro strategies especially intriguing given that the majority of the coverage on our site centers on long/short equity hedge funds. Those of you looking for a peephole into the fast paced world of global macro would find this book advantageous. And if you manage money, then Drobny's new book is simply a must read.


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For more insightful books on markets and investing, be sure to check out our recent reviews of Harry Markopolos' book No One Would Listen and Scott Patterson's The Quants. Additionally, we've assembled quite the compendium of recommended reading lists worth checking out.