So I started reading More Money Than God and this is what I have learned about Alfred Jones, the first hedge fund manager:
- While working as a diplomat in Weimar Germany, he fell in love with a twice-divorced communist and anti-Nazi activist and married her. He was fired as a result of this, but stayed in Germany to work secretly with the Leninist Organization. After a few months, they divorced, and Jones returned to America.
- Back in America, he married again and spent his honeymoon on the front lines in Spain, where they drank scotch with Dorothy Parker and Hemingway.
- After getting a PhD in sociology, he moved away from communism and became a journalist writing from a sort of centrist/liberal perspective. He described his views as “as conservative as possible in protecting the free market and as radical as necessary in securing the welfare of the people.”
- He started a hedge fund because he needed money and had already failed twice to start a magazine. A lot of his capital came from a friend of his who was a biographer of Lenin.
- He would keep his fund market-neutral by looking at the beta of stocks to the market when determining how much to buy or short. This was before the development of modern portfolio theory–also before computers, so he had to calculate all the betas by hand.
- His tax lawyer came up with the 2-and-20 compensations scheme because he realized that if Jones took a share of the profits rather than a flat fee, that would be taxed at the capital gains rate. Instead of revealing his actual motivation, Jones told investors he took 20% of the profits in an homage to Phoenician merchants, who kept a fifth of the profits from successful voyages.
- He was obsessed with the theory that Edward de Vere was the actual author of Shakespeare’s plays and named his poodle Edward.