Steven Drobny on Real Money, Investment Performance and the “Tail Wagging the Dog”

Did you miss our Big Saturday Interview with author Steven Drobny last weekend?

“I come from the hedge fund world,” says Drobny, “which is different from the real money world in that hedge funds have investor capital that they leverage and trade anything anywhere depending on their style or what mandate they’ve sold to investors.”

“The real money world is when the firms actually has the money invested in unleveraged or mostly unleveraged basis. So a pension fund, for example CALPERS with over 200 billion dollars takes that 200 billion dollars and invests it in stocks and bonds and the like.”

So real money is the actual long-only kind of investor who has the actual cash: pensions, endowments, family offices, foundations, insurance companies, sovereign wealth funds all make up the real money world.”

Click here to access our audio Big Saturday Interview with author Steven Drobny, whose latest book The Invisible Hands, asks some of the world’s biggest and most successful macro money managers what went wrong during the crash of 2008 – and what do traders and investors need to know in order to avoid exposure to similar events in the future.

“People in the hedge fund world generally ignore real money, other than to see, occasionally if there are flows that are shifting one way or the other … What got me interested was that, post-2008, when these funds lost a staggering amount of money, and it started to effect the underlying entities they were set up to support.”

“So for example university endowments lost so much money that the actual university had to fire people, turn down the thermostats, cut financial aid, etc. In Boston, Harvard had to stop construction projects.”

“And then in the pension world, you saw forced selling of privates, you saw the contributions provided by states and municipal entities increase, which caused them to cut teachers, cut police, cut firefighters. So all of a sudden you had the tail wagging the dog, just because of investment performance.”

To learn more about Steven Drobny’s book, The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes and Real Money, click the link below.

The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money.

And to listen to our Big Saturday Interview with Steven Drobny, click here

“You had all these people who ran these portfolios, all these CIOs saying ‘Listen it’s not my fault. The market was down 30%. It’s a perfect storm. It’s a black swan.'”

“And the fact that the tail was wagging the dog, and the professionals that were getting paid to manage these pools of money were saying ‘It’s not my fault.’ really kind of begged the question (a) why are you paid? and (b) are these portfolios structured properly given the effect they have on the entitites they were set up to support.”

To hear the entire 30-minute conversation with Steven Drobny, author of The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes and Real Money, click here.