The Story So Far: A fund manager named Haman becomes the man of the moment in the investment industry. Mordy Kai refuses to give him his due, making Haman determined to destroy Kai and his fellow value investors. Haman meets with the king, becoming the sole money manager for the royal portfolio, and convinces the king to introduce a regulation which was certain to put Kai at a distinct competitive disadvantage.
In his office located just off the trading floor, Morty Kai read the regulatory directive with disbelief. The decision to move to daily marking-to-market for all hedge funds would practically be a death sentence for his funds, and those of so many within his close-knit fraternity of traders and hedge fund managers. Morty Kai’s funds often took “unpopular” positions, seeking to profit from “Black Swans,” events which were deemed highly unlikely, so therefore priced inefficiently low in the marketplace. No one believed that either Hodu or Kush would ever default on their municipal bonds, but if they did, Morty Kai would make a killing on the credit default swaps he had bought. However, until that occurred, his positions typically showed significant losses. By being forced to mark-to-market every day, his funds would show big losses, leading to investor redemption requests, and possibly the loss of his credit lines.
Morty Kai called a large group of his colleagues, whom he believed to be similarly affected by the new ruling, and proposed that they gather at a three-day, off-site conference to discuss possible solutions. As Morty Kai put it in his e-mail invitation, “We will lock ourselves in that conference room for three days, until we figure it out. No one is leaving the room until we have a solution.” The latest versions of Microsoft Excel were distributed to the public.
Morty Kai then contacted Queen Esther and told her of Haman’s evil plan. Having seen a blurb on the Wall Street Journal’s web site about Haman taking over sole responsibility for managing the king’s portfolio, he knew intuitively that Haman was behind this regulatory ruling as well. Morty Kai requested that Esther approach the king, and ask him to reconsider his decision to give Haman authority over the entire royal portfolio. Esther was worried about this. “The king is not interested in hearing unsolicited investment ideas from me. We haven’t even spoken about investments since the last monthly Investment Committee meeting. Why, if I even bring something up about the portfolio’s correlation coefficient, he’s bound to kick me off the Committee altogether. Still, I’ll approach him and do my best. Good luck at your three-day off-site meeting.”
Queen Esther then spent the next three days performing due diligence and investment research. After this period, she approached the king, as he sat in his office, looking at his Bloomberg terminal. Esther approached, and said “Your Majesty, I’d like to discuss the royal portfolio with you.” The king nodded, and said, “Okay, what is it?” “I actually don’t want to discuss it here, during market hours. I’d prefer to invite you and Haman for a round of golf tomorrow at Royal Pines, and we can discuss it as a team.” “Very well,” said the king. “Let’s notify Haman, and I’ll see you on the links.”
The next day, at the golf course, the king was in good spirits. With the exception of having three-putted on the 11th hole for a bogey, he was having an excellent day. “So, Esther,” he said, “What would you like to discuss regarding the royal portfolio? I’m always happy to get a recommendation from you. Mention any idea regarding the investment of up to half my portfolio, and it shall be done.” “Actually, your Majesty,” she answered, “I would like to invite you and Haman for another round of golf tomorrow.”
Haman left the golf course brimming with confidence over his new status with the Queen. He recalled all of the people who had ridiculed him when he was toiling away for 16 hours a day as a trainee at an investment bank, from the egghead quants who had said that he was “more than two standard deviations below the mean,” to those trust fund preppies, with their Paul Stuart blazers and summer homes on the Cape. Where were they now, huh? Surely, they weren’t golfing with the King and Queen…for two days in a row. Life was good, Haman thought.
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