andrew law

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Andrew Law is an unassuming Master of the Universe.

Unlike the real-world equivalents of the thrusting, swaggering bond vigilantes in Tom Wolfe’s Bonfire of the Vanities, Mr Law is not usually counted among the gala-attending, art-accumulating hedge fund glitterati of New York or London.

His quoted words in the mainstream press run to a few dozen. Until now, he has declined to be photographed for articles. There is no Park Avenue penthouse.

However, Mr Law and Caxton Associates, the hedge fund he runs, rank alongside the likes of George Soros when it comes to influence and nous in the upper echelons of international finance. Over its history, Caxton has made more than $13bn for its clients, according to LCH Investments – roughly 14 per cent annually, with half the volatility of the S&P 500.

“It’s been a good year,” Mr Law, 47, says, sitting in a conference room in Caxton’s London office. “We’ve moved out of an era that traumatised a lot of people in the hedge fund world.”

The company’s “good year” amounts to a trading gain since January of $1bn. No mean feat for an organisation that employs just 200 people. Having been shut to new investors for years, Caxton reopened its doors this summer, after it scented a glut of trading opportunities.

“What I think we’re seeing is the return of global macro,” Mr Law says.

Global macro funds, such as Caxton, are the blue bloods of the hedge fund industry, looking to place big bets on shifts in currencies, bond prices, interest rate derivatives or equities based on broad international trends.

Since 2009, however, they have floundered – unwilling, or unable to take risks in markets because of political unpredictability and see-sawing prices. According to data provider HFR, in the past four years, the average global macro fund has made its clients a meagre 1.4 per cent return.

Caxton has suffered too. Mr Law, who took over in 2008 as chief investment officer, and 2011 as chief executive and chairman, has come under particular pressure: under his tenure, Caxton has managed an annual average return of only 8 per cent, compared with a historic average of 14 per cent. The company cut its fees in 2011 – a move that cynics point out allowed it to narrowly avoid racking up its second ever lossmaking year.

Mr Law says he is under no illusions as to the difficulties facing Caxton – and the hedge fund industry as a whole: “We’ve had people at Caxton who have found the markets incredibly difficult. You are seeing a wave of departures at a very senior level in the hedge fund world. That’s what markets can do to you. They wear people down.”

Indeed, in 2012, 873 hedge funds shut down – more than 10 per cent of the industry.
Andrew Law CV

● Born: June 1966

● Education: Sheffield University

● Career:

1987: Joins County Bank

1989: Chemical Bank

1996: Enters Goldman Sachs

2003: Joins Caxton

2011: Becomes Caxton’s chief executive and chairman

● Hobbies: collecting fine wine, shooting, swimming

“The hardest thing in this business is durability ... you get people who get things right for one or two years and think they’re invincible. Can they repeat that in the next period of time after that? Most of the time no. People who try to knock the lights out – they don’t stay on the racetrack.”

Mr Law joined Caxton in 2003, when the company was already 20 years old, leaving behind a job as the head of fixed income trading at Goldman Sachs. He rose through the ranks – producing huge returns in 2007 and 2008 – and took over fully from founder Bruce Kovner in 2011.

The transition from one boss to another is a rare occurrence in the hedge fund world, as Mr Law is aware: “Hedge funds are so defined by the person at the top.” Few hedge funds have survived the retirement of their founder. Caxton was meticulous in planning Mr Law’s takeover – first in 2008, when he became chief investment officer and then later in 2011 when he fully took over – to ensure it did. “The culture counts for a lot,” says Mr Law. “Bruce and I found our trading style was very similar. Caxton has a collegiate atmosphere and that ethos transcends through the firm.”

“We have three core principles here. One is listen to the markets, a second one is politics and policy matters and the third one is risk control,” he adds.

In place of an aggressive trader’s parlance is a carefully modulated, barely Mancunian accent that marks Mr Law as a son of Cheshire, a county just south of Liverpool and Manchester in the northwest of England. People invariably describe Mr Law as startlingly modest, at least by hedge fund standards. While other hedge fund titans have a tendency to collect Jeff Koons’ monoliths, Mr Law’s largest art extravagance, acquired in 2010, was a 1938 L.S. Lowry painting of a Manchester City football match. Like Lowry, Mr Law is a keen supporter of the team.

“I don’t know if it’s that too much has been promised, but certainly too much has been hoped for,” Mr Law says of his industry. “Today, nearly half our assets are institutional in nature, which is an amazing transformation from five years ago,” he points out. But it has come at a cost: “Running a hedge fund is getting tougher and more expensive each successive year ... funds now need to be four or five billion in size to be credible, both in terms of supporting the infrastructure that institutional investors demand, compliance ... all the double checks and processes ... as well as being able to have enough capital to employ the best traders.”

Caxton has 25 portfolio managers, all of whom are screened by Mr Law for the characteristics he believes traders need: “The ability to see markets for what they are – a set of opportunities you either get right or wrong; the ability not to take it personally; the ability to know when to walk away after a loss and dust oneself down and to know when to go all in.”

The company even employs a psychologist to help its traders cope. “You need to compartmentalise. You need other things going on in your life,” says Mr Law.

“I go swimming two or three times a week and I go to the gym. I find it a great release from the screens. I don’t surround myself with them. I think it’s very, very unhealthy. You can’t take a BlackBerry into a swimming pool yet and I hope you never can.”

 

Interesting takeaways:


“The hardest thing in this business is durability ... you get people who get things right for one or two years and think they’re invincible. Can they repeat that in the next period of time after that? Most of the time no. People who try to knock the lights out – they don’t stay on the racetrack.”

. . .

Caxton has 25 portfolio managers, all of whom are screened by Mr Law for the characteristics he believes traders need: “The ability to see markets for what they are – a set of opportunities you either get right or wrong; the ability not to take it personally; the ability to know when to walk away after a loss and dust oneself down and to know when to go all in.”

The company even employs a psychologist to help its traders cope. “You need to compartmentalise. You need other things going on in your life,” says Mr Law.