two and twenty

Two and Twenty: How the Masters of Private Equity Always Win
by Sachin Khajuria
Published 13 Jun 2022

Typically, targets that a private equity firm considers are companies or businesses where the private equity fund that the firm manages may acquire a stake in or control of the enterprise. The fund can also target the debt issued by the enterprise instead of buying the equity. Two and Twenty: A standard fee arrangement in the private equity industry. Private equity firms charge investors both a management fee and a performance fee. The management fee is typically an annual fee of two percent of assets under management. The performance fee, also known as the incentive fee, is typically twenty percent of profits made from investments. The performance fee is often payable only if a hurdle or threshold is met for the investment return.

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The investment bank behind the investment vehicle was publicly listed, not unlike the major private equity firms of today. The infrastructure funds charged their investors a variation of Two and Twenty, much like the major private equity funds of today. And there were deal fees for making the investments, fees for financing or refinancing assets, monitoring fees for participating in board meetings and working on the business plans of investee companies, and deal fees for exiting the investments. Often, the infrastructure investments were sold to a similar set of local pension fund investors who had backed the investment vehicle itself at the start. The establishment of infrastructure as an asset class for private capital has had another benefit for private equity—the development of a new analytical lens for investment professionals to use when looking at a potential target, even if the opportunity is outside the infrastructure sector.

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My goal in writing this book is to reveal the traits, culture, and temperament that fuel the most successful practitioners of Two and Twenty. Two and Twenty as a fee concept is de rigueur across the industry, but there are striking differences in investment performance across private equity funds and firms. Even if the promised financial rewards are the same, some firms are able to consistently generate investment returns above what the mutual or index or exchange-traded fund (ETF) industries can provide far more cheaply, whereas others, over time, are beaten by the S&P 500 index of leading U.S. stocks.

The Little Book of Hedge Funds
by Anthony Scaramucci
Published 30 Apr 2012

Traditional investment funds—or those that generally invest in the stock and bond market—earn a fixed percentage of the assets they manage, passing along gains or losses to their investors. This investment management fee is equal to approximately 1 to 1.75 percent of assets under management. Whereas mutual funds tend to only charge one fee that is based on assets under management, hedge funds demand two fees—an investment management fee of 1 to 2 percent of assets under management plus the performance fee of 20 percent of the profits earned. Often referred to as “two and twenty,” a hedge fund manager’s fee is directly correlated to his fund’s performance.

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What was talked about none of us will ever know, but the size and magnitude of the wealth and assets under management, by itself, became a news sensation. Where does all this wealth and money come from? According to hedge fund folklore the true essence of a hedge fund is defined by the way in which managers get paid. The typical hedge fund charges the notorious two-and-twenty, which is an annual management fee of 2 percent of assets under management plus a performance fee that is equal to 20 percent of the current year’s returns. In other words, a hedge fund manager who has $1 billion in assets under management is guaranteed $20 million a year in fees alone—and that’s before he takes his 20 percent of any returns! Spouted about by both Main Street and Wall Street folks alike, this payment structure perhaps has been the largest source of discontent toward the industry—even more heated than the discourse surrounding the hedge fund industry’s involvement in the financial crisis of 2008.

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More funds equals an increasing amount of hedge fund dollars crowding similar trades and utilizing similar strategies, which equals diminished ability to execute trade and increase performance. Think of it this way: Elephants don’t fit in small bathtubs, but then again they don’t get all of the extra pampering, either. Hedge fund managers need to be big enough to scale a disciplined and deep research and investment process but not so big that they deliver diluted returns. Manager Fee: The Infamous Two-and-Twenty Perhaps the most discussed difference between mutual funds and hedge funds is the fee and reward structure.

The New Tycoons: Inside the Trillion Dollar Private Equity Industry That Owns Everything
by Jason Kelly
Published 10 Sep 2012

How the question is ultimately answered touches on some of the basic economics of how the private-equity money flows back to its most successful players. The question dates back decades, to the earliest days of the industry. The so-called “2 and 20 structure” of a typical fund gives, by most accounts, a clear incentive for managers to deliver profits to their investors. The 2 percent annual fee pays the bills, and most established managers charge less than 2 percent since they have more substantial cash flow from previous successful funds. The 20 percent, carried interest, is the real money. That buys the second and third houses and the jets and means you have the coin to get your name on a building at your alma mater or a symphony hall somewhere.

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See also Bonderman, David; Coulter, Jim Blackstone and Boyce at Burger King and Conklin at Coulter and culture of Freescale Semiconductor acquisition J. Crew deal and KKR and KKR Dollar General deal and Norton as senior adviser of operations of “ops” group as private-equity firm strategy prior to IPO on succession takeover of TXU TPG-Axon (hedge fund) Transaction fees Turner, Cal Jr. Turner, Cal Sr. Turner, R.L. “2 and 20 structure” TXU buyout boom of 2007 and takeover of natural gas prices and as record-setting LBO regulatory approval and deal of U. S. Congress/Washington: “Blackstone bill” Private Equity Growth Capital Council and private-equity industry and UCAR International United Nations Principles for Responsible Investing (UNPRI) United States, public pensions in Unit Here University endowments Univision UNPRI.

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Lisa Lerer, “Professor’s Proposal Angers Wall Street,” Politico, October 30, 2007. www.politico.com/news/stories/1007/6594.html 3. Victor Fleischer, “Two and Twenty: Taxing Partnership Profits in Private Equity Funds,” New York University Law Review, 2008; University of Colorado Law Legal Studies Research Paper No. 06-27; UCLA School of Law, Law-Econ Research Paper No. 06-11. Available at SSRN: http://ssrn.com/abstract=892440 4. Cristina Alesci and Jason Kelly, “Romney Reports Income from Funds at Goldman Sachs, Golden Gate.” Bloomberg News, January 25, 2012. 5. Howard Mustoe, “Don’t Criticize Romney’s Taxes, Carlyle Group’s Rubenstein Says,” Bloomberg News, January 25, 2012. 6.

Our Lives in Their Portfolios: Why Asset Managers Own the World
by Brett Chistophers
Published 25 Apr 2023

Indeed, arguably the signal lesson of Blackstone’s 2017 deal with PIF is that, if asset managers like Blackstone really do have a prototypical investor whose interests they faithfully serve, it is not a humble Pennsylvanian schoolteacher or Californian firefighter, but rather the likes of Yasir Al-Rumayyan, the chairman at one of the world’s most profitable companies, the oil giant Saudi Aramco; of north-east England’s most popular football club, Newcastle United; and of the world’s most notorious sovereign wealth fund – which is, of course, the Public Investment Fund of Saudi Arabia. Unequal Returns In strictly financial terms, the commitment to Blackstone’s new infrastructure fund that Saudi Arabia’s PIF made in 2017 was notable not only for its size but also for the preferential terms that PIF secured. Throughout this book, including in my examination of a hypothetical fund earlier in this chapter, I have assumed both relatively standard fee terms – the ‘two and twenty’ model, at least for closed-end funds – and that all investors in the same fund pay the same fees. In reality, however, investors do not always pay the same fees.

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Management and performance fees paid by a fund’s limited partners thus represent the principal income streams for real-asset asset managers. As in the overlapping world of private equity (and indeed hedge-fund investment), it is common to hear the two sets of fees combined referred to with the moniker ‘two and twenty’ – that is, a 2 per cent management fee and 20 per cent performance fee. But, as we have seen, there is considerable variance around this norm. What bears emphasising is that the effect of these combined fees is obviously to generate for the asset manager a share of fund proceeds significantly exceeding the share of capital it commits to the fund in the first place. I will closely examine this particular dynamic in Chapter 5.

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When alternative asset managers set about establishing real-estate and infrastructure funds in the 1990s and 2000s, and began reaching out to their existing institutional-investor clients to secure capital commitments to these new funds, they wanted it to appear much like business-as-usual rather than as a step into the unknown – a smooth rather than abrupt transition. What they principally offered their clients at that time was private-equity investment, and hence private equity – with its distinctive closed-end fund structures and ‘two and twenty’ fee structure (see Chapter 1) – became the default model. The distinctive fund and fee structures of private equity were what their clients were familiar with. One veteran of the early era of infrastructure asset management explained the logic in the following terms: ‘We tried to make our fund structure as much like private equity as possible, in order to minimise any obstacles to prospective investors.’

Heads I Win, Tails I Win
by Spencer Jakab
Published 21 Jun 2016

Having denizens of financial Cooperstown managing your money didn’t come cheap even by hedge fund standards. Investors had to part with 2 percent of assets and 25 percent of profits yearly—more than the typical “two and twenty” fee structure then typical for competitors. But customers gladly agreed, and even seemed to be getting their money’s worth for the first few years. Underlying returns were 28 percent, 59 percent, and 57 percent from 1994 through 1996, respectively. Along with their record from part of 1993, that turned one dollar into around $3.50 before fees, compared to $1.60 for the S&P 500. The fund’s managers, who not only were supposed to be experts at risk but also personally had invented some of the techniques for gauging it, reckoned that these fantastic numbers involved no more potential for loss than just owning stocks passively.

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And since the field is so hypercompetitive and deals in esoteric investments, fund managers are typically bright. Buffett acknowledges that much. “A number of smart people are involved in running hedge funds. But to a great extent their efforts are self-neutralizing, and their IQ will not overcome the costs they impose on investors,” he wrote. Aside from his own stellar track record as an investor, there are two very good reasons why Buffett is qualified to criticize the way hedge funds get paid. The first is that he ran investment partnerships himself before concentrating on Berkshire Hathaway a half century ago. But Buffett eschewed the “two and twenty” approach to getting paid, which worked out fine for him, as he never had a losing year.

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A study by FutureAdvisor compared target date funds based on fees and expenses and found that it was an accurate predictor of total return. I learned this the hard way myself. The Wall Street Journal’s 401(k) plan is run by Fidelity Investments, and in addition to various actively managed funds that I avoid like the plague (I’ll explain why in chapter 8, “Where Are the Customers’ Yachts?”), there are some low-fee index funds they offer that are run by a computer. When a big chunk of my savings was automatically put into the Fidelity Freedom 2035 fund, I assumed that it just held a mix of index funds similar to the Vanguard fund I used as an example.

Extreme Money: Masters of the Universe and the Cult of Risk
by Satyajit Das
Published 14 Oct 2011

The Economist described it as “catch two-and-twenty.” Many investors use FoFs (fund-of-funds) to screen and select portfolios of hedge funds. Where investing in hedge funds, diversification makes no sense, earning average or worse returns. The investor pays a fee to the FoF manager (1 percent of AUM and 10 percent of performance) as well as the hedge fund manager’s fee (2 percent and 20 percent). FoF might stand for “fee-of-fees.” Skewed payoffs for the manager encourage aggressive risk taking.18 The economist Thorstein Veblen identified this: “It is always sound business to take any obtainable net gain, at any cost and at any risk to the rest of the community.”

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If it makes losses, then the fund must recoup these before performance fees resume. Funds now routinely charge 2 percent and 20 percent with no watermark. Hot hedge funds charge even more: 5 percent of assets and 35 percent of profits, 4 percent of assets and 44 percent of profits. One manager candidly admitted: “A hedge fund is just an excuse to charge two and twenty; they do not do anything else very different.” A cartoon shows a road sign for Connecticut, home to a large number of hedge funds: “Entering Greenwich, speed limit 2 percent and 20 percent.”17 Performance fees and the manager’s investment in the fund supposedly align the interests of investor and the manager.

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Macquarie charged fees for raising money for the funds. It charged fees for managing the funds, typically 1-2 percent plus a performance fee of 20 percent. Macquarie advised the business owned by the funds and raised money for them. The bank advised the funds on sales and restructuring of the projects it owned. It was a fee factory that competitors envied. The projects had debt. Then the funds that owned the project used additional debt. The funds individually did not own a majority stake in projects, allowing them to avoid reporting the project’s borrowing. Different Macquarie managed funds owned minority stakes in the same project or stakes in each other.

The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom, and Enlightenment
by Guy Spier
Published 8 Sep 2014

He said Graham’s book Security Analysis had been his “holy grail,” and added that he’d been amazed when he then discovered that Graham was teaching at Columbia. Hoping to grab Graham’s attention, he wrote him a letter that said, “I thought you were dead.” Early in the conversation, I made a confession: I told Warren how I had changed my fee structure so that he wouldn’t think I was just another greedy, two-and-twenty hedge fund guy. I also mentioned how hard it had been to convince my fund’s lawyers that this unorthodox approach made sense since it was fairer to my shareholders. I’ll never forget Warren’s response: “People will always stop you doing the right thing if it’s unconventional.” I asked if it gets any easier over time to do what’s right.

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For example, I should simply have copied the fee structure of his pre-Berkshire investment partnerships. He charged no annual management fee, but took a quarter of the profits above a 6 percent hurdle. This is an extremely unusual structure, but it’s the best alignment I’ve ever seen between an investor and his shareholders. It truly embodies the principle of making money with them, not off them. Unless they do well, the fund manager earns nothing. However, in starting the Aquamarine Fund, I opted instead for the standard New York hedge fund fee structure. This meant that I’d receive a 1 percent annual management fee (which would reward me however poorly I performed for shareholders), plus an incentive fee of 20 percent of the profits.

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This meant that I’d receive a 1 percent annual management fee (which would reward me however poorly I performed for shareholders), plus an incentive fee of 20 percent of the profits. Why did I do this? In getting the fund going, I was inevitably surrounded by lawyers, brokers, and other advisers who all wanted to tell me how this game works. To them, the idea that I would adopt Buffett’s unorthodox 1950s fee structure seemed outlandish. They wanted to protect me, explaining that I needed that steady income; they couldn’t conceive of someone living off incentive fees that are entirely unpredictable. What they didn’t see was that the 1-and-20 fee structure subtly misaligned my interests and my shareholders’ interests.

The Great Tax Robbery: How Britain Became a Tax Haven for Fat Cats and Big Business
by Richard Brooks
Published 2 Jan 2014

So alluring was it that an in-demand hedge fund manager could squeeze investors in its funds for a 2% annual management fee plus a further 20% of the profits made by the fund. By 2010, the worldwide hedge fund market was put at $2 trillion of investments, around $420bn of which was based in London.‌31 Apply the ‘two and twenty’ standard for management fees and profits shares to that and there’s a lot of profit, and tax, at stake. Large dollops of money and a sprinkling of financial brainpower are just the ingredients for a tax avoidance recipe. Both are eminently mobile and can be placed almost anywhere in the world the tax planners choose.

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‘Overall,’ explained the Oxford engineering graduate who like many of his generation now found high finance a more rewarding use of his talents than making things, ‘the aim is to ensure: no taxation of the fund … minimisation of the taxation worldwide of the fund management company (or companies); and maximisation of the allowances/reliefs from capital gains for the founders.’‌32 The method he outlined is now standard: an offshore fund manager in the tax haven where the fund is based and a ‘sub-manager’ in London. While the Mayfair hedgies work for this latter company – often under employment contracts with another offshore company for further tax advantages – it receives and is taxed on just a small proportion of the fees. ‌ ‌Figure 11 • A sample structure that a London-based hedge fund might use to minimize corporation tax Evidence of UK tax payments by hedge funds is mixed at best, even if you know where to look among the publicity-shy firms.

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Figure 11 • A sample structure that a London-based hedge fund might use to minimize corporation tax Evidence of UK tax payments by hedge funds is mixed at best, even if you know where to look among the publicity-shy firms. One place to start is with the hedge funds whose founders feature six times in the top ten recent donors to the Conservative Party.‌33 The most successful of them is the Australian-born, British-based ‘arbitrage’ specialist behind Caymans-based hedge fund CQS, Michael Hintze, who has given £1.25m to the Tories. His fund is managed in London by a limited liability partnership called CQS (UK) LLP, which in 2010 received a healthy $175m in fees but, as a partnership, is not itself taxed.

Ethics in Investment Banking
by John N. Reynolds and Edmund Newell
Published 8 Nov 2011

Our own ethical thinking has been sharpened by being members of the Church of England’s Ethical Investment Advisory Group, and we would like to thank Deborah Sabalot for her insights into regulatory law, and Mark Bygraves, Sabina Alkire and Nigel Biggar for their comments on different aspects of the text. Glossary 2 and 20: fee structure typically used by hedge funds whereby a 2 per cent base fee is levied on funds under management and 20 per cent of the upside or profit is paid Abrahamic faiths: collective term for Judaism, Christianity and Islam, relating to their historic and theological origins Adviser: an investment banking or financial adviser giving advice primarily related to valuation, assisting with negotiation, co-ordinating due diligence and project management Agent: an investment bank trading in the market on behalf of a client and typically receiving a commission AGM: the annual general meeting of a company Arranger: individual or group, usually an investment bank, charged with arranging finance for a transaction.

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Arranging finance would consist of preparing presentations to potential funders and securing financing (normally debt, but this can also include additional sources of equity finance) Bait and switch: investment banking practice of marketing a (senior) team of bankers to a client and then replacing them with more junior bankers once a mandate has been awarded Big cap: a quoted company with a large market capitalisation or share value Business ethics: an ethical understanding of business, applying moral philosophical principles to commerce Capital markets: collective term for debt and equity markets; reference to the businesses within an investment bank that manage activity in the capital markets Casino capitalism: term used to describe high-risk investment banking activities with an asymmetric risk profile Categorical imperative: the concept, developed by Immanuel Kant, of absolute moral rules CDS: credit default swap, a form of financial insurance against the risk of default of a named corporation CEO: chief executive officer, the most senior executive officer in a corporation viii Glossary ix Church Investors’ Group (CIG): a group of the investment arms of a number of church denominations, mainly from the UK and Ireland Code of Ethics: an investment bank’s statement of its requirements for ethical behaviour on the part of its employees Compensation: investment bankers’ remuneration or pay Compliance: structures within an investment bank to ensure adherence to applicable regulation and legislation Conflict of interest: situation where an investment bank has conflicting duties or incentives Corporate debt: loan made to a company Credit rating: an assessment of the creditworthiness of a corporation or legal entity given by a credit rating agency CSR: Corporate Social Responsibility DCF: discounted cash flow Debtor in Possession finance (DIP finance): secured loan facility made to a company protected from its creditors under chapter 11 of the US bankruptcy code Derivative: a security created out of an underlying security (such as an equity or a bond), which can then be traded separately Dharma: personal religious duty, in Hinduism and Buddhism Discounted cash flow valuation: the sum of: • the net present value (NPV) of the cash flows of a company over a defined timescale (normally 10 years); • the NPV of the terminal value of the company (which may be the price at which it could be sold after 10 years); and • the existing net debt of the company Distribution: the marketing of securities Dodd–Frank Act: the Dodd–Frank Wall Street Reform and Consumer Protection Act Downgrade: a reduction in the recommended action to take with regard to an equity; or a reduction in the credit rating of a corporation Duty-based ethics: ethical values based on deontological concepts EBITDA: Earnings Before Interest Tax Depreciation and Amortisation EIAG: the Ethical Investment Advisory Group of the Church of England Encyclical: official letter from the Pope to bishops, priests, lay people and people of goodwill x Glossary Enterprise value (EV): value of an enterprise derived from the sum of its financing, including equity, debt and any other invested capital, which should equate to its DCF value ERM: the European Exchange Rate Mechanism, an EU currency system predating the introduction of the euro ETR: effective tax rate EV:EBITDA: ratio used to value a company Exit: sale of an investment Free-ride: economic term for gaining a benefit from another’s actions Financial adviser: see Adviser Glass–Steagall: the 1933 Act that required a separation of investment and retail banking in the US Golden Rule: do to others as you would have them do to you Hedge fund: an investment fund with a specific investment mandate and an incentivised fee structure (see 2 and 20) High yield bond: debt sold to institutional investors that is not secured (on the company’s assets or cash-flows) HMRC: Her Majesty’s Revenue and Customs, the UK’s authority for collecting taxes Hold-out value: value derived from the contractual right to be able to agree or veto changes Ijara: Shariah finance structure for project finance Implicit Government guarantee: belief that a company or sector benefits from the likelihood of Government intervention in the event of crisis, despite the fact that no formal arrangements are in place Initial Public Offering (IPO): the initial sale of equity securities of a company to public market investors Insider dealing: trading in shares in order to profit from possessing confidential information Insider trading: see Insider dealing Integrated bank: a bank offering both commercial and investment banking services Integrated investment bank: an investment bank that is both active in capital markets and provides advisory services Internal rate of return (IRR): the annualised return on equity invested.

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Index ABACUS, 7, 16–17, 46, 63–4, 68, 73, 78 Abrahamic faiths Christianity, 52–4 Islam, 54–5 Judaism, 56 abuse market, 14, 70, 75, 84–8 personal, 159 of resources, 127–8 abusive management practices, 157 abusive trading, 93 adult entertainment, 56 advisers financial, 109 investment banking, 111 sell-side, 107, 111–13 trusted, 108–9, 125 advisory fees, 119, 124 advisory markets, 73 agents, 65 aggressive behaviours, 118–19 Alpha International, 9 American Bar Association, 19 Anderson, Geraint “CityBoy”, 8 Anglican Communion, 53 Anglicanism, 53 annual general meeting (AGM), 29, 54 Aquinas, Thomas, 34, 37 Aristotle, 34 Arjuna, 57 attrition rate, 132 authorisation, informal, 81, 98 BAE Systems, 48 bait and switch, 102–3, 158 bank debt, 82–3, 120 banking regulations, 16 Bank of America, 16 Bank of Credit and Commerce International (BCCI), 12 Bank of England, 25 Barclays Capital, 139 Bar Council, 19 Bayly, Daniel, 8 Bear Stearns, 5, 16, 76 beauty parade, 110 behaviours aggressive, 118–19 discriminatory, 129–31 of Hedge fund, 12 investment banking, 3 management, 131–2 market, 71 misleading, 86 unethical, 68 virtuous, 37 Benedict XVI, Pope, 6, 52 Bentham, Jeremy, 36 Bernanke, Ben S., 96 Besley, Tim, 42 Beyond the Crash (Brown), 4 Bhagavad Gita, 57 bid price, 64 big cap, 65, 85 black box approach, 114 Blackstone Group, 20 Blankfein, Lloyd, 47, 63–4, 68, 78 bluffing, 113 Boesky, Ivan, 12 bonds government, 23 investment grade, 118 junk, 118 bonus pools in public ownership, 136–9 Bootle, Roger, 4 Bribery Act 2010, 129 British Academy, 42 Brown, Gordon, 4, 135 Buddhism, 57 bullying, 159 170 Index business ethics of fiduciary duties, 27 of financial crisis, 12–32 within governments, 59 of market capitalism, 12–14 of regulation, regulatory changes and, 18–21 of religion, 51–62 of shareholders, 27–9 strategic issues with, 30–1 Business Ethics Center, 56 Business Judgment Rule, 20 Business Standards Report, 46 buy recommendation, 115 capitalism market, 12–14 modern, 54 see also casino capitalism capital markets, 155 advisory markets vs., 73 conflicts of interest in, 112–14 cardinal virtues, 37 Caritas in Veritate (Benedict), 6, 52 cash compensation, 132, 134 casino capitalism emergence of, 43 in investment banking, 3 speculative, 16, 93 categorical imperative, 34, 59, 69 Caterpillar, 48 Central Finance Board of the Methodist Church (CFB), 54, 59 chief executive officer (CEO), 116 Christianity, 52–4 Anglican Communion, 53 Methodist Church, 53 Roman Catholic Church, 53 Christian Old Testament, 34 Church Investors’ Group (CIG), 135 Church of England, 9, 53, 58 Citigroup, 19, 112 claiming credit, 134 clients confidential information, 120 conflicts of interest, 105–10 171 duty of care, 105 engagement letters, 122–3 fees, 115–18 financial restructuring, 119–20 hold-out value, 120–1 honesty, 101–5 margin-calls, 121 practical issues, 110–15 promises, 100–1 restructuring fees, 121–2 syndication, 118–22 truth, 101–5 Code of Ethics, 47–50, 147–51 for Goldman Sachs business principles, 46 in investment banking, 47–9 Revised, 47 collatoralised debt obligations (CDOs), 30, 42, 75 command economies, 13 commercial banking, 19–21, 25 communication within markets, 88 Companies Act 2006, 27 compensation cash, 132, 134 defined, 132 for employees, 135 internal issues on, 8 for junior bankers, 136 levels of, 132–3, 138 objectivity of, 144 political issues with, 6, 137 restrictions on, 10 competitors, 113 compliance corporate, 20 danger of, 20 frameworks for, 68, 146 regulatory, 18 requirements of, 6 confidential information, 120 conflicts of interest, 105–10, 158 with capital markets, 109–10 with corporate finance, 107–8 personal, 47 with pre-IPO financing, 110 with private equity, 110 172 Index conflicts of interest – continued reconciling, 68–70 of trusted advisers, 108–9 consequentialist ethics, 36–7, 42 corporate compliance, 20 Corporate/Compliance Social Responsibility (CSR), 7 corporate debt, 17 corporate entertainment, 128–9, 159 corporate finance, 107–8 Corporate Sustainability Committee, 152 Costa, Ken, 9 Cox, Christopher, 96–7 creative accounting, 12 credit crunch, 17 credit default swap (CDS), 71 credit downgrade, 17, 76 Credit Lyonnais, 12 creditors, restricted, 121 credit rating, 75–7 calculating, 76 inaccurate, 5 manipulating, 75, 156, 158 unreliability of, 17 credit rating agencies, 76 Crisis and Recovery (Williams), 53 culture, 46, 136, 151 customers, 69 Daily Telegraph, 84 Debtor in Possession finance (DIP finance), 80 debts bank, 82–3, 120 corporate, 17 junior, 118 rated, 77 senior, 118 sovereign, 17 deferred equity, 5 deferred shares, 133 Del Monte Foods Co., 107 deontological ethics, 34–6 stockholders, 41–2 trust, 40–1 derivative, 27, 30 dharma, 63–4 Dharma Indexes, 57 discounted cash flow (DCF), 27 discount rate, 27 discriminatory behaviour, 129–31 distribution, 15, 35, 66 Dodd–Frank Wall Street Reform and Consumer Protection Act, 25 dotcom crisis, 94 dotcom stocks, 17 Dow Jones, 55–6 downgrade credit, 17, 76 defined, 76 multi-notch, 17, 76 duties, see rights vs. duties duty-based ethics, 66–8 duty of care, 105 Dynegy, 8 Earnings Before Interest Tax Depreciation and Amortisation (EBITDA), 27 economic free-ride, 5, 21 economic reality, 137 effective tax rate (ETR), 140 emissions trading, 14 employees, compensation for, 135 Encyclical, 52 engagement letters, 122–3, 159 Enron, 8, 12, 17, 20, 76 enterprise value (EV), 27 entertainment adult, 56 corporate, 128–9, 159 sexist, 159 equity deferred, 5 private, 2–3, 12, 110 equity research, 88–9, 113–15 insider dealing and, 83–4 ethical behaviour, 38–9 Ethical Investment Advisory Group (EIAG), 53, 58 ethical investment banking, 145–7 ethical standards, 47 Index ethics consequentialist, 36–7, 42 deontological, 34–6 duty-based, 66–8 exceptions and, effects of, 89–90 financial crisis and, 4–8 in investment banking, 1 in moral philosophy, 1 performance and, 8–10 rights-based, 66–8 virtue, 37–8, 43–4 see also business ethics; Code of Ethics Ethics Helpline, 48 Ethics of Executive Remuneration: a Guide for Christian Investors, The, 135 European Commission, 89 European Exchange Rate Mechanism (ERM), 17 exceptions, 89 external regulations, 19, 31 fair dealing, 45 Fannie Mae, 43 Federal Home Loan Mortgage Corporation, 43 Federal National Mortgage Association, 43 fees, 115–18 advisory, 107, 116 restructuring of, 121–2 2 and 20, 13 fiduciary duties, 27–8 financial advisers, 109 Financial Conduct Authority (FCA), 26 financial crisis, business ethics during CDOs during, 90 CDSs during, 90 ethics during, 4–8, 12–34 investment banking and, necessity of, 14–15 market capitalism, 12–14 necessity of, 14–15 non-failure of, 21 positive impact of, 18 problems with, 15–17 reality of, 16 speculation in, 91 173 Financial Crisis Inquiry Commission, 76 Financial Policy Committee (FPC), 25 financial restructuring, 119–20 Financial Services Modernization Act, 19 Financial Stability Oversight Council, 25 firm price, 67 Four Noble Truths, 57 Freddie Mac, 43 free-ride defined, 26 economic, 5, 21 in investment banking, 24 FTSE, 55 Fuhs, William, 8 General Board of Pension and Health Benefits, 54, 59 German FlowTex, 12 Gift Aid, 141 Glass–Steagall Act, 19 Global Settlement, 113 golden parachute arrangements, 133 Golden Rule, 35, 150 Goldman Sachs, 7, 16, 45, 63 Business Principles, 45–6 charges against, 78 Code of Business Conduct and Ethics, 45, 68 Code of Ethics for, 47–8 Goldsmith, Lord, 27 government, 59 business ethics within, 60 guarantees of, 24 intervention by, 22–3 government bonds, 23 greed, 4–5 Green, Stephen, 8–9 gross revenues, 59 Hedge fund behaviour of, 12 failure of, 21 funds for, raising, 2 investment fund, as type of, 3 rules for, 133 174 Index Hennessy, Peter, 42 Her Majesty’s Revenue and Customs (HMRC), 140–1 high returns, 28, 110 Hinduism, 56–7 Hobbes, Thomas, 36 hold-out value, 120–1 honesty, see trust hospitality, 128–9 hot IPOs, 94 hot-stock IPOs, 94 HSBC, 9, 28, 152 Ijara, 55 implicit government guarantee, 22–3 Independent Commission on Banking, 25 inequitable rewards, 6 informal authorisation, 81, 98 Initial Public Offering (IPO), 7 of dotcom stocks, 17 hot, allocation of, 94 hot-stock, 94 insider dealings, 83–4, 155 equity research and, 83–4 ethics of, 66, 70 laws on, 84 legal prohibition on, 82 legal restrictions on, 10 legal status of, 82 legislation on, 74 restrictions on, 83 rules of, 82, 90 securities, 70 insider trading, 12 insolvency, 24–5 institutional greed, 4 integrated bank, 28 integrated investment banking, 2, 30, 67, 106, 108 interest payments, 59–60 interest rate, 60 internal ethical issues, 126–43 abuse of resources, 127–8 corporate entertainment, 128–9 discriminatory behaviour, 129–31 hospitality, 128–9 management behaviour, 131–2 remuneration, 132–9 tax, 139–41 internal review process, managing, 134 investment banking, 94 casino capitalism in, 3 Code of Ethics in, 47–9 commercial and, convergence of, 20–1 defined, 2 ethics in, 1 free-ride in, 24 integrated, 2, 30, 67, 108, 112 in market position, role of, 65–6 moral reasoning and, 38 necessity of, 14–15 non-failure of, 19–20 positive impact of, 18 recommendations in, 94–7 sector exclusions for, 58–9 investment banking adviser, 121 investment banking behaviours, 3 investment banking ethics committee, 151–3 investment bubbles, 95 investment fund, 3 investment grade bonds, 118 investment grade securities, 76 investment recommendations, 94 investments personal account, 128, 156 principal, 15, 28 proprietary, 29 IRS, 140 Islam, 54–5 Islamic banking, 6, 54–5 Jewish Scriptures, 34 Joint Advisory Committee on the Ethics of Investment (JACEI), 54 JP Morgan, 16 Judaism, 56 junior bankers, 139 junior debt, 118 junk bond, 118 “just war” approach, 38 Index Kant, Immanuel, 35, 69 karma, 57 Kerviel, Jérôme, 44, 80 Krishna, 57 Law Society, 19 Lazard International, 9 leading adviser, 41 Leeson, Nick, 12, 44, 81 legislative change, 25–6 Lehman Brothers, 5–6, 15, 21, 23, 31, 43, 76 lenders, 26, 131 lending, 59–60 leverage levels of, 25 over, 75, 80, 119 Levin, Carl, 17, 63–4, 68 light-touch regulations, 4 liquidity market, 95 orderly, 25 withdrawal of, 24 loan-to-own, 80 Locke, John, 34 London Inter-Bank Offered Rate (LIBOR), 23 London School of Economics, 43 London Stock Exchange, 65, 71, 84 long-term values, 147 Lords Grand Committee, 27 LTCM, 23 lying, 101 MacIntyre, Alasdair, 38 management behaviour, 131–2 margin-calls, 121 market abuse, 14, 70, 75, 86–8, 155 market announcements, 88 market behaviours, 74 market capitalism, 12–14 market communications, 88 market liquidity, 95 market maker defined, 65–7 investment bank as, 66 primary activities of, 65 175 market manipulation, 75 market position, role of, 104 market rate, 117 markets advisory, 73 capital, 73, 117–18, 158 communication within, 88 duties to support, 71–2 primary, 103 qualifying, 70, 82 secondary, 103 market trading, 41 Maxwell, Robert, 12 Meir, Asher, 56 mergers and acquisitions (M&As), 41, 79 Merkel, Angela, 93 Merrill Lynch, 8, 16 Methodism, 53 Methodist Central Finance Board, 59 Methodist Church, 54 Midrash, 56 Milken, Michael, 12 Mill, John Stuart, 36 Mirror Newspaper Group, 12 misleading behaviours, 86, 105 mis-selling of goods and services, 77–9, 155 modern capitalism, 54 moral-free zones, 31 moral hazard, 22, 70 moral philosophy, 1 moral reasoning, 38 moral relativism, 38–9, 49, 68 Morgan Stanley, 47 multi-notch downgrade, 17, 79 natural law, 34, 37 natural virtues, 37 necessity of investment banking, 14–15 New York Stock Exchange (NYSE), 65, 71 New York Times, 8 Noble Eightfold Path, 57 Nomura Group Code of Ethics, 47 normal market trading, 71 Northern Rock, 43 176 Index offer price, 64 off-market trading, 71–3, 90, 155 Olis, Jamie, 8 on-market trading, 70–1 oppressive regimes, 61 option value, 121 Orderly Liquidation Authority, 25 orderly liquidity, 25 out-of-pocket expenses, 127–8 over-leverage, 75, 80, 119, 158 overvalued securities, 155 patronage culture, 131, 142 Paulson, Henry M., 86 Paulson & Co., 78 “people-based” activity, 67 P:E ratio, 27 performance, 8–10 personal abuse, 159 personal account investments, 128, 156 personal account trading, 128 personal conflicts of interest, 45 pitching, 102, 159 Plato, 37 practical issues, 110–15 competitors, relationships with, 113 equity research, 113–15 pitching, 111 sell-side advisers, 111–13 pre-IPO financing, 110 prescriptive regulations, 31, 145 price tension, 79, 113 primary market, 103 prime-brokerage, 2 principal investment, 15, 28 private equity, 2–3, 12, 110 private trading, 94 Project Merlin, 133, 141 promises, 100–1 proprietary investment, 29 proprietary trading, 15, 25, 66, 150, 155 Prudential Regulation Authority (PRA), 26 public ownership, bonus pools in, 136–9 “pump and dump” strategy, 86 qualifying instruments, 70, 87 qualifying markets, 70, 82 quality-adjusted life year (QALY), 36 Quantitative Easing (QE), 23 Queen Elizabeth II, 42 Qu’ran, 54 rated debt, 77 rates attrition, 132 discount, 27 interest, 60 market, 117 tax, 140 rating agencies, 76 Rawls, John, 35, 136 recognised exchanges, 71 Regal Petroleum, 84 regulations banking, 16 compliance with, 28 external, 19, 31 light-touch, 4 prescriptive, 31, 145 regulatory changes and, 18–20 securities, 114 self, and impact on legislation, 19 regulatory compliance, 18 religion, business ethics in, 51–62 Buddhism, 56 Christianity, 52–4 Governments, 59 Hinduism, 56–7 interest payments, 59–60 Islam, 54–5 Judaism, 56 lending, 59–60 thresholds, 60 usury, 59–60 remuneration, 132–9 bonus pools in public ownership and, 136–9 claiming credit, 134 ethical issues with, 142–3 internal review process, managing, 134 1 Timothy 6:10, 135–6 Index research, 156 resources, abuse of, 127–8 restricted creditors, 120 restructuring of fees, 121–2 financial, 119–20 syndication and, 118–22 retail banks, 16 returns, 28, 156 Revised Code of Ethics, 47 right livelihood, 57 rights-based ethics, 66–8 rights vs. duties advisory vs. trading/capital markets, 73 conflict between, reconciling, 68–70 duty-based ethics, 66–8 off-market trading, ethical standards to, 71–2 on-market trading, ethical standards in, 70–1 opposing views of, 63–74 reconciling conflict between, 68–70 rights-based ethics, 66–8 Roman Catholic Church, 52 Royal Dutch Shell, 85 Sarbanes–Oxley Act, 20 Schwarzman, Stephen, 20 scope of ethical issues, 7–8 secondary market, 103 sector exclusions for investment banking, 58–9 securities investment grade, 76 issuing, 103–5 overvalued, 155 Securities and Exchange Commission (SEC), 7, 16 Goldman Sachs, charges against, 78 rating agencies, review by, 77 short-selling, review of, 96–7 securities insider dealing, 70 securities mis-selling, 77–9 securities regulations, 114 self-regulation, 19 sell recommendation, 115 177 sell-side advisers, 107, 111–13 Senate Permanent Subcommittee on Investigations, 46 senior debt, 118 sexist entertainment, 159 shareholders, 27–9 shares, deferred, 133 Shariah finance, 55 short-selling, 94–7, 154–5 Smith, Adam, 14, 35–6 social cohesion, 53 socially responsible investment (SRI), 56 Société Générale, 44, 80 solidarity, 53 Soros, George, 17 South Sea Bubble, 90 sovereign debt, 17 speculation, 91–4, 155 in financial crisis, 93 traditional views of, 91–3 speculative casino capitalism, 16, 91 spread, 21 stabilisation, 89 stock allocation, 94–7 stockholders, 41–2 stocks, dotcom, 17 Strange, Susan, 43 strategic issues with business ethics, 30–1 syndication, 119 and restructuring, 118–22 systemic risk, 24–5 Takeover Panel, 109 Talmud, 56 taxes, 139–41 tax optimisation, 158 tax rates, 140 tax structuring, 140 Terra Firma Capital Partners, 79, 112 Theory of Moral Sentiments, The (Smith), 14 3iG FCI Practitioners’ Report, 51 thresholds, 60 1 Timothy 6:10, 135–6 178 Index too big to fail concept, 21–7 ethical duties, and implicit Government guarantee, 22–3 ethical implications of, 26–7 in government, 22–3 insolvency, systemic risk and, 24–5 legislative change, 25–6 Lehman, failure of, 23 systemic risk, 24–5 toxic financial products, 5 trading abusive, 93 emissions, 14 insider, 12 market, 41 normal market, 71 off-market, 71–83, 90, 155 on-market, 70–1 personal account, 128 private, 94 proprietary, 15, 25, 66, 150, 155 unauthorised, 7 “trash and cash” strategy, 86 Travellers, 19 Treasury Select Committee, 26 Trinity Church, 53 Trouble with Markets, The (Bootle), 4 trust, 40, 53 trusted adviser, 108–9, 125 truth, 101–5 bait and switch, 102–3 misleading vs. lying, 101 securities, issuing, 103–5 2 and 20 fee, 13 UBS Investment Bank, 9 unauthorised trading, 7, 80–1, 155 unethical behaviour, 68 UK Alternative Investment Market, 89 UK Business Growth Fund, 133 UK Code of Practice, 141 UK Independent Banking Commission, 4, 22 United Methodist Church, 54, 59 United Methodist Investment Strategy Statement, 59 US Federal Reserve, 24, 25 US Financial Crisis Inquiry Commission, 4 US Open, 126 US Senate Permanent Subcommittee on Investigations, 64, 73 US Treasury Department, 132 universal banks, 2, 21, 28, 67 untoward movement, 85 usury, 59–60 utilitarian, 84 utilitarian ethics, 49, 84, 139 values, 9, 46, 119–21, 148 Vedanta, 57 victimless crime, 82 virtue ethics, 37–8, 43–4 virtues, 9, 34 virtuous behaviours, 37 Vishnu, 57 Volcker, Paul, 25 Volcker Rule, 2, 25 voting shareholders, 29 Wall Street, 12, 19, 53 Wall Street Journal, 20 Wealth of Nations, The (Smith), 14 Wesley, John, 53 Wharf, Canary, 18 Williams, Rowan, 53 Wimbledon, 127 WorldCom, 12, 17, 20, 76 write-off, 80 zakat, 55 zero-sum games, 118–22 

No One Would Listen: A True Financial Thriller
by Harry Markopolos
Published 1 Mar 2010

However the hedge fund isn’t organized as a hedge fund by Bernard Madoff (BM) yet it acts and trades exactly like one. BM allows third party Fund of Funds (FOF’s) to private label hedge funds that provide his firm, Madoff Securities, with equity tranch funding. In return for equity tranch funding, BM runs a trading strategy, as agent, whose returns flow to the third party FOF hedge funds and their investors who put up equity capital to fund BM’s broker-dealer and ECN operations. BM tells investors it earns its fees by charging commissions on all of the trades done in their accounts. Red Flag # 1: Why would a US broker-dealer organize and fund itself in such an unusual manner?

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Red Flag # 1: Why would a US broker-dealer organize and fund itself in such an unusual manner? Doesn’t this seem to be an unseemly way of operating under the regulator’s radar screens? Why aren’t the commissions charged fully disclosed to investors? Can a SEC Registered Investment Advisor charge both commissions and charge a principle fee for trades? MOST IMPORTANTLY, why would BM settle for charging only undisclosed commissions when he could earn standard hedge fund fees of 1 % management fee + 20% of the profits? Doing some simple math on BM’s 12% average annual return stream to investors, the hedge fund, before fees, would have to be earning average annual returns of 16%.

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After his scheme collapsed and he became known as a crook, he was rechristened as a hedge fund operator—even though, to this day, his was the only so-called hedge fund I’ve heard of that didn’t charge a management fee or an incentive fee. I doubt he would have fooled the SEC had he been known as a hedge fund manager, as the SEC would’ve been predisposed to catch him if they had known him with that title. Warren Buffett said, “You only find out who is swimming naked when the tide goes out.” The financial crisis of 2008 revealed many, including Madoff, to be inappropriately attired. Effective regulation must mean that the skinny-dippers are stopped while the tide is still in.

Investment: A History
by Norton Reamer and Jesse Downing
Published 19 Feb 2016

While the compensation arrangements vary when it comes to hedge funds, private equity, mutual funds, and other vehicles for investment, there are management fees, performance fees, expense fees, event-based fees, carried interest, and other sources that all add to the potential compensation of an asset manager. Management fees, or fees on assets under management, are periodbased fees driven primarily by the size of the fund involved. These fees can vary from a few basis points to a few percentage points. A typical hedge fund fee structure is “2 and 20,” or 2 percent of assets under management for the management fee and 20 percent of profits generated for clients by the manager for the performance fee.

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Fees as a Misleading Proxy for Quality There is a comical corollary to the fact that the alternatives market standard is the 2-and-20 fee regime: if a hedge fund or private equity firm charges fees substantially below market in order to bring its compensation system into a fairer alignment, many investors will question this move. What is wrong with this group that it cannot charge full fees? Why is the manager leaving money on the table if it is otherwise 310 Investment: A History competent enough to charge full fees? Usually, a fund offers belowmarket fees because it is a new fund launch or perhaps because the previous funds (in the case of a private equity firm) did not perform very well.

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Alternative investment managers today are enjoying a tremendously attractive compensation scheme in an era where returns for clients, net of fees, are not nearly what they were in earlier periods. The average hedge fund and average private equity firm are certainly not currently outperforming basic market measures of absolute return, and even many of the top performers are outperforming only in certain years and on an inconsistent basis. Given these results, why does the marketplace support 2-and-20 fees? One contributing factor is the asymmetric process of setting fees. When clients really want a particular manager to run their money, few management or performance fees seem to be considered too high. The investor is excited about the manager, the strategy, and the prospective alpha.

The Divide: American Injustice in the Age of the Wealth Gap
by Matt Taibbi
Published 8 Apr 2014

Somehow Cohen was beating the average growth of the stock market by four, five, or six times over, every single year for more than a decade. For such incredible performance, Cohen’s clients paid a premium that went beyond enviable into being outright suspicious. The standard fee for a hedge fund manager is a formula known on Wall Street as “two and twenty.” If you give a hedge fund manager $10 million, he gets a 2 percent management fee for the ten mil, plus 20 percent of any profits he makes for you. But Cohen, incredibly, charged his clients 50 percent for the profits he earned them, which is a little like paying five thousand dollars to get a one-hour massage from a Swedish coed.

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A number of former SAC traders branched off and created their own funds. Adam Sender was a sort of mini-Cohen who split off from his mentor in 1998 to form his own fund, Exis Capital Management. Like Cohen, Sender quickly began turning in impossible-sounding results. (He claimed a 53 percent return after fees in 2006.) And like Cohen, Sender couldn’t wait to show the world how rich he was. Within a decade or so after founding Exis, he had a personal collection of more than one thousand works of modern art that were collectively valued at over $100 million. Cohen and Sender were part of a new class of hedge fund conquerors who used their instant millions and billions to buy places in the pop-culture limelight, usually by patronizing modern artists.

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The legendary investor has been heavily criticized in the postcrash era for his investments in companies that seemed to violate his business principles, most notably a large share of the ratings agency Moody’s; Buffett had previously criticized the industry. *3 I myself experienced Loeb’s legendary epistemological style in the fall of 2013, after I wrote a Rolling Stone article about hedge funds like his that received indefensibly high fees from state pension funds. The piece had been out only about three minutes when I started receiving angry emails from the “Angry Investor” about my literary irrelevance. *4 A279 [Jul. 17, 2006, email from SpymI4 to Sender, EXIS-0001312]. *5 A282 [Jul. 17, 2006, email from Sender to Contogouris, EXIS-0001316]

Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined
by Lasse Heje Pedersen
Published 12 Apr 2015

The management fee is meant to cover the manager’s fixed expenses, and the performance fee is meant to strengthen the manager’s incentive to perform well. The performance fee also enables the hedge fund to pay performance-based bonuses to its employees.2 While fees vary greatly across funds, the classic hedge fund fee structure has been “2 and 20,” meaning a 2% management fee paid regardless of returns, and a 20% performance fee. For instance, if the hedge fund has a return of 12%, then the return is 10% after the management fee. The performance fee is then 20% of the 10%, that is, 2%, leaving 8% for the investors. Sometimes the performance fee is subject to a hurdle rate, such as the Treasury Bill rate, meaning that the hedge fund only earns performance fees on the return that exceeds the hurdle rate.

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The bottom row reports the percentage of all funds in the Lipper/Tass database with positive coefficients. The right-most column reports the correlation between the managed futures returns and the diversified TSMOM strategy. Source: Hurst, Ooi, and Pedersen (2013). Fees make a significant difference, given that most CTAs and managed futures hedge funds have historically charged at least 2% management fees and 20% performance fees. While we cannot know the exact before-fee manager returns, we can simulate the hypothetical fee for the time series momentum strategy. With a 2-and-20 fee structure, the average fee is around 6% per year for the diversified TSMOM strategy, although this high fee is due to the high simulated performance of the strategy.

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IMPLEMENTATION: HOW TO MANAGE MANAGED FUTURES We have seen that time series momentum can explain managed futures returns. In fact, this relatively simple strategy has realized a higher Sharpe ratio than most managers, at least on paper. This result suggests that fees and other implementation issues are important for the real-world success of these strategies. Indeed, as mentioned above, we estimate that a 2-and-20 fee structure implies a 6% average annual fee on the diversified time series momentum strategy run at a 10% annualized volatility. Other important implementation issues include transaction costs, rebalance methodology, margin requirements, and risk management.

The Autonomous Revolution: Reclaiming the Future We’ve Sold to Machines
by William Davidow and Michael Malone
Published 18 Feb 2020

Registered investment advisers manage more than $2 trillion in assets.21 These advisers typically charge a commission of 1 percent of the assets they manage.22 Some of them invest clients’ money in actively managed funds that charge additional fees.23 Hedge funds manage another $3 trillion.24 In a fee structure called “two and twenty,” hedge fund managers typically charge clients 2 percent of the assets under management and 20 percent of the capital gains. Managers of other types of assets manage trillions more with a wide range of fee structures. BlackRock, the world’s largest asset manager, manages more than $5 trillion in assets and offers a wide range of financial products.25 The top fifty money managers in the United States control more than $25 trillion.26 This market creates a lush target for businesses hoping to replace human managers with automatons and move money management services to virtual space.

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“Understanding the RIA Channel,” RIA Channel, http://riachannel.com/wp-content/uploads/2015/03/Understanding-the-RIA-channel-2015.pdf (accessed June 27, 2019). 22. “2016 RIA Industry Study: Average Investment Advisory Fee is 0.99%,” RIA in a Box, December 6, 2016, http://www.riainabox.com/blog/2016-ria-industry-study-average-investment-advisory-fee-is-0-99-percent. 23. Jonathan Clements, “It’s Time to End Financial Advisors’ 1% Fees,” Wall Street Journal, January 18, 2015, https://www.wsj.com/articles/its-time-to-end-financial-advisers-1-fees-1421545038 (accessed June 27, 2019). 24. “Hedge Fund Industry Assets Under Management,” BarklayHedge, 2019, https://www.barclayhedge.com/research/indices/ghs/mum/HF_Money_Under_Management.html (accessed June 27, 2019). 25.

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BlackRock, the world’s largest asset manager, manages more than $5 trillion in assets and offers a wide range of financial products.25 The top fifty money managers in the United States control more than $25 trillion.26 This market creates a lush target for businesses hoping to replace human managers with automatons and move money management services to virtual space. A 0.1 percent reduction in fees would save investors $25 billion, and many of the automated systems charge as little as 0.5 percent. Vanguard uses robo-advisers to manage $4.2 billion in customer funds for a fee of just 0.3 percent of assets. There are lots of other choices if you don’t like the Vanguard robot. For example, in some cases Betterment will charge customers even less. Small accounts can choose Wealthfront.27 Tellingly, 80 percent of the investment products managed by humans perform the same or worse than those managed by robots.28 Needless to say, as those robots get smarter and more efficient, they will be even more competitive.

Madoff Talks: Uncovering the Untold Story Behind the Most Notorious Ponzi Scheme in History
by Jim Campbell
Published 26 Apr 2021

Unusually, René was not allowed to reveal the identity of the fund manager, or he would be thrown out of the fund, along with his investors’ money. There was a compelling reason René found it unnecessary to diversify funds, though it was not related to the benefit of his investors. Inexplicably in the world of hedge funds, the secretive hedge fund manager had opted to forgo taking any of the lucrative management fees that made “hedgies” some of the richest guys on earth. Rather, he passed them on to the feeder funds. This decision was an unimaginably good deal for René. Hedge funds normally charged exorbitant fees, referred to as “2 and 20”—meaning 2 percent of assets under management, plus 20 percent of the gains (while suffering none of the losses).

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By then, Chelo was working at Benchmark Plus, a fund of funds manager, where he had interviewed over 3,000 managers. He posed as having an interest in investing through FGG. He threw out several questions and, within five minutes, was convinced more than ever that it was a fraud. Chelo was getting outlandish answers about Madoff’s impeccable market timing. He was told Madoff didn’t want the hassle of charging the usual “2 and 20” fees. Madoff was a good guy and didn’t want to charge too much, or as Neil put it, “All that bullshit.”15 The whistleblowers couldn’t believe just how stupid some of the people in the hedge fund feeder business were.

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But in the other systemic failure, this one on Wall Street, the feeder funds had to know, and Madoff’s bank should have known something was not right, even if they did not realize it was a Ponzi scheme. What Is a Feeder Fund? A feeder fund refers to a fund of hedge funds money manager,* who conducts due diligence on individual hedge fund managers and allocates customers’ assets to selected managers. Feeders must demonstrate the value of their due diligence since, as a fund of funds manager, they are layering an extra level of fees on top of the individual funds. The individual money managers, such as Bernie Madoff’s hedge fund, typically charged management fees of 1 to 2 percent of assets under management, and on top of that, performance fees, generally 20 percent of investment gains.

The Fear Index
by Robert Harris
Published 14 Aug 2011

‘And commission? What did we decide? Are we sticking with two and twenty?’ ‘Don’t you think?’ ‘I don’t know. That’s your call.’ ‘More than the going rate looks greedy, less and they won’t respect us in the morning. With our track record it’s a seller’s market, but even so I say let’s stick with two and twenty.’ Quarry pushed back his chair and swung his feet up on to the desk in a single, easy fluid motion. ‘It’s going to be a big day for us, Alexi. We’ve waited a whole year to show them this. And they’re gagging for it.’ A two per cent annual management fee on a billion dollars was twenty million dollars, just for showing up to work in the mornings.

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His head was aching badly again: he needed a painkiller. ‘Their board?’ he muttered. ‘I’m not even sure who’s on their frigging board.’ As far as he was concerned, it was a purely technical legal entity, registered in the Cayman Islands for tax purposes, that controlled the clients’ money and paid the hedge fund its management and incentive fees. ‘Okay,’ said Quarry, ‘I don’t think we’re anywhere near that point yet. As they used to say in the war, let’s keep calm and carry on.’ He bestowed one of his most winning smiles upon the room. Rajamani said, ‘For legal reasons I must ask that my concerns be minuted.’ ‘Fine. Write up a note of the meeting and I’ll sign it.

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He set only one condition: if by any chance he was mentioned, he would deduct 10,000 francs from their fee; if he was mentioned more than twenty times in a year, they would have to start paying him. After a lengthy discussion, the partners accepted his terms and reversed all the advice they normally gave their clients. Hoffmann made no public charitable donations, attended no gala dinners or industry awards ceremonies, cultivated no journalists, appeared on no newspaper’s rich list, endorsed no political party, endowed no educational institution and gave no lectures or speeches. The occasional curious journalist was steered for background to the hedge fund’s prime brokers, who were always happy to take the credit for its success, or – in cases of extreme persistence – to Quarry.

Value of Everything: An Antidote to Chaos The
by Mariana Mazzucato
Published 25 Apr 2018

The middling investment performance of hedge funds stands in sharp contrast to their glamorous image and - more importantly for investors -their high fees. For many years typical hedge fund fees have been called ‘2 and 20' - a 2 per cent fee on the volume of assets managed and a hefty 20 per cent of realized and unrealized profits. Some hedge funds specialize in high-frequency trading - buying and selling assets very fast and in large volume, sometimes within fractions of a second, by the use of special computers - which raises costs for investors. All this adds up to a total yearly cost of 3 per cent.42 This same ‘2 and 20' model is also used in venture capital. Like hedge funds, VC claims special skill in picking profitable opportunities in young businesses and technologies.

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Furthermore, the fees being earned by asset managers should reflect real value creation, not the ‘buy, strip and flip' strategy common in PE, or the ‘2 and 20' fee model common to PE, VC and hedge funds. Were the fees more accurately to reflect risks run (or not run - such as the large taxpayer-funded investments that often precede the entrance of VCs), the percentage of realized and unrealized profits retained would be lower than the customary 20 per cent. It is not that financial actors should not make money, or that they do not create value; but that the collective effort involved in the value-creation mechanism should be reflected in a more equitable share of the rewards.

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An excellent study on this topic concludes: ‘The finance industry of 1900 was just as able as the finance industry of 2000 to produce bonds and stocks, and it was certainly doing it more cheaply.'37 Let's now take some of the main parts of the fund management business, a huge financial intermediation machine, and look in more detail at fees and risks. Millions of savers invest in funds - usually mutual funds or unit trusts -either directly themselves or more often indirectly, for example through pensions. The objective of any fund manager is to produce a rate of return for the funds he or she oversees. The benchmark for that return will be the relevant markets in which that fund manager is investing, be it the US stock market, the European bond market, Australian mining companies and so on. Managing your fund to outperform the average market return (or the benchmark) is called ‘active management', or, more pointedly, ‘picking winners'.

The Finance Curse: How Global Finance Is Making Us All Poorer
by Nicholas Shaxson
Published 10 Oct 2018

The GPs simply write the rules so they get their hands on nearly all of the profits before the limited partners – those hapless, trusting outsiders like your pension fund manager who pour their money into the pool of investable capital – get their cut. But how do they get this past those supposedly sophisticated outside investors? Let’s say a private equity firm buys a successful pharma company and generates huge internal profits, whether from creating an even better pharma company or from debt-fuelled looting. The GPs’ first trick is the famous 2 and 20 formula: they take 2 per cent of the value of invested funds annually as management fees, plus the so-called carried interest, which is typically 20 per cent of any internal profits generated, though often only after the fund has attained a ‘hurdle rate’ of profit.

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On gender, see Theresa Whitmarsh, ‘My locker room rally cry for women in private equity’, World Economic Forum, 2 November 2015; and ‘Overview of the health and social care workforce’, kingsfund.org.uk, undated. The comparable figure for investment bankers is 16 per cent women. 22. The 2 and 20 is especially lucrative for bigger funds, principally because the overheads are relatively smaller: it doesn’t take fifty times as many people to run a £5 billion fund as it does a £100 million fund. The 20 per cent profit share is usually taken only after an agreed ‘hurdle’ rate of internal profit, typically 8 per cent, is reached. Appelbaum and Batt (Private Equity at Work, p.52) estimate that two-thirds of general partners’ total revenue derives from the 2 rather than the (performance-based) 20.

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Private equity, by contrast, tends to get involved in the heavy lifting of taking control of and restructuring companies wholesale, in processes that can take years. In both cases the titans running the show take annual fees, typically 2 per cent of the value invested, plus a cut, say 20 per cent, of any profits, before returning the rest of the pool to the outside investors (this basic formula is sometimes known as 2 and 20). A private equity firm isn’t listed on a public stock exchange (which is why it is private), and this frees managers from short-term shareholder pressures to show high performance every quarter-year.

Global Spin: The Corporate Assault on Environmentalism
by Sharon Beder
Published 1 Jan 1997

In the first six months of 1992 the Heritage Foundation was covered in forty-three stories in the New York Times and Washington Post, according to a survey in the National Journal. It also has its own syndicated newspaper features service.16 The Foundation produces hundreds of publications every year, including books and a quarterly journal, Policy Review. Its speciality is its ‘backgrounders’ or ‘bulletins’ which are short essays (between two and twenty pages) on current issues—“brief enough to read in a limousine ride from National Airport to Capitol Hill”. These are provided without charge to government officials, employees and journalists, and are usually personally delivered. The Heritage Foundation, like other think-tanks, conducts public opinion polls as a means of—as a Foundation employee put it—“influencing public opinion, not just reflecting it”.

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Policies promoted by the Heritage Foundation include replacing fuel economy standards for corporate cars with pollution fees, supporting ‘takings’ legislation and opposing mandatory recycling and packaging reduction legislation.18 The Foundation was formed in 1973 by a group of “conservative legislative aides” with a budget of more than $250,000. Early support came from beer magnate Joseph Coors and petroleum tycoon Edward Noble. The Foundation also developed a very successful direct mail programme for fund-raising. By 1983 it was spending $10 million a year, and had bought its own building in Washington DC. It had become one of the dominant conservative think-tanks in the US.19 The Heritage Foundation is now the wealthiest Washington-based think-tank, with a budget of $28 million in 2000 of which over 90% comes from private donors.

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Those who took advantage of the offer included Mobil, Exxon, Texaco, BHP, Rio Tinto, the Australian Aluminium Council, the Business Council of Australia, and the Norwegian oil company Statoil. The Australian Conservation Foundation, which could not afford the $50,000, requested a waiver of the fee to be on the steering committee but was refused.68 According to Clive Hamilton from the Australia Institute (an environmental think-tank), eighty per cent of the funds for ABARE’s climate-change modelling come from the fossil fuel industry. 69 Not surprisingly, ABARE’s model (MEGABARE) predicted huge costs in jobs and income if emission-reduction targets were to be met. This was disputed by environmentalists and alternative energy experts, as well as by 131 Australian economists who signed a joint statement that said “the economic modelling studies on which the Government is relying to assess the impacts of reducing Australia’s greenhouse gas emissions overestimate the costs and underestimate the benefits of reducing emissions”.

The Clash of the Cultures
by John C. Bogle
Published 30 Jun 2012

Indeed, some estimates suggest that the failure rate is around 20 percent, meaning that each year, one of every five hedge funds goes up in smoke. Including the earlier records of such funds with those of hedge funds that have survived, they seem to perform no better than, well, average. For example, over the past 10 years the average hedge fund produced an annual return after fees (but before taxes) of 4.6 percent, compared to 6.2 percent for a pioneering, stodgy, low-risk, low-cost conservative balanced mutual fund named Wellington Fund. Since the traditional “2 and 20” management fee structure—2 percent of assets annually, plus the “carry” of 20 percent of realized and unrealized profits—likely consumed as many as 3 percentage points a year of the gross returns of the average hedge fund, small wonder that the net returns have been, at best, undistinguished.

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Fee Ratio 0.293% Fee $2.39 1978 Fund Assets $642 million 0.200% first $100 0.175% next 100 0.150% next 500 0.100% over 700 Adv. Fee Ratio 0.192% Fee $1.31 1983 Fund Assets $617 million 0.175% first $100 0.150% over 100 Adv. Fee Ratio 0.160% Fee $0.98 1986 Fund Assets $1,102 million 0.150% first $500 0.125% next 500 0.075% next 1,000 0.005% over 2,000 Adv. Fee Ratio 0.151% Fee $1.49 1995 Fund Assets $12,333 million 0.100% first $1,000 0.050% next 2,000 0.040% next 7,000 0.030% over 10,000 Adv. Fee Ratio 0.051% Fee $5.26 In 2005, with Fund assets now more than $38 billion, the board approved an increase in the base fee schedule, lifting the Fund’s effective fee rate from 0.033 percent to 0.043 percent, an increase of 33 percent.

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The table that follows presents the course of these fee negotiations, which are, I’m confident, without precedent in the mutual fund industry. The table also examines the relationship between the Fund’s assets, the advisory fee schedule, and the resultant level of rates and fees. Wellington Fund Year Advisory Fee Schedules Millions 1975 Fund Assets $771 million 0.445% first $250 0.375% next 200 0.225% next 150 0.150% next 100 0.100% over 700 Adv. Fee Ratio 0.311% Fee $2.36 1976 Fund Assets $811 million 0.320% first $250 0.250% next 200 0.150% next 150 0.100% over 600 Adv. Fee Ratio 0.293% Fee $2.39 1978 Fund Assets $642 million 0.200% first $100 0.175% next 100 0.150% next 500 0.100% over 700 Adv.

Mastering Private Equity
by Zeisberger, Claudia,Prahl, Michael,White, Bowen , Michael Prahl and Bowen White
Published 15 Jun 2017

While LPs will attempt to optimize their portfolio allocation, modeling cash flows as well as net asset values remains challenging, given the blind pool nature of the funds and the overall scarcity of data in PE. The secondaries market nowadays offers a realistic avenue to add liquidity, shorten the J-curve and manage a PE portfolio proactively. The Fee Structure and Economics of PE or Who Earns What? The typical fee structure of a PE fund is designed to align the economic interest of the PE firm and its fund investors. The fee structure in PE is commonly referred to as “2 and 20” and defines how a fund’s investment manager and GP—and in turn its PE professionals—are compensated: the “2%” refers to the management fee paid by the LPs per annum to a fund’s investment manager while the “20” represents the percentage of net fund profits—referred to as carried interest or “carry”—paid to its GP.

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INDEX “2+20” fee structure “10+2” model 100-Day Plan see also First-100-Day-plan acquisitions active ownership boards of directors corporate governance family-owned SMEs minority settings specific settings advisors advisory committee, LP affiliated funds, LPAs all capital first model alpha alternative investment vehicles alternative strategies American-style waterfalls see deal-by-deal carry with loss carry-forward anchor investors articles of association (AOA) Asia asset classes assets under management (AUM) evolution of PE portfolio management private capital auctions AUM see assets under management ballooning portfolios benchmarks BidCo legal entity “bidding on the book” bidding for deal board deadlock boards of directors active ownership board members equity documentation P2P buyouts bonds book values bottom-up valuation boutiques breaches of contract break-up fees bridge loans broken deal fees business angels business risk buyers deal structuring direct secondaries exit processes LP secondaries “buying right and creating value early” approach buy-ins buyouts boards of directors characteristics corporate governance deal pricing debt documentation definition exit processes funding instruments historical aspects management buyouts management teams P2P transactions pricing adjustments target valuation transaction documentation types see also leveraged buyouts capital committed vs invested equity future aspects LPAs private capital calls capital efficiency carried interest carve-outs cash flow to debt service covenant cash flows EBITDA as proxy free cash flow effect management OpFCF risk management see also J-curves CDD see commercial due diligence change management chief executive officers (CEOs) China CIM see Confidential Information Memorandum clawbacks clean exits closed-end funds closing mechanisms club deals co-investments active/passive attractions of CPPIB investment approach direct investment funds portfolio management positioning risks of selection issues success rates commercial due diligence (CDD) commercialization committed capital common equity company valuation compensation plans Europe vs US European example completion accounts mechanism concentration risk conditions precedent (CPs) conditions subsequent Condor Travel Confidential Information Memorandum (CIM) conflicts listed PE firms listed PE funds management teams organizational culture consent clause, GPs consultants contingent payments contractual subordination control rights core-plus strategies corporate governance active ownership alignment of interest family-owned SMEs minority settings principles in a buyout sense of urgency SMEs in emerging markets specific settings triangle of governance corporate venture capital correlation costs of listing covenants CPPIB investment approach CPs see conditions precedent credit risk Crossland Logistics currency hedging data rooms DCF see discounted cash flow method DD see due diligence deal-by-deal carry with loss carry-forward deal documentation deal execution deal making deal pricing bidding for deal buyouts closing mechanisms outside the financial model P2P transactions post-closing adjustments deal selection deal sourcing annual deal funnel due diligence emerging markets exit preparation generating flow growth equity statistics venture capital deal structuring the art of buyers buyout funding instruments downside scenarios investment structures SPVs deal teams deals debt buyout documentation buyout funding instruments commitment letters deal pricing distressed investment structures see also junior debt; senior debt default events default risk denominator effect direct investment co-investment CPPIB investment approach implementation challenges institutional investors limited partners LP direct investment portfolio management risk ways to market direct lending direct secondaries directors see also boards of directors discounted cash flow (DCF) method discounts dissolution of fund distressed debt distressed end-of-fund life options distressed private equity distressed debt Europe vs US private debt turnaround investing “distribution-in-kind” distribution waterfalls diversification divestment period dividend preference provision dividend recapitalization documentation drag-along provisions dry powder due diligence (DD) areas of commercial considerations “conspiracy” exit preparation formal DD fund manager selection growth equity preliminary DD the process duration of fund early-stage companies see also start-up companies earnings before interest, tax, depreciation and amortization (EBITDA) buyouts deal pricing EMI music company financial due diligence financially driven CEOs growth equity target valuation valuation multiples economic alignment economic net income (ENI) economics of PE educating investors emerging markets deal sourcing ESG family-owned SMEs growth equity portfolio management EMI music company employee stock ownership plans (ESOPs) end-of-fund life options adjustment of fund terms distressed options extension of term steady-state options engagement, ongoing ENI see economic net income enterprise value (EV) buyouts definition target valuation valuation football field valuation multiples entrepreneurship entry multiples environmental factors environmental, social and governance (ESG) factors emerging frameworks emerging markets ESG today from risk to opportunity growth markets the individual factors measuring impact equity capital equity commitment letters equity control equity documentation control provisions economic provisions key provisions equity funding instruments equity story EquityCo entity ESG see environmental, social and governance factors ESOPs see employee stock ownership plans Europe compensation plans distressed private equity evolution of PE European-style waterfalls see all capital first model EV see enterprise value EV/Book Value valuation multiple EV/EBITDA valuation multiple events of default evolution of PE attractiveness of PE development of PE emerging segments future aspects impact of PE the next five years success and imitation three predictions EV/OpFCF valuation multiple EV/Sales valuation multiple executive mentors exit processes considerations dividend recapitalization early/late in fund life exit paths growth equity IPOs management optimizing exits preparing for sale secondary buyout concerns uniqueness of final asset “exit supercycle” experienced management fair value family businesses family-owned SMEs FDD see financial due diligence feeder funds fees break-up co-investment LPAs structures Final Investment Memorandum financial due diligence (FDD) financially driven CEOs firms see also listed PE firms First-100-Day plan first lien term loans first-time entrepreneurs first-time funds foreign exchange risk free cash flow effect full service value creation fund closings fund formation fund vehicles LPAs setting up funds fund-level fees fund management fund manager risk GP/LP relationship selection of manager fund restructuring fund structures, LPs fund terminology funding/funds alternatives to VC buyout instruments definition of PE funds funding risk funding in stages leveraged buyouts portfolio construction transfers winding down fundraising definition documentation first-time entrepreneurs last 45 years placement agents process roadmap timing/success chart GAAP see Generally Accepted Accounting Principles gas industry general limited partners (GLPs) general partners (GPs) adverse deal selections consent clause definition direct investment distributions post-exit ESG evolution of PE fund formation fundraising GP-led liquidity solutions in-house vs outsourced key relationships operational value creation optimizing exits performance reporting perspective of GP relationships with LPs removal of GP responsible investment rights/duties and LPAs risk management sale of the GP secondaries winding down funds zombie funds Generally Accepted Accounting Principles (GAAP) geographic location, VC global financial crisis (GFC) globalization GLPs see general limited partners good leaver/bad leaver provision governance see also corporate governance; environmental, social and governance factors GPs see general partners gross margin improvement growth equity characteristics corporate governance definition emerging markets exiting investments investment process minority shareholder rights partnerships targets target valuation unlocking growth value creation growth markets hands-on-support hedging risk high yield bonds holding period, definition human resources due diligence (HRDD) human resources risk IBOs see institutional buyouts illiquidity ILPA see Institutional Limited Partners Association imitation of success impact investing incentives indemnification independent directors industrialist endeavour, PE as an industry guidelines, ESG infrastructure funds in-house provisions initial public offerings (IPOs) in-kind distributions INSEAD Value Creation 2.0 (IVC 2.0) institutional buyouts (IBOs) institutional investors Institutional Limited Partners Association (ILPA) institutionalization of PE integrated ESG approach intercreditor agreements interest see carried interest interim liquidity interim performance reporting company valuation gross performance net performance unrealized value intermediated deal flow internal rate of return (IRR) bidding for deal corporate governance IRR conundrum modified IRR performance reporting invested capital investment growth equity process leveraged buyouts management manager, definition period, definition responsible restrictions VC process investment structures complex structure deal structures debt considerations equity considerations equity vehicles simple structure investors IPOs see initial public offerings IRR see internal rate of return IVC 2.0 see INSEAD Value Creation 2.0 J-curves junior debt debt instruments distressed private equity leveraged buyouts key performance indicators (KPIs) key person clause, LPAs key person risk KPIs see key performance indicators last 12 months (LTM) late-stage venture-backed companies LBOs see leveraged buyouts LDD see legal due diligence leadership legal due diligence (LDD) letters of intent (LOIs) leverage effect, IVC 2.0 leveraged buyouts (LBOs) bidding for deal “buying right and creating value early” approach capital efficiency compensation plans corporate governance deal structuring funding initial public offerings loan agreements management teams target valuation valuation value creation value drivers leveraged recapitalizations LFs see listed PE funds LGPs see listed PE firms lien subordination lifecycles of funds limited partners (LPs) advisory committee co-investments commitment strategies definition direct investment distributions post-exit dividend recapitalization ESG evolution of PE exit processes fund formation fundraising in-house vs outsourced limited liability optimizing exits outsourced vs in-house performance reporting perspective of LP portfolio management relationships with GPs responsible investment risk management secondaries secondary buyouts selecting investments winding down funds zombie funds limited partnership agreements (LPAs) capital and partners carried interest distributions post-exit organization partners and capital side letters zombie funds limited partnerships close-end direct investments PE fund structures portfolio management secondaries liquidation funds preference trusts liquidity GP-led solutions lack of interim minority shareholder rights portfolio management listed PE firms (LGPs) benefits of listing challenges from listing distraction from core business GAAP vs ENI listed PE funds (LFs) benefits challenges missing opportunities NAV comparison listed private equity (LPE) firms funds revenue generation loan agreements loans “loan-to-own” strategy locked-box closing mechanism LOIs see letters of intent LPAs see limited partnership agreements LPE see listed private equity LPs see limited partners LTM see last 12 months MAC see material adverse change macroeconomic risk majority deals management advisors capability change fees incentives portfolios presentation management buy-ins (MBIs) management buyouts (MBOs) management teams aligning VC funds assessment/appraisal board members buyouts changing chief executive officers compensation plans conflicts entrepreneurs management perspectives PE owner perspectives securing views of the PE owner role managers, fund managing investments market risk marketing material adverse change (MAC) mature companies MBIs see management buy-ins MBOs see management buyouts mentors, executive mezzanine loans MFN see most favored nations provisions minority equity stakes minority shareholders modified IRR (MIRR) MoM see multiple of money invested monitoring corporate governance fees management teams portfolio management zombie funds most favored nations (MFN) provisions multiple of money invested (MoM) multiples entry valuation natural resources investment NAV see net asset value NDAs see non-disclosure agreements negative screening net asset value (NAV) listed PE funds performance reporting portfolio management risk management secondaries net debt next 12 months (NTM) non-disclosure agreements (NDAs) non-performing loans (NPLs) North America see also United States (US) NPLs see non-performing loans NTM see next 12 months oil industry operating control operating free cash flow (OpFCF) operating partners operating teams operational change operational value creation full service industrialist endeavors in-house vs outsourcing levers for measurement outsourcing vs in-house resources roadmap OpFCF see operating free cash flow opportunistic strategies organizational challenges organizational culture outsourcing overhead reduction P2P see public-to-private transactions parallel funds partners see general partners; limited partners partnerships see also limited partnership...

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Early in a fund’s life, management fees are typically drawn directly from investors’ committed capital, while proceeds from profitable exits may be used to offset management fees later in a fund’s life. OTHER FEES: An investment manager may charge additional fees to the fund, particularly in the context of a control buyout. The main fee categories are transaction fees linked to a fund’s investment in and exit from a portfolio company and monitoring fees for advisory and consulting services provided to portfolio companies during the holding period. Other fees also include but are not limited to broken deal fees, directors’ fees, and other fees for services rendered at the fund or portfolio company level. Over the last decade, management fee offsets have increasingly been included in LPAs; when these offsets are in place, management fees charged to the LPs are reduced by a percentage of “other” fees collected by the fund—historically between 50 and 100%, now trending towards 100%.

Money and Power: How Goldman Sachs Came to Rule the World
by William D. Cohan
Published 11 Apr 2011

Under Greenberg’s watchful eye, he says, the formula worked famously: from 1987 to 2004, AIGFP contributed “over $5 billion to AIG’s pre-tax income” and helped the company’s market capitalization increase to $181 billion, from $11 billion. The business Sosin and his team created was nothing more than a hedge fund inside an insurance behemoth with the added benefit that their access to capital was seemingly unlimited and costless and instead of getting the typical “two and twenty” hedge-fund deal, AIGFP’s traders got to keep between 30 percent and 35 percent of the profits they generated. This sweet arrangement allowed many of the four hundred or so people who worked at AIGFP to become very proficient about taking risks with other people’s money and to get rich.

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The idea was to create a shell company, or holding company, that would sell debt and equity securities to the public and then invest that money—less management fees, of course—into the shares of other publicly traded companies. The thinking was that professional managers had special insight into the vicissitudes of markets and could pick outperforming stocks. An investment trust was akin to what a publicly traded individual mutual fund might look like if it also piled on the leverage to maximize potential returns (and magnify potential losses). In short, these investment trusts looked a lot like the hedge funds of today with far fewer sophisticated investment strategies. The best modern analogy, although imperfect, might be the few publicly traded hedge funds—such as Fortress Investment Group and Och-Ziff Management Group (both run by ex–Goldman partners)—that seem to be offering investors the chance to invest with self-proclaimed financial geniuses who have figured out a way to make a silk purse from a sow’s ear.

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By agreeing to buy the block of stock from the client immediately, Goldman took the risk of selling it from the client, using its own capital, making the bet that later it would be able to sell the stock at a higher price. In any event, Goldman would also get the fees for buying and the fees for selling. All the risk is in the buying, which is why Levy coined the phrase, “Something well bought is half sold.” In 1968, for instance, almost half the volume of stock traded on the New York Stock Exchange came from institutional investors. “We, of course, know where all the big blocks are,” Levy said in May 1968. Levy was the biggest block trader for Investors Diversified Services, or IDS, then the nation’s largest mutual fund company, owned by Allan P. Kirby, Levy’s old nemesis from his battle with the Murchisons.

Getting a Job in Hedge Funds: An Inside Look at How Funds Hire
by Adam Zoia and Aaron Finkel
Published 8 Feb 2008

Here’s how it works: Take a $1 billion fund with a 2% management fee and a 20% performance fee (often called “2 and 20”). Right off the bat, the fund takes in $20 million from the management fee each year, which is typically used to pay salaries and overhead. If the fund is up 10% in a given year (a $100 million profit) it will earn an additional $20 million in performance fees (20% of the profits) that can be used to pay bonuses to the fund’s employees. In Figure 1.1, we have created an organizational chart for a typical hedge fund. Of course, hedge funds all operate quite differently, and you should refer to the chart as a general guide only. You will find that the organization of a specific hedge fund Founder/Portfolio Manager/President Head of Risk Management Chief Financial Officer (CFO) Chief Operating Officer (COO) Chief Technology Officer (CTO) Legal/Compliance Head of Marketing/ Investor Relations Figure 1.1 Hierarchy of Typical Hedge Fund c01.indd 4 1/10/08 11:00:54 AM Getting Started 5 depends on, among other things: the size of the fund, if the fund is organized by industry, and whether it is a single profit and loss (P&L) structure or a multi-strategy fund.

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c09.indd 118 1/10/08 11:09:58 AM Chapter X FUND OF HEDGE FUNDS F und of hedge funds, or simply fund of funds, have grown into a significant subsector within the hedge fund universe. Because they operate differently from single-manager hedge funds, fund of funds seek to hire professionals with different types of skills than do singlemanager funds. WHAT IS A FUND OF FUNDS? Rather than investing directly in specific securities, a fund of hedge funds allocates its capital to single-manager hedge funds, which then invest that capital as they would any other investment from a limited partner (LP). As do single-manager funds, fund of funds collect management fees from LPs. Some also charge an incentive fee based on profits.

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Some also charge an incentive fee based on profits. In either case, both fees would be in addition to those charged by the underlying funds, creating a double layer of fees for the investor. There are two main categories of fund of funds: diversified, in which assets are invested in various types of hedge funds, and niche, which invest in hedge funds with the same investment strategy. Since fund of funds invest in a selection of different funds with different asset classes, they tend to provide a more stable long-term investment return than any of the individual funds. A MAJOR ASSET CLASS Fund of funds have grown considerably over the past few years to the point where they currently account for a significant portion of the overall hedge fund market.

The Dhandho Investor: The Low-Risk Value Method to High Returns
by Mohnish Pabrai
Published 17 May 2009

If a 2 and 20 (2 percent fee; 20 percent of profits) is up 10 percent before fees, on an after-fee basis investors would receive just 6.4 percent. Mutual funds as a group are so large that in aggregate they look like the market. Thus, if there were no trading costs and fees associated with mutual funds, as a group, they’d deliver returns that would match the broad equity market indexes. In this scenario, 50 percent of assets would lag the index and 50 percent would outperform, but we are not in fantasyland. There are very real frictional costs to investing in an actively managed mutual fund. When you factor in these fees of 1 percent to 2 percent a year (plus trading commissions), it is all but certain that 80 percent to 90 percent of mutual funds are likely to lag the broad indexes over the long-term.

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The cloner in me figured that if I could somehow set up a fund with Mr. Buffett’s fee structure, two things were likely to be true. First, it ought to be very appealing to a good number of mutual fund and hedge fund investors due to the superior economics. Second, it was not a fee structure that could be adopted by most mutual funds and hedge funds—even if they recognized the competitive advantage it would bring. Having a moat that your competitors can see in broad daylight but never ever cross is just fantastic—and a rarity. So I shamelessly cloned Mr. Buffett’s fee structure. It has been over seven years since Pabrai Funds started and the moat is intact.

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Buffett reinvested virtually all his fees back into the partnerships. Eventually, he was soon the largest investor in the partnerships. This is not true for most mutual funds and hedge funds. Most fund managers take their fees out every year to fund their multiple homes, boats, cars, and jets. Again, the manager’s stake in his own fund is of critical importance to some investors. It creates another sustainable competitive advantage. To me, this was an easy one to clone. If I thought I was better off having someone else invest for me, then I ought not to run a fund—I ought to ask all my investors to invest in the other fund. This moat, too, remains intact.

Private Equity: A Memoir
by Carrie Sun
Published 13 Feb 2024

This, and the regulatory environment resulting from the Dodd-Frank Act, part of which required hedge fund advisers with $150 million or more in AUM in the United States to register with the SEC, made them more expensive to operate. Barriers to entry, like start-up costs, increased. The emphasis for some of the larger funds, which had been on superior performance, might have shifted to gathering and maintaining assets. Suppose you have a $10 billion fund and the typical two-and-twenty fee structure—that is, a 2 percent annual management fee plus a 20 percent annual performance fee. A rough calculation would say that managing the assets for a year with zero return would net you $200 million versus working night and day to try to produce a (pretty decent) return of 10 percent.

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In its first seven years, it produced compounded annual returns of over 40 percent. One year in the aughts, it returned over 90 percent before fees. Though it suffered in the crisis, Carbon recovered by doubling down on what it was good at: tech, stock picking. And more: whereas other marquee hedge funds had headcounts in the hundreds or even thousands, Carbon ran extremely lean, which meant a huge pot of profits ladled out to a tiny number of employees. Weeks ago, I had been introduced to a fund of funds (a fund with a portfolio comprised of other funds as opposed to securities like stocks and bonds). Josh had tasked a development director at a university in Michigan with finding me a job in the state, one that would make me want to pass up Carbon.

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In the late nineties, the funds’ investor base began to change from individuals (who, on the whole, maintained their allocations in hedge funds) to institutions, led by David Swensen, head of Yale’s endowment. Swensen pioneered the endowment model, turning a portfolio invested mostly in marketable securities like stocks and bonds—which convert easily into cash—into a portfolio invested mostly in alternatives like hedge funds, private equity, and real estate—assets that are more illiquid and higher fee in expectation of higher returns. He spun around $1 billion in 1985 into $10 billion by 2000. Encouraged by his performance, others followed suit.

Vassal State
by Angus Hanton
Published 25 Mar 2024

Private equity has contributed to the growth in the obligations of the government’s back-up fund: in 2009 it had total commitments of less than £9 billion, but by 2023 these had grown to more than £32 billion.42 And it is not just the government that takes a hit: if a pension scheme is rescued by the PPF, many of the pensioners get reduced payments. Private equity groups use other people’s capital and charge heavily for their efforts. The traditional model was dubbed ‘2 and 20’, meaning that they took an annual fee of 2 per cent of the funds under management and on top of that they got 20 per cent of any profits. In recent years that means that their total fee has worked out annually at 6 per cent of the funds they control. Although the level of those fees has come under pressure, private equity is still phenomenally profitable – but largely for the owners of the private equity companies themselves. While bosses such as Schwarzman have amassed huge personal fortunes, their investors – who are mostly pension savers – have done much less well.

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One of the many applications of Salesforce’s software is for managing savers’ funds – another industry being shaped by the American model. Until recently, investors entrusted their funds to money managers, who would pick which shares they thought might rise and charge an annual fee whether they succeeded or not, and on average their performance was, well, pretty average. In response, a pioneering organisation, Vanguard Group, of Pennsylvania, proved that most investors will do much better if fees are kept very low and the money is simply invested in ‘tracker funds’ which follow the market. This idea has triumphed, with the result that Vanguard, along with BlackRock (New York) and State Street (Massachusetts), has become a leading firm in the City of London, and by 2023 they were managing worldwide funds of more than $20 trillion.

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While bosses such as Schwarzman have amassed huge personal fortunes, their investors – who are mostly pension savers – have done much less well. According to Oxford professor Ludovic Phalippou, rewards for outside investors in private equity funds are often the same as, or lower than, returns from owning traditional listed shares, mainly because of the high fees.43 ‘Wealth-extracting geniuses’ Financial journalist Nicholas Shaxson argues that ‘collectively, private equity firms add little of value, extract a great deal and have persuaded everyone that because they’re so rich they must be wealth-creating geniuses.

Free Market Missionaries: The Corporate Manipulation of Community Values
by Sharon Beder
Published 30 Sep 2006

More than half its budget goes on marketing and fund raising, including 35–40 per cent of its budget on 118 FREE MARKET MISSIONARIES public relations. All this marketing enables the Foundation to successfully attract mass media coverage for its publications and policy proposals. The Foundation claims that it usually gets 200 or more stories nationwide from each of the position papers it publishes.49 The Foundation produces hundreds of publications every year, including books and a quarterly journal, Policy Review. Its speciality is its ‘backgrounders’ or ‘bulletins’, which are short essays (between 2 and 20 pages) on current issues – ‘brief enough to read in a limousine ride from National Airport to Capitol Hill’.

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However, while many of the FEE’s corporate donors would not want 46 FREE MARKET MISSIONARIES to be seen to be funding the John Birch Society, the FEE was a respectable recipient of their generosity.3 In a 1990 tribute to FEE, John Blundell, president of the influential UK free market think tank, the Institute of Economic Affairs (IEA), said: ‘It is safe to say that had it not been for Leonard [Read] and FEE in the ’40s, ’50s, and ’60s, those who followed and expanded the efforts on behalf of the free society in the ’70s and ’80s would have faced a much, much tougher battle.’4 FEE was one of several organizations formed around this time to promote free market economics.

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Together they worked to foster a ‘belief in the superiority of markets over other ways of organizing economic activity’.4 The meeting was funded in part by the William Volker Fund, which paid the travel expenses of the ten Americans attending the meeting. William Volker had been a Kansas City businessman who became a millionaire by the time he was 43, selling household furnishings. He set up the William Volker Fund in 1932 and placed his nephew and employee, Harold Luhnow, in charge in 1944. Under Luhnow, who was friendly with various free market advocate businessmen – including Jasper Crane of DuPont and B.E. Hutchinson of Chrysler, both trustees for FEE – the fund gave money to a number of conservative free market causes including FEE, for which Luhnow also became a trustee.5 Luhnow used the fund to help free market economists who had been unable to get positions at US universities, including von Mises, whose salary it paid while he was a visiting professor at New York University for many years, and Hayek, whom it helped to get a position at the University of Chicago.

More Money Than God: Hedge Funds and the Making of a New Elite
by Sebastian Mallaby
Published 9 Jun 2010

The number of hedge funds leaped from a bit over one thousand in 1992 to perhaps three thousand the next year, and their fees expanded almost as quickly.6 At the dawn of the industry, A. W. Jones had charged no management fee, asking only for a 20 percent share of the investment profits. The second generation of hedge funds, such as Michael Steinhardt’s, had demanded a 1 percent management fee plus the 20 percent profit share. Now, in the intoxicating boom of the early 1990s, hot new funds demanded “2 and 20.” “Perhaps never before in history have so few made so much money so fast,” an article in Forbes marveled.7 The fast money was not without controversy.

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He called it “absolute return,” and over the next years the term entered the investment lexicon. It was a synonym for hedge funds. The moralist in Swensen had no desire to help hedge-fund managers earn fortunes. But the economist in Swensen was impressed by the design of hedge-fund incentives. He knew that the larger an investment fund, the harder it was for a fund manager to generate returns, so he disliked fees that were tied to the volume of capital a manager amassed, preferring the performance fees that accounted for most hedge-fund revenues. He recognized that performance fees alone can encourage too much risk—hedge-fund managers get a fifth of the upside but pay no equivalent penalty if they blow up—so he sought out hedge-fund managers who had their own savings in their funds and was encouraged to discover many of them.

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Investment-bank compensation creates a larger incentive for managers to shoot for the moon, damaging financial stability when they miss it. And whereas the formula for fees at hedge funds is fixed ahead of time, banks reserve the right to decree the appropriate level each year. The payout can change on the managers’ say-so, and rank-and-file shareholders have no right to be consulted. How do hedge funds compare with mutual funds? On the face of it, hedge funds are scandalously expensive: Whereas mutual funds tend to charge a management fee of about 1 percent, hedge funds tend to demand a management fee of 1 percent to 2 percent plus the performance fee of around 20 percent. But to understand which vehicle is the rip-off, you have to distinguish between alpha (returns due to the fund manager’s skill) and beta (returns due to exposure to a market index).

Cryptoassets: The Innovative Investor's Guide to Bitcoin and Beyond: The Innovative Investor's Guide to Bitcoin and Beyond
by Chris Burniske and Jack Tatar
Published 19 Oct 2017

Becoming a hedge fund manager became all the rage for business-minded students when it was revealed that the top 25 hedge fund managers had earned a total of $22.3 billion in 2007 and $11.6 billion in 2008.8 With numbers like these, the world of hedge funds caught the attention of the media. Investors questioned if these managers had something to do with the crash.9 They also wanted to know what they were doing differently and whether it was something they could do as well. First, let’s understand what we mean by a hedge fund and how they differ among themselves. It’s difficult to lump hedge funds together in one group, as they often have different investment objectives and approaches. Historically, one of the easiest ways to spot hedge funds has been their high fee structure. For example, many hedge funds operate under a 2 and 20 model, or sometimes 3 and 30, where they charge a 2 percent annual management fee and take 20 percent of the profits from a year.

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For example, many hedge funds operate under a 2 and 20 model, or sometimes 3 and 30, where they charge a 2 percent annual management fee and take 20 percent of the profits from a year. Other common characteristics include their exclusivity and general secrecy. Prior to the 2008 financial crisis, investors who took advantage of hedge fund performance and the alternative investments they utilized were typically of ultra-high net worth with sizeable investable assets, given that often the minimum investment was $1 million or more to gain entry. Additionally, investors had to tie up their funds for lengthy periods as part of the agreement with the hedge fund manager. While mutual funds provide a prospectus that outlines exactly the approach and asset classes to be used, hedge funds are often veiled in secrecy.

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In India, the largest receiver of remittances in the world with 12 percent of the global remittance total, a recent partnership between bitcoin exchanges is projected to bring the fee down to 0.5 percent for remittances into the country.10 In Mexico, there’s been a huge surge in volume at the country’s bitcoin exchange, Bitso, where funds can be transferred for a similarly low fee.11 All of these companies are eyeing the tens of billions of dollars the incumbents make from levying fat fees on vulnerable customers. The impact of this major disruption in the remittance market should be recognized by the innovative investor not only because of the threat it creates to a publicly traded company like Western Union (WU) but for the opportunities it provides as well. For example, Bitso secured startup funding through the online investment service bnktothefuture.com, which, as we discussed in Chapter 16, connects investors with cryptoasset startups.12 Business-to-Business Payments and Blockchain Technology Sending money internationally goes beyond citizens, as businesses also transmit large volumes to global business partners.

The Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds
by Maneet Ahuja , Myron Scholes and Mohamed El-Erian
Published 29 May 2012

This leads to the common hedge fund claim that they can change their overall positioning quickly and cost effectively, thus “hedging” their investors’ capital from the vagaries of markets. Third, they can lever their investment footing to a meaningful multiple of their assets under management. This elasticity underpins hedge fund claims of being incredibly flexible when it comes to “scaling” the investment bet commensurate with the depth of their conviction. Finally, they almost always follow a fee structure involving a base component and a performance component, traditionally known as “2 and 20” (a 2 percent fee that investors pay irrespective of performance and 20 percent of the profits above a specified threshold—though these days many hedge funds find themselves under tremendous pressure to lower their fees).

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Because he believed the opportunity to buy out investors was an attractive one, he offered all investors in the fund the opportunity to do so, although few went along. He also waived fees for all of the investors who elected to stay in the fund. Most significantly, he gave every investor in the Target-only fund a credit for any losses incurred that they could use against any future gains in the Pershing Square main funds. This so-called loss carry-forward meant that the fund investors wouldn’t pay any incentive fees on their main fund investment until they recouped the Target-only fund losses. By March 2009, Ackman decided to push for a slate of five candidates, including himself, arguing for a 13-member board.

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When Target’s stock ultimately rose back to more than $50 per share, the investment recovered materially from the lows, although no investors would become whole other than those who put up significant capital into the Target fund at the lows. Despite the losses in the Target fund, however, many investors were very appreciative of how Pershing handled the poor investment outcome, and they remained loyal to the fund. When the Pershing main funds’ investment performed strongly 2009 and 2010, many of the Target fund investors who remained with Pershing recouped their losses through fee waivers. By treating investors fairly, Ackman kept investors happy despite an investment that he deemed “one of the greatest disappointments of my career.”

The Snowball: Warren Buffett and the Business of Life
by Alice Schroeder
Published 1 Sep 2008

He felt that the United States of America was never meant to be a country where people with money were a self-perpetuating “class” who constantly gathered more wealth and power unto themselves. The rich, however, had been getting very rich indeed as the stock market continued its resurgence after 9/11. A dozen new hedge funds seemed to sprout every day. They were cashing in on all the leverage from the low interest rates the Federal Reserve had provided. So many people were raking in stock options and taking fees of two-and-twenty percent of other people’s money in private equity funds, hedge funds, and funds of funds, that billionaires were becoming as common as raccoons around a garbage can. A lot of the quick-bucks wealth of the new economy bothered Buffett because of the way it had been transferred in massive amounts from investors to middlemen without producing anything in return.

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Yet an army of professionals had sprung up who charged everything from modest fees to the soon-to-be-legendary hedge-fund cut of “two-and-twenty”(two percent of assets and twenty percent of returns) for the privilege of managing an investor’s money and trying to predict the future behavior of stocks. Stockbrokers raked their cut from all the individuals who were encouraged by TV shows and magazines to pick the next hot stock and compete with the pros. Every year, the sum of all these people’s labors added up to exactly what the market did (less the fees). Charles Ellis, a consultant to professional money managers, blew the whistle on the market’s pickpockets in 1975 in “Winning the Loser’s Game,” an article that showed that professional money managers failed to beat the market ninety percent of the time.39 Ellis’s work also had disheartening implications for individual investors and the readers of books and attendees of seminars like “Invest Your Way to Millions.”

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Their idea was to mimic Berkshire Hathaway’s stock portfolio and let people buy in smaller units, as if it were a mutual fund. But Berkshire was not a mutual fund; it was a perpetual-motion vacuum cleaner that sucked up businesses and stocks and spit out cash to buy more businesses and stocks. That couldn’t be replicated by buying the stocks it owned. Among other things, you didn’t get Buffett. Moreover, the copycat funds were buying the stocks that Berkshire owned at prices far higher than Berkshire had paid, and charging fat fees to do it. They were cheating investors. Now the cop in Buffett came out. “I don’t want anybody buying Berkshire thinking that they can make a lot of money fast.

The Missing Billionaires: A Guide to Better Financial Decisions
by Victor Haghani and James White
Published 27 Aug 2023

At the inception of LTCM, our investors expected us to invest a high fraction of our wealth in the fund to show that we had “skin the game,” signaling we really believed in what we were doing. By 1997, this was no longer a consideration, and if anything, our investors would have preferred us to have less invested in the fund so that they could invest more. By this time, I felt free to have as much or as little invested in the fund as I wanted. The fund seemed like an incredibly attractive investment. Partners like me weren't required to pay the incentive fee, so returns on my investments in the fund had compounded at over 40% per annum for 4 years, and the realized risk was running at 10%–15% per annum based on the standard deviation of monthly returns.

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This management company asset, like any single stock, would have been a lot riskier than a diversified portfolio of stocks, and it would have had a very high correlation to the performance of the fund.b Table 8.1 Assumptions Needed for Expected Utility Analysis Assumptions Risk‐free rate 5% Expected fund return with no incentive fee 20% Standard deviation of fund return in normal times 15% Annual probability of 90% fund loss 0.5% Management company expected return 15% Standard deviation of management company in normal times 25% Loss in value of management company if fund loses 90% 100% Fraction of total net worth in the management company 50% Victor's personal degree of CRRA risk‐aversion 2 One key assumption would be the probability of a really large loss in the fund, which would have had the knock‐on effect of wiping out the value of the management company.

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The Not‐so‐curious Case of Investor Returns Being Substantially Lower Than Fund Returns Supportive, but indirect, evidence for the notion that return‐chasing behavior hurts investor returns is the finding that mutual fund investors have earned 1.5% to 3% per annum lower returns than the returns of the funds they invested in.5 The effect probably comes from a combination of poor market timing and poor dynamic selection of funds themselves, putting money into funds that are hot and redeeming from those that are not. This is separate from the effect of fees on investor returns, which gets so much coverage in the financial press; rather, it has to do with the timing of investor flows.

The Power Law: Venture Capital and the Making of the New Future
by Sebastian Mallaby
Published 1 Feb 2022

Of course, the riches also flowed to Xu, whose firm had laid its hands on fully two-fifths of JD’s equity. Thanks to this and other hits, Capital Today’s first fund racked up a remarkable return of 40 percent per year after subtracting fees; for every dollar invested, her backers got a payout of more than $10. Not surprisingly, given this springboard, Xu raised a larger fund of $400 million in 2010 and then an even larger long-term fund of $750 million. Chinese venture capital was gathering momentum. In that pivotal year of 2005—the launch year for Founders Fund, Y Combinator, Qiming, and Capital Today—a wiry entrepreneur named Neil Shen flew to Laguna Beach in California.

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BACK TO NOTE REFERENCE 58 The other potential investor was the aerospace giant Northrop Grumman. Konrad, “Move Over, Peter Thiel.” BACK TO NOTE REFERENCE 59 Thiel’s first venture fund, raised in 2005, returned six times capital, net of fees. His second fund, from 2007, returned better than 8x. His third fund, from 2010, had returned 3.8x as of 2019. See Katie Roof, “Founders Fund, a Premier Venture Firm in Transition, Has Outsize Returns,” Wall Street Journal, Feb. 26, 2019. BACK TO NOTE REFERENCE 60 The official capacity of 305 Emerson is eighty-five people.

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See also Dennis, “Reid Dennis: Early Bay Area Venture Capitalists.” BACK TO NOTE REFERENCE 46 Dennis, “Institutional Venture Partners,” 183. BACK TO NOTE REFERENCE 47 According to Dennis, the Group financed about five or six deals per year and between twenty-two and twenty-four in total. Dennis, email to the author, March 6, 2018. The Group was formalized as the Western Association of Small Business Investment Corporations in 1962, and the Western Association of Venture Capitalists in 1969. The Group was also part of the launchpad for Dennis to found Institutional Venture Associates in 1974.

The Future of Money
by Bernard Lietaer
Published 28 Apr 2013

More than 50% of the German, Italian, Finnish and Swedish corporations are now doing the same. The rest of Europe has registered an increase in only' 30% to 50% of the corporations. Dr William Bridges, an expert on employment trends, asks the question: 'What is the percentage of jobs which are performed by temporary labour?' Most people's estimates fall in the range between 2% and 20%. His answer: 'In fact, it is 100%; 85% of us still happen to be in denial.' Economic consequences The International Metalworkers Federation in Geneva forecasts that 'within 30 years, as little as 2 percent of the world's current labour force will be needed to produce all the goods necessary for total demand'.

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Whoever manages that trick can derive an income flow from the process (e.g., the medieval goldsmiths' fees, or, today, the interest on the loan that creates the money). Such income is called 'seigniorage', a word derived from the right of the Lord of the Manor (Seignior in Old French) to impose the use of his currency on his vassals. As the nation-states became the powers-that-be, a deal was struck between the governments and the banking system. The banking system obtained the right to create money as 'legal tender' in exchange for a commitment always to provide whatever funds the government needed. The longest surviving agreement of this kind can be traced back to 1668 with the licence of the 'Bank of the Estates of the Realm' in Sweden (whose name was changed in 1867 to Riksbank as the Swedish central bank is still known).

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Charging interest was prohibited by all three major religions, Judaism, Christianism and Islam. Today, only Islam enforces this rule (hence 'Islamic banking' which is banking where interest charges are replaced with other types of fees). Interest is one of the key ingredients in the Discounted Cash Flow, which provokes discounting of the future. International Monetary Fund (IMF): International organisation based in Washington DC, initially created to administer the Bretton Woods Agreement. The US is the only country with veto power in it. Website: http://www.imf.org/ Investment: Spending money with the objective to improve or augment the productive capacity of a company or project.

Nerds on Wall Street: Math, Machines and Wired Markets
by David J. Leinweber
Published 31 Dec 2008

*This surprising admission came in a dinner speech at the Investment Management Network “Superbowl of Indexing” Conference (December 1996, Palm Springs, California). No performance figures were disclosed. Alpha as Life 91 The basic fee structure in the hedge fund world is “2 and 20.” Managers are paid 2 percent of assets and 20 percent of alpha. Similar arrangements are also used for performance paid to institutional managers, blurring the distinction between these types of buy-side firms. To see how this works, consider a $100 million portfolio, benchmarked against Treasury bills. If the manager produced a return equal to the T-bills, the alpha would be zero, and the manager’s fee would be $2 million, all from the assetbased portion. Unless the firm gave really good parties or had a great story, it would probably be replaced, since the client would end up earning the T-bill rate minus 2 percent, or something like a passbook savings account.

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If the T-bills returned 3 percent that year and the hedge portfolio returned 28 percent, then the manager’s alpha is 25 percent, $25 million on the original investment. Under the 2-and-20 plan the firm would get to keep 20 percent of that, another $5 million on top of the $2 million in asset-based fees. The client keeps $18 million, substantially more than the meager few percent the client would have gotten in Treasuries. A $100 million portfolio is small as hedge funds go. It costs money to do the research or proprietary trading to produce that 25 percent alpha, so by the time all the bills are paid, that $7 million the manager takes is seriously pared down. But when the fund gets larger, the economies of scale kick in in a major way.

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Investment strategies don’t scale to the sky, but it is (approximately) true that the cost to run a $1 billion portfolio is not that much more than for $100 million. In that case, the manager on the 2-and-20 plan takes home $70 million with performance as in the example. On $10 billion, the manager takes home $700 million, which begins to look like serious coin—even on the right side of the tracks in Greenwich, Connecticut. Deliver this kind of performance consistently, 92 Nerds on Wall Str eet and you can raise the rates to 4 percent of assets and 40 percent of alpha, which would pay the $10 billion manager $1.4 billion with the same performance scenario. This is where those billion-dollar paydays for hedge fund managers we read about in Institutional Investor and Parade magazine come from, and why people with what seem like good, solid $5 million annual paychecks at places like Goldman Sachs leave to start their own hedge funds.

Most Likely to Succeed: Preparing Our Kids for the Innovation Era
by Tony Wagner and Ted Dintersmith
Published 17 Aug 2015

Analysis of survey data from employers tells us that the average starting salary for a new college graduate is $45,000,7 and fewer than 40 percent of college graduates even manage to find such jobs.8 According to a January 2014 report from the Federal Bank of New York, 44 percent of recent graduates—between the ages of twenty-two and twenty-seven with a BA or higher—have a job that does not technically demand a bachelor’s degree. What’s far worse is that these grads earn far less than in the past. More than 20 percent of recent college graduates are in low-wage jobs, earning $25,000 a year or less.9 Real Tuition and Fees at a Public, Four-Year College and Average Earnings for Full-Time Workers Aged 25–34 with Bachelor’s Degree Only (Indexed, 2000 = 100) Note: Both tuition and earnings were weighted in 2010 dollars, and tuition and fees were enrollment-weighted. Sources: College Board, U.S.

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Case Study: Future Financial Obligations At the federal, state, local, and private-sector levels, our society has large pools of collective funds in complex vehicles such as state and local pension funds, federal entities (Social Security, Medicare, and our national debt), or corporate pension funds. The aggregate amount of capital in such pools across our country approaches some $50 trillion. A vitriolic controversy rages in our country about the fiscal sustainability of these funds. We have prominent political figures calling them “Ponzi schemes”22 and other political influencers calling them the financial equivalent of the Rock of Gibraltar.23 Analyzing the financial footing of any of these large pools of money, including realistic estimates of future in-flows and out-flows, is a numbers-driven exercise.

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Costly textbooks were few and far between, and every grade in a school would use the same history text, limiting its utility. The World Book Encyclopedia wasn’t published until 1917, more than two decades after the Committee of Ten was formed. Libraries were hardly on the map, although 1893 marked the start of a thirty-year, $1.2 billion initiative funded by Andrew Carnegie to build libraries throughout the country.24 Carnegie, a member of the Committee of Ten, funded the construction of some 1,700 libraries, many in small towns, in what ranks as one of history’s most transformational philanthropic initiatives. History curriculum today remains organized by era and geography. Lower and middle schools cover a year or two of U.S. history, including the fifty states, and a year or two on the school’s home state.

The 100 Best Vacations to Enrich Your Life
by Pam Grout
Published 14 May 2007

Volunteers for Peace is a nonprofit organization that enlists volunteers for United Nations–sanctioned community projects all over the world. At last count, there were about 3,000 programs held in more than a hundred countries. Projects range from historic preservation and archaeology to ecology and social work. You’ll work in what VFP calls a “work camp,” a group of between 2 and 20 international volunteers who come to help a local community with a project on which the community needs help, typically for two or three weeks. At the Sadler’s Ultra Challenge Camp in Alaska, for example, you might drive the wheelchair athletes’ pilot cars, assist them with food and clothing, and learn about disabled athletes.

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Afternoons and evenings offer a wide choice of cultural and social activities, including chamber concerts, guided walks through Toronto’s back alleys, yoga classes, escorted visits to local museums, and theater performances. The program fee for “Toronto Pursuits” is $925 and includes seminars, lunches, and most activities. For a moderate fee, accommodations can be arranged at the University of Toronto’s Sorbara Hall. Fees for the learning vacations range from $1,500 to more than $3,000. The books are sent to you before your departure, and you are strongly encouraged to read them before catching your flight. HOW TO GET IN TOUCH Classical Pursuits, 349 Palmerston Boulevard, Toronto, ON M6G 2N5, 877-633-2555 or 416-892-3580, www.classicalpursuits.com.

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* * * HOW I WROTE OFF MY SUMMER VACATION Since some of the fees you pay for volunteer vacations are used to support research and other noble causes, they may qualify as a charitable contribution. That means the vacation is tax deductible. In fact, if you happen to be in the 28 percent tax bracket, Uncle Sam will foot more than a fourth of the cost of your volunteer vacation. As you may suspect, the IRS isn’t keen on subsidizing fun and games, which is why volunteer organizations often recoil when their volunteer projects are called “tax-deductible vacations.” There’s no question about the deductibility of the portion of the fee that supports the research.

A Mathematician Plays the Stock Market
by John Allen Paulos
Published 1 Jan 2003

Recalling the definition, we first find the squares of the deviations from the mean of 10 percent, or .10. These squares are (.40 - .10)2 and (-.20 - .10)2 or .09 and .09. Since they each occur half the time, the variance is (.50 × .09) + (.50 × .09), which is .09. The square root of this is .3 or 30 percent, which is the standard deviation or volatility of each company’s returns. But what if we don’t choose one or the other to invest in, but split our investment funds and buy half as much of each stock? Then we’re always earning 40 percent from half our investment and losing 20 percent on the other half, and our expected return is still 10 percent.

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If the light bulb needed changing the market would have already done it. Efficient market theorists tend to believe in passive investments such as broad-gauged index funds, which attempt to track a given market index such as the S&P 500. John Bogle, the crusading founder of Vanguard and presumably a believer in efficient markets, was the first to offer such a fund to the general investing public. His Vanguard 500 fund is unmanaged, offers broad diversification and very low fees, and generally beats the more expensive, managed funds. Investing in it does have a cost, however: One must give up the fantasy of a perspicacious gunslinger/investor outwitting the market.

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There are a bewildering variety of diets and market strategies, and with discipline you can lose weight or make money on most of them. You can diet or invest on your own or pay a counselor who charges a fee and offers no guarantee. Whether the diet or strategy is optimal or not is another matter, as is whether the theory behind the diet or strategy makes sense. Does the diet result in faster, more easily sustained weight loss than the conventional counsel of more exercise and a smaller but balanced intake? Does the market strategy make any excess returns, over and above what you would earn with a blind index fund? Unfortunately, most Americans’ waistlines in recent years have been expanding, while their portfolios have been getting slimmer.

Big Mistakes: The Best Investors and Their Worst Investments
by Michael Batnick
Published 21 May 2018

Scholes once described themselves as “Not just a fund. We're a financial‐technology company.”7 The minimum investment at LTCM was $10 million and their management fees were 2 and 25, above the standard industry practice of 2 and 20. The high minimum and above average fees did not deter investors. The smartest minds attracted the smartest and biggest clients, “including David Komansky, head of Merrill Lynch; Donald Marron, chief executive of Paine Webber; and James Cayne, chief executive of Bear Stearns.”8 They also took money from giant institutions like the Bank of Taiwan, the Kuwaiti pension fund, and the Hong Kong Land & Development Authority.

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After years of speaking with Buffett, learning and sharing ideas of his own, in 1962, the same year that he founded a new law firm (Munger, Tolles & Olson, still around today; Charlie left in 1965), he also established what would become an incredibly successful hedge fund, Wheeler, Munger & Company. Munger came out of the gate scalding hot. From 1962 to 1969, before fees, the fund's average annual return was a mind boggling 37.1%.5 This is even more incredible when you think about the environment at the time. Over those eight years, picking stocks was hardly like shooting fish in a barrel. In fact, the S&P 500, including dividends, gained 6.6% over the same time. Over the fund's entire 14‐year existence, Munger averaged 24% returns, compounding at 19.82% annually, well above the indexes, which gained just 5.2% over the same time, including dividends (S&P 500).

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An investment of $1,000 with the great Charlie Munger on January 1, 1973, would have been worth just $467 on January 1, 1975. Munger quickly bounced back – earning 73.2% in 1975 – but not soon enough. He lost a big investor, which left him feeling mentally and emotionally depleted. He decided it was time to liquidate the partnership. Even with the brutal performance from 1973 to 1974, the fund earned 24.3% before fees over its lifetime. It's not just the highfliers that get cut in half. Anything that compounds for a long time must decompound at some point in time. The Dow is up 26, 400% since 1914, but it lost 30% on nine separate occasions. It lost 90% of its value during the Great Depression, and it wouldn't break through the 1929 highs until 1955.

On the Run: Fugitive Life in an American City
by Alice Goffman
Published 30 Apr 2014

In angry moments Anthony complained bitterly that he would never be able to leave Miss Linda’s for his own place, because she continually stole the money he was trying to save from his pockets when he was asleep. . . . The legal issues that Chuck and his friends on 6th Street struggled with seemed immense to me—too numerous and complex to keep straight without copious notes. Between the ages of twenty-two and twenty-seven, Mike spent about three and a half years in jail or prison. Out of the 139 weeks that he was not incarcerated, he spent 87 weeks on probation or parole for five overlapping sentences. He spent 35 weeks with a warrant out for his arrest, and had a total of ten warrants issued on him. He also had at least fifty-one court appearances over this five-year period, forty-seven of which I attended.

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The families and friends of inmates may send money to their loved one’s account via the US mail or via online money transfer companies, such as jpay.com, that charge a fee for the service. The cash a man has in his pockets when taken into custody may also be moved into this account. Because the inmate is not permitted to possess or exchange currency, he or she never sees this money, and can use it only for items offered for sale by the prison. Typically, inmates are permitted to make purchases from their commissary account once a week. Child support and other court fines and fees are deducted automatically. In some jurisdictions, prisons require inmates to purchase their bus ticket home from this account, so the inmate may scramble to raise these funds from friends and family before he or she is granted release.

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Steve’s younger cousin went to the police station and turned himself in on a bench warrant he had been issued ten months earlier for not paying his court fees. The officer who took the report later told me that the judge had offered to release him and put him on a payment plan for the court fees, but he declared that he was never going to pay the money and that they might as well keep him until he worked off the court fees and costs in jail. (The judge had ruled that his fees would be reduced by ten dollars for every day he spent in custody.) Chuck had no warrants pending and wasn’t on probation at the time, so he remained on the block a few weeks after Steve and his cousin got taken into custody.

The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money
by Steven Drobny
Published 18 Mar 2010

A fund running a consistently large net equity long will obviously have a high correlation to beta, so justifying a 2-and-20 fee structure is difficult. On average, hedge funds have somewhat moved away from generating alpha, but this problem has been exacerbated by benchmarking. It is still possible to find managers who generate alpha, but alpha will underperform in a raging bull market, where people with big net long positions are the big performers. Selecting managers based purely on higher returns, without trying to gauge whether those returns are beta or not moves the entire industry closer to beta generation by default. Hedge funds did so poorly in 2008 precisely because they had more beta than anyone thought.

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In conversations with my parents, they still assume I’ve had a good day if the market is up. Stocks versus Hedge Funds In the fall of 2007, Warren Buffett and Protégé Partners, a money management firm that runs funds-of-hedge funds, placed a bet on the following question: Will a representative collection of hedge funds, selected by experts, return more to investors over the next 10 years than the return on the S&P 500? Protégé bet on the performance of five funds-of-hedge funds—specifically, the averaged returns that those vehicles deliver net of all fees, costs, and expenses. Buffett bet on the performance of the Vanguard S&P 500 Admiral Fund. The time frame is January 1, 2008 to December 31, 2017.

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Further, if you are successful, you will have the Harvard compensation problem of portfolio managers making multiples of what the president makes. What is your outlook for the hedge fund business over the next 5 to 10 years? Although we are in the midst of a necessary shakeout in the broader hedge fund industry, the returns for hedge funds as a whole were better than most other investing categories during 2008. And if you picked funds with good track records and good risk management, the returns were substantially better than almost everything else available. The hedge fund industry should become much less homogenous than it has been. The fee structures and the operating models that everyone more or less duplicated will become much more varied.

Young Money: Inside the Hidden World of Wall Street's Post-Crash Recruits
by Kevin Roose
Published 18 Feb 2014

They are the young investment bankers of Wall Street, and they just want some sleep. Chapter Six “IDS,” THE BOUNCER grumbled. Jeremy Miller-Reed and Samson White, two first-year sales and trading analysts at Goldman Sachs, fished into their wallets, pulled out driver’s licenses showing that they were, respectively, twenty-two and twenty-one, and handed them over for inspection. After a once-over, the bouncer nodded, and waved them into the Frying Pan, a floating bar and lounge built into an old ship docked on the west side of Manhattan. The bar served as young Wall Street’s favorite summertime haunt, and all around the boat, fresh-from-college bank analysts were drinking and mingling, their dress shirts still creased from the store packaging.

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Patrick wouldn’t say how much money this strategy has made the group, but he did tell me that they haven’t lost money—which is more than many professionally run hedge funds can say. Despite some minor disagreements, there was no yelling or table pounding at the Black Diamond meeting. In fact, the whole thing felt more like an international relations seminar than a hedge fund meeting. “Why would we run to metals if the economy is improving?” Bryce said at one point, after Patrick suggested investing in platinum to take advantage of low prices. “Does anyone think the economy isn’t improving?” Later in the meeting, the group video-chatted with a hedge fund trader from San Francisco, a Harvard Business School graduate who serves as an informal advisor to the group.

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For many incoming Goldman analysts, who spent their lives acing standardized tests and excelling in varsity sports, the desk scramble represented the first time they ever struggled to measure up. Jeremy had started the scramble with a rotation on Goldman’s prime brokerage desk, a group that provided basic services for hedge funds who held their money at the bank. It was a cold desk whose work amounted to little more than acting as bank tellers to hedge fund managers, and he’d quickly grown bored of it. His second rotation, in equity sales, was slightly better, but still something a trained chimp could do. But his third rotation, in the commodities division, had redeemed the failings of the first two.

Security Analysis
by Benjamin Graham and David Dodd
Published 1 Jan 1962

Similarly, what would Graham and Dodd make of today’s collateralized debt obligations that have been bought, not based on due diligence but on the AAA rubber stamp from a credit rating agency? Or lenders rushing to scoop up “covenant-light,” “pay-in-kind” loans used in 90%-levered capital structures? Institutional appetite for hedge funds and “2-and-20” fees? Investment theses built around ever-rising valuations and continued “global liquidity”? There’s no need to wonder—Security Analysis, timely as ever, has much to say on speculative excess. Yes, we have heard this speech before: The stock market is a voting machine, not a weighing machine.

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The third factor, greed, has always distorted investors’ behavior, but it is especially present in markets today given the proliferation of hedge funds. Investors in these funds keep jumping from fund to fund, trying to latch on to the latest hot manager. The high fees encourage these managers to pursue “get-rich-quick” trading strategies. The more money they make, the more money they attract, and investors have been sold on the promise of unsustainably high returns. A cycle ensues as hedge fund investors quickly move their money from fund to fund, and hedge fund managers try to swing for the fences every month. I once attended the U.S. Open and sat near two hedge fund managers whom I did not know. They were talking shop during the match, and much to my surprise, their discussion focused exclusively on assets under management and fees.

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They had their start in the 1920s, when Ben Graham himself ran one of the first hedge funds. What would Graham and Dodd say about the hedge funds operating in today’s markets? They would likely disapprove of hedge funds that make investments based on macroeconomic assessments or that pursue speculative, short-term strategies. Such funds, by avoiding or even selling undervalued securities to participate in one or another folly, inadvertently create opportunities for value investors. The illiquidity, lack of transparency, gargantuan size, embedded leverage, and hefty fees of some hedge funds would no doubt raise red flags. But Graham and Dodd would probably approve of hedge funds that practice value-oriented investment selection.

Valuation: Measuring and Managing the Value of Companies
by Tim Koller , McKinsey , Company Inc. , Marc Goedhart , David Wessels , Barbara Schwimmer and Franziska Manoury
Published 16 Aug 2015

Under current accounting standards, the actual value of leased assets is typically not disclosed, but there are various methods for estimating the value of leased assets, which we outline later in the chapter. For the purpose of this adjustment example, we assume the value of the leased assets has already been estimated. Reorganizing the financial statements to reflect operating leases Exhibits 20.2 and 20.3 show how to adjust the financial statements to reflect operating leases. On the left side of each exhibit, the financial statements are reorganized 2 To highlight the adjustments for operating leases, we assume that a significant portion of the assets is leased. Although significant leases are common in airlines and retail, most industries use operating leases in moderation. 434 LEASES AND RETIREMENT OBLIGATIONS EXHIBIT 20.2 Leasing Example: NOPLAT Calculation $ million NOPLAT (direct from financial statements) NOPLAT (adjusted for leases) Year 1 Year 2 Year 3 1,000.0 (800.0) 1,150.0 (920.0) 1,265.0 (1,012.0) (106.4) 93.6 (115.4) 114.6 (118.1) 134.9 Operating taxes (23.4) (28.7) NOPLAT 70.2 Reconciliation Net income After-tax interest expense NOPLAT Revenues Operating expenses Rental expense EBITA ROIC (on beginning-of-year capital, %) Year 1 Year 2 Year 3 1,000.0 (800.0) 1,150.0 (920.0) 1,265.0 (1,012.0) EBITA (70.9) 129.1 (76.9) 153.1 (78.8) 174.3 (33.7) Operating taxes (32.3) (38.3) (43.6) 86.0 101.1 NOPLAT 96.8 114.8 130.7 64.9 80.2 95.2 Reconciliation Net income 64.9 80.2 95.2 5.3 5.8 5.9 5.3 5.8 5.9 70.2 86.0 101.1 After-tax lease interest 26.6 28.8 29.5 NOPLAT 96.8 114.8 130.7 9.0 9.6 10.3 19.0 20.0 21.2 Revenues Operating expenses Lease depreciation After-tax interest expense ROIC (on beginning-of-year capital, %) without an adjustment for operating leases; on the right side, the reorganized financial statements reflect adjustments for leases.

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For the purpose of financial analysis and valuation, we group these activities according to the three types of income they generate for a bank: net interest income, fee and commission income, and trading income. “Other income” forms a fourth and generally smaller residual category of income from activities unrelated to the main banking businesses. ECONOMICS OF BANKING 759 Net Interest Income In their traditional role, banks act as intermediaries between parties with funding surpluses and those with deficits. They attract funds in the form of customer deposits and debt to provide funds to customers in the form of loans such as mortgages, credit card loans, and corporate loans.

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The equity cash flow version of the DCF approach is most appropriate for valuing banks, because the operational and financial cash flows of these organizations cannot be separated, given that banks are expected to create value from funding as well as lending operations. Valuing banks remains a delicate task because of the diversity of the business portfolio, the cyclicality of many bank businesses (especially trading and fee-based business), and high leverage. Because of the difference in underlying value drivers, it is best to value a bank by its key parts according to the source of income: interest-generating business, fee and commission business, and trading. To understand the sources of value creation in a bank’s interest-generating business, supplement the equity DCF approach with an economic-spread analysis.

Private Empire: ExxonMobil and American Power
by Steve Coll
Published 30 Apr 2012

Megha Rajagopalan, a 2008 graduate of the University of Maryland who is now studying in China under the Fulbright Scholar Program, worked on global warming, the Exxon Valdez spill, and phthalate regulation; chapters five and twenty-two benefited greatly from her research. Ann O’Hanlon, a former Washington Post reporter who now works at the Justice Department, reported on many subjects, but especially on campaign finance and lobbying; her work particularly supported chapters three, seventeen, twenty-two, and twenty-three. Haley Cohen, a 2011 graduate of Yale University who is now on a university fellowship in Latin America, recontacted many interview subjects, checked facts and interpretations, and added fresh reporting throughout. The book benefited from other supporters and collaborators; the acknowledgments provide an accounting.

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The Auke Bay team increasingly had to cope with the bands of academic scientists (“from back East”) who turned up in Alaska with lucrative contracts from the oil corporation. Initially, ExxonMobil funded forty or fifty researchers to travel to Alaska each summer to work on the subjects that N.O.A.A.’s smaller network of government-funded scientists also explored; by the summer of 2001, the corporate-funded researchers numbered about a dozen. By processes that remained mysterious to the Auke Bay team, but which they chalked up to the ways of a world fueled by money, the studies published with oil corporation funding never seemed to damage ExxonMobil’s legal position that Prince William Sound had fully recovered from the Exxon Valdez spill.

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Even if you tax gasoline and then rebate the money to middle-class and working households, commuters would just be forced to take the rebates and “go out and buy gas with it,” the ExxonMobil executives argued. The nonprofit leaders asked Cohen about the funding he had provided to groups such as the Competitive Enterprise Institute and The Heartland Institute that had so stridently attacked the validity of mainstream climate science. Cohen told them that as part of ExxonMobil’s review of its options on climate policy, the corporation had decided to pull funding from the most controversial groups. The disclosure was the beginning of a quiet campaign to clarify that ExxonMobil had altered some of its public policy funding—without quite admitting that what it had done earlier was wrong or misguided.

How to Speak Money: What the Money People Say--And What It Really Means
by John Lanchester
Published 5 Oct 2014

Hedge funds are more lightly regulated than other types of pooled investment, the idea being that access to them is restricted to people who know what they are doing and can afford to lose their money. They’re expensive, too: a standard fee is “2 and 20,” i.e., 2 percent of the money is charged in fees every year, and also 20 percent of any profit above an agreed benchmark. I wonder how many “hedgies,” stroking their Ferraris while sipping Cristal at the end of the financial year, remember to raise a glass to the Phoenician sea captains. There are no hedges to be seen, not even in the far distance. A hedge is a physical thing; it turned into a metaphor; then into a technique; then the technique was adopted in the world of high finance, and became more and more sophisticated and more and more complicated; then it turned into something that can’t be understood by ordinary use of the ordinary referents of ordinary language.

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It is important to note that Jones referred to his fund as a “Hedged Fund” not a “Hedge Fund” because he believed that being hedged was the most important identifying characteristic. Many “hedge funds” today are unregulated investment partnerships with performance compensation structures, but some of them may not actually be hedged.4 The classic hedge fund technique, as created by Jones, is still in use: funds employ complex mathematical analysis to bet on prices going both up and down in ways that are supposedly guaranteed to produce a positive outcome. This is “long-short,” the textbook hedge fund strategy. But as that enjoyably sniffy note from the Jones company points out, many hedge funds don’t in fact follow classic hedging strategies.

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But as that enjoyably sniffy note from the Jones company points out, many hedge funds don’t in fact follow classic hedging strategies. As it’s used today, the term “hedge fund” means a lightly regulated pool of private capital, almost always doing something exotic—because if it wasn’t exotic, the investors could access the investment strategy much more cheaply somewhere else. There will almost always be a “secret sauce” of some sort, proprietary to the hedge fund; it is usually a complicated set of mathematical techniques. Does that sound straightforward? It shouldn’t. Most hedge funds fail: 90 percent of all the hedge funds that have ever existed have closed or gone broke.

Fed Up!: Success, Excess and Crisis Through the Eyes of a Hedge Fund Macro Trader
by Colin Lancaster
Published 3 May 2021

I feel I know them now and Cramer has had a good call on these markets. He’s a guy I respect. Raised in working class Philly, he worked his way through Harvard. He rose through the business to eventually manage a successful hedge fund. He then retired from the trench and launched a CNBC show aimed at helping folks manage their money. It’s a noble pursuit. And he doesn’t charge them two and twenty for the effort. Let’s see what he has to say. Not good. He sounds concerned. He’s far from bullish. The market opens and every financial asset falls at once. The economy seems to be imploding. A crash is always scary, but this time you have to live it in isolation.

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You’re not allowed to smoke in here.” Simons gave him a quick smirk and a shrug and kept smoking. It was the ultimate power move. There are very few people on planet Earth who could do this. But there are very few people who have posted nearly 40% annualized returns over thirty years, after 5 and 44% fees. Before the fees, his fund delivered an astounding 66.1% annualized return. The combination of quants and QE has changed the markets and been toxic for a lot of investors. Many of the best fundamental guys have taken their balls and gone home. Closed up shop. But that’s the game. Stay relevant or get replaced.

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A three-Sharpe-ratio business looking to grow. The returns were literally too good to be true. It originated in Minneapolis with the Petters scams.3 A guy was pitching one of the funds as an investment opportunity. But the Rabbi was on it and told us to stay away. When the tide went out, it was left lying on the beach. It was exposed as a total fraud, a Ponzi scheme. Everything went to zero. This Los Angeles guy had put all of his friends and family into it, for a small finder’s fee of course. He went into a great depression. He never understood why the promoters had paid him so much money to raise capital when they had such great returns.

I Shall Not Hate
by Izzeldin Abuelaish
Published 15 Jan 2010

Our nephew, Nasser’s son, had been shot in the knees and ankles; his father had not been too sick to come to the border for me—he was too distraught. My nephew was an officer with the National Guard of the Palestinian Authority and he’d been shot by Hamas gunmen in an act of revenge, presumably for taking the side of Fatah. There were many young men between the ages of twenty-two and twenty-four in northern Gaza who were wounded and bleeding. Nasser hoped I could help, but I couldn’t even get to most of them at first. The Palestinian Authority’s security bases had been taken over by Hamas, and for one awful week, from June 13 to June 20, there was full-out civil war. By the time it was over, Hamas had routed the Fatah forces and taken control of the Gaza Strip.

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Here was this truly poor child, wearing clothes that were patched together from rags, standing on the stage at the Jabalia Camp mosque receiving two and a half Egyptian pounds (about one U.S. dollar). That was a fortune in those days, when a state employee earned eight pounds a month. At about that time, my family was participating in a community fund. For a fee of fifty Egyptian piastres, or half an Egyptian pound, we’d get oil, butter, rice and soup at cost. My earnings from the Quran competition would pay the fee for a month. I remember standing in line to fetch the goods for my mother, but when I got to the front and reached into my pocket to pay for the groceries, I discovered to my horror that I didn’t have the money. Had it fallen through a hole in my pocket, which had been re-sewn so many times it wasn’t reliable for holding the coins?

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Then, unless you get turned away, and many do, your papers are stamped and you’re on your way through a series of confusing corridors that challenge anyone with a lot of baggage and leave a sensible person feeling there’s trouble ahead. Which there usually is. Grumpy porters can carry your bags on their luggage carts for part of the way if you’re willing to pay their fee, which changes by the hour, but once out of the terminal, eventually you need to take the bags yourself—no one knows why—over approximately 1.5 kilometres of gravel, rock, dirt and dust that leads to the Gaza side of the border. For equally inexplicable reasons, more porters appear two hundred metres from the finish line and hoist your luggage.

Masters of Scale: Surprising Truths From the World's Most Successful Entrepreneurs
by Reid Hoffman , June Cohen and Deron Triff
Published 14 Oct 2021

Marissa’s first hire was twenty-two-year-old Brian Rakowski, fresh out of college. What project did Marissa choose to ease him in? She gave him…the whole of Gmail. She did likewise with other new hires: “We brought them in and gave them all these huge unfilled jobs. They had to have been the most stressed-out bunch of twenty-two- and twenty-three-year-olds in the world.” Marissa named this trial by fire the Associate Product Manager program. From the beginning, Google’s APM program was founded on the principle of exposing new product managers not just to one product but to many. At the core of the program was a yearly rotation that moved the new product managers between different departments.

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One that can somehow anticipate, and be ready for, and drive the changes that may be years away from happening? If you foolproof your culture, you’ll have a culture of fools It’s easy to forget just how radically Netflix upended the video rental business. Reed co-founded and seed-funded Netflix in 1997, using some of the money he earned when Pure Software was acquired for $750 million that year. The premise was elegantly simple: DVDs by mail. No late fees. No return shipping charges. No getting in your car to drive to the store. Lose a DVD? You get a new one in the mail, no questions asked. Blockbuster tried to follow suit, matching service for service, but they didn’t move quickly enough, and they filed for bankruptcy in 2010.

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If you eat one of these pears, you have to go to this new website called DonorsChoose and propose the project you’ve always wanted to do with your students.’ My colleagues scarfed the eleven pears and then posted the first eleven projects on our site.” Now Charles needed some donors to fund the projects. He ended up funding most of that first batch of projects himself, anonymously (“which I could afford to do,” he says, “because I was living at home with my parents and they weren’t charging me any rent”). To be clear, self-funding your growth definitely does not scale. But this act of generosity was a shrewd initial maneuver. Charles’s colleagues assumed there were donors just hanging out on the site waiting to fulfill teachers’ classroom dreams.

Never Panic Early: An Apollo 13 Astronaut's Journey
by Fred Haise and Bill Moore
Published 4 Apr 2022

Flying the maneuvers was tiring, so Jack Enders and I normally switched out during each flight. A trajectory would involve a dive to attain around 375 knots with a several g pull-up to approximately 30 degrees. As the speed bled off, one would go over the top at 240 knots to recover, in a 30-degree dive to a speed of about 390 knots. Depending on the pilot’s control, between twenty-two and twenty-seven seconds of zero G were attainable. The largest free-floating experiment flown involved liquid hydrogen. It weighed more than 150 pounds due to the heavy outer bombproof casing. An electric hoist was added to the payload bay to redeploy the heavy metal sphere to the center for the next zero-G trajectory.

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That narrowed my options down to the University of Oklahoma, where the Air National Guard (ANG) had an opening at Oklahoma City. The ANG income, coupled with my G.I. Bill funds and affordable school housing, had us financially stable. Since I had lived in Texas, the university administration wanted to charge an out-of-state fee. I argued that since I was a member of the Oklahoma ANG and could be called into action by the Oklahoma governor at any time, the out-of-state fee should be waived. I won the argument, which further improved our financial position. We settled in Norman, Oklahoma. Mary and I were among many other student residents around the same age, living in the eight converted World War II barracks.

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I had so many projects going at the same time, so the last thing I wanted was to run off to Japan, but an invite from Jack was more than an invite. Two weeks later, Jack Herre called to tell me that Senator Proxmire had “zeroed” space station funding in subcommittee. This was subsequently turned around in the full committee, though the NASA space station funding request was reduced by $267 million. Shortly thereafter, Ron Mercer informed me that there was a hiring freeze on for NASA and PSC. The contentious Congressional funding deliberations continued throughout my four years with space station Freedom and always resulted in NASA receiving less than requested. The Washington Post and other national and local periodicals routinely carried stories of the space station budget struggles.

The Relentless Revolution: A History of Capitalism
by Joyce Appleby
Published 22 Dec 2009

A semiconductor, by the way, is not a part-time railroad employee, but an element like silicon that is halfway between a conductor and an insulator. As the price of computer components came down, hobbyists around the country began putting together their own small computers. The cover of Popular Mechanics of January 1975, featuring one of these amateur efforts, caught the attention of Paul Allen and Bill Gates, ages twenty-two and twenty respectively. They joined the lists of computer tyros. Around the same time, Steven Wozniac and Steven Jobs started their Apple company in a garage when they too were in their twenties. Michael Dell went one better, assembling custom-built IBM compatible computers in his University of Texas dorm room!

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A devout Baptist, he recoiled at the hardhearted reputation he had acquired, especially the way Ida Tarbell depicted him in a popular muckraking magazine series. Following the advice of a public relations consultant, Rockefeller increased his giving to Baptist churches and began funding medical schools. Having embarked on a new career as a philanthropist at the age of fifty-seven, Rockefeller sponsored the idea of matching funds, where he would contribute to a project only if others did. He founded the University of Chicago through such a method and then in 1913 set up the Rockefeller Foundation to “promote the well-being of mankind throughout the world.”

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This import substitution program would thwart the West’s exploitation and save precious exchange funds. They also hinted strongly that it was impossible for any undeveloped country to generate enough capital for a takeoff into economic development. Adding a conspiratorial note, some Latin American experts traced the region’s problems to exploitation by the United States operating through the CIA and multinational corporations.37 Further evidence of American malevolence accrued when Milton Friedman’s monetary policies boomeranged when applied in Argentina in 2000. The International Monetary Fund became implicated after encouraging the countries to borrow heavily.

The Ascent of Money: A Financial History of the World
by Niall Ferguson
Published 13 Nov 2007

As John Kay has pointed out, if Warren Buffett had charged investors in Berkshire Hathaway ‘2 and 20’, he would have kept for himself $57 billion of the $62 billion his company has made for its shareholders over the past forty-two years.105 Soros, Griffin and Simons are clearly exceptional fund managers (though surely not more so than Buffett). This explains why their funds, along with other superior performers, have grown enormously over the past decade. Today around 390 funds have assets under management in excess of $1 billion. The top hundred now account for 75 per cent of all hedge fund assets; and the top ten alone manage $324 billion.106 But a quite mediocre conman could make a good deal of money by setting up a hedge fund, taking $100 million off gullible investors and running the simplest possible strategy: 1.

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It seemed like the dream team: two of academia’s hottest quants teaming up with the ex-Salomon superstar plus a former Federal Reserve vice-chairman, David Mullins, another ex-Harvard professor, Eric Rosenfeld, and a bevy of ex-Salomon traders (Victor Haghani, Larry Hilibrand and Hans Hufschmid). The investors LTCM attracted to its fund were mainly big banks, among them the New York investment bank Merrill Lynch and the Swiss private bank Julius Baer. A latecomer to the party was another Swiss bank, UBS.79 The minimum investment was $10 million. As compensation, the partners would take 2 per cent of the assets under management and 25 per cent of the profits (most hedge funds now charge 2 and 20, rather than 2 and 25).80 Investors would be locked in for three years before they could exit. And another Wall Street firm, Bear Stearns, would stand ready to execute whatever trades Long-Term wanted to make.

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And another Wall Street firm, Bear Stearns, would stand ready to execute whatever trades Long-Term wanted to make. In its first two years, the fund managed by LTCM made mega-bucks, posting returns (even after its hefty fees) of 43 and 41 per cent. If you had invested $10 million in Long-Term in March 1994, it would have been worth just over $40 million four years later. By September 1997 the fund’s net capital stood at $6.7 billion. The partners’ stakes had increased by a factor of more than ten. Admittedly, to generate these huge returns on an ever-growing pool of assets under management, Long-Term had to borrow, like George Soros.

Hot: Living Through the Next Fifty Years on Earth
by Mark Hertsgaard
Published 15 Jan 2011

Government subsidies are not inherently evil—we'll need plenty of them as we build our new, low-carbon societies—but they must be spent wisely. What makes energy efficiency vastly superior to nuclear power as a tool against climate change is that it saves energy much more quickly and cheaply than nuclear can produce it. Real-world experience shows that nuclear power, as Lovins writes, "saves between two and twenty times less carbon per dollar, twenty to forty times slower, than investing in efficiency and micro-power." In a world of scarce capital, he adds, investing in nuclear power actually makes climate change worse by diverting resources from better solutions. Lovins enumerated many of those solutions in a book he wrote with the Pentagon called Winning the Oil Endgame, which showed how to eliminate oil consumption by the United States by the 2040s at a cost of $15 per barrel (in 2000 prices).

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One reason is the state government, which in 2008 voted down Bloomberg's proposal for congestion pricing after the New York City Council had approved it. That defeat in turn undermined Bloomberg's proposed expansion of mass transit, which was to be financed in part by congestion fees. The state government had also declined the city's request for a sixfold increase in energy efficiency funding. "Changing the carbon footprint of a city as big as New York is like changing the direction of a supertanker," Aggarwala told me, and individual New Yorkers weren't making the job any easier. " Plasma TVs take three times more power than conventional TVs, and more and more people are buying them," Aggarwala added.

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But the scale of the problem was clearly much greater than assumed. In their rhetoric, rich countries have accepted their obligation to help developing nations adapt to climate change, but in practice they have mocked it. In 2001, a special fund was created within the UNFCCC to fund adaptation by developing countries. Rich nations insisted that donations to this "LDC Fund" (LDC signifies less-developed countries) be voluntary, which doubtless helps explain why so little money has been donated. Since 2001, rich countries have pledged to provide $18 billion but have actually disbursed less than $1 billion, according to an analysis of official data conducted by the Guardian and confirmed by the UN.

Tales of a Female Nomad: Living at Large in the World
by Rita Golden Gelman
Published 21 May 2001

When I find out about the honor several months later, I feel both proud and sad. I would have liked to have shared that moment with my son, and I know I was missed. Years later, when Jan, Mitch, and I talk about the fact that I was a very peripheral part of their lives for many years, I hear for the first time how much they missed a traditional mom. They were twenty-two and twenty-three when I began my travels. My mothering years were over. My kids were adults and they didn’t need me any more, I thought. They saw it differently. They missed not being able to talk to me and share what was going on in their lives. In the early years of my travels, I wrote letters frequently, and I spent as least two weeks every year with each of them.

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I also want a phone for personal reasons. My mother is fragile and I want to be in closer touch. I volunteer to pay the astronomical connection fee of five hundred dollars. The monthly fee is also high; but if the brochure brings just one guest a month, the fee would be paid. Since Tu Man is making the decisions these days (Tu Biang has yielded her authority to him), I sit with him and explain my proposal. He thinks about it and decides that the monthly fee is too much. He rejects the phone plan. As he tells me his decision, I feel myself tighten up. My breathing quickens. How can he do this to his mother, to me?

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I can’t wait to revisit the islands, connect with the animals, swim in the warm, tropical waters. While I am still in the U.S., I buy a portable computer, a tiny printer, and a ton of sunblock #15. Two weeks before I leave, I remember one of the subjects frequently discussed in the “backpacker network”: the tyranny of customs people. They levy arbitrary taxes and fees at will, and they have been known to “hold” and “disappear” electronic gadgets. My computer and printer are sure to be attractive to the guys behind the glass, so I decide to visit the press officer at the Ecuadorian Embassy in Washington, D.C. People like books about their countries. I’m hoping someone in the embassy will give me a letter that will move me through customs with no hassles.

1494: How a Family Feud in Medieval Spain Divided the World in Half
by Stephen R. Bown
Published 15 Feb 2011

After the remaining four ships sailed south for about another one hundred miles they entered a broad inlet leading west. It was a prophetic day on November 1, 1521, when the two lead ships returned to the flagship to announce their discovery of a deep inlet that had no fresh water: they had found the long-sought strait. Estrecho de Todos los Santos (All Saints Channel) was a treacherous labyrinth between two and twenty miles wide, prone to erratic tides and gusting and unpredictable winds. The serpentine channel winds through brooding mists and snow-covered mountains for 375 miles. It is studded with islands and jagged coasts containing numerous false channels. Great glaciers flow into the sea, and in spring, the tundra-like grass is dotted with wildflowers.

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João II’s scholars, it should be pointed out, were also in the service of the Portuguese crown and not merely a collection of disinterested specialists. The king had no problem with spending state finances to fund voyages that were within their papal monopoly. But why should the Portuguese crown sponsor a voyage that would compete with those already underway, particularly when any new trade route with the Indies would not fall within its established, papal-affirmed monopoly in Africa and would therefore be open to competition or require further diplomatic entanglements Columbus, of course, wanted not only royal consent to his voyage but also complete state funding of the venture. Essentially he wanted to reap the rewards of a private enterprise while being entirely bankrolled by the state.

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Essentially he wanted to reap the rewards of a private enterprise while being entirely bankrolled by the state. Privately funded voyages were quite commonly given royal sanction but at no cost to the crown, while explorers such as Diogo Cão and Bartolomeu Dias were essentially employees of the state and received no private payback for their activities, however dangerous and glorious they might be. Columbus wanted the best of both options: to have the government fund his risky venture but to reap the great reward should it succeed. To a man like João II, who had just broken the power of what he considered the excessive, even treasonous, independence of his aristocracy, and who had ruthlessly centralized authority in the crown, this proposal, which would give so much power, authority and wealth to another individual—a foreigner and an upstart, no less—was sure to be an uphill struggle.

Under the Loving Care of the Fatherly Leader: North Korea and the Kim Dynasty
by Bradley K. Martin
Published 14 Oct 2004

Up until about 1985, most people were that way But toward the end of the ’80s people started having doubts about the socialist ideal, and about whether we could really beat South Korea in war. The difference is that the new younger generation are doubters, not fanatics. That earlier younger generation of the late ’70s—those people have now become family men, mainly interested in stability.” Ko said people tended to develop doubts between the ages of twenty-two and twenty-nine. The challenge for people who harbored doubts was to keep their lips zipped. Regarding Kim Jong-il, “the only thing they can talk about is the fact he is the son of Kim Il-sung,” Ko said. “They don’t dare discuss whom he married, who his half-brother is, the fact that he’s short—any of these could send them to prison.

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One further note: I learned that the practice of KOIS, when arranging for foreign reporters to meet defectors, was to provide each interviewee a per diem “transportation fee” of 100,000 won, the equivalent of something under $100. Although such modest compensation of interviewees for their trouble was accepted as normal in the East Asian context, to put money and interviewing together always raises a caution flag in American journalistic ethics. I was not in a position to change the system, but I did undertake payment of the fees out of my pocket (in envelopes that I personally handed to the defectors when the interviews were over) in order to avoid having the South Korean government subsidize my research.

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From Kang Myong-do’s testimony, compiled by Tae Won-ki in a twelve-part series in the Seoul daily JoongAng Ilbo, starting April 12, 1995. 8. “The monthly tuition fee at Sungsil Middle School at the time was two won. To earn two won my mother went to the River Sunhwa and collected shellfish to sell. My grandfather grew melons, my grandmother young radishes, and even my uncle who was only 15 years old made straw sandals to earn money to help his elder brother with his school fees. My father worked after school until dusk in a workshop run by the school to earn money. Then he would read books for hours in the school library before returning home late at night” (Kim, With the Century, vol. 1, p. 9). 9.

I Think You'll Find It's a Bit More Complicated Than That
by Ben Goldacre
Published 22 Oct 2014

The Commons Committee on Science and Technology is taking evidence on ‘scientific developments relating to the Abortion Act 1967’. Scientific and medical expert bodies giving evidence say that survival in births below the twenty-fourth week of pregnancy has not significantly improved since the 1990s, when it was only 10–20 per cent. But one expert, a Professor of Neonatal Medicine, says survival at twenty-two and twenty-three weeks has improved. In fact, he says survival rates in this group can be phenomenally high: 42 per cent of children born at twenty-three weeks at some top specialist centres. He has been quoted widely: in the Independent and the Telegraph, on Channel 4 and Newsnight, by Tory MPs, and so on.

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Epicure contains all of the data for every premature birth in England over the course of a year: one snapshot was taken in 1995, and one in 2006. Overall, it shows a modest improvement in survival for births at twenty-four weeks, but no significant improvement in the 10–20 per cent rate for births at twenty-two and twenty-three weeks. For the next bit, you need to remember one simple piece of primary school maths. In the figure 3/20, 3 is the numerator and 20 is the denominator. If you have three survivors for every twenty births, then 15 per cent survive. For Epicure, the numerator is survival to discharge from hospital, and the denominator is all births where there is a sign of life, carefully defined.

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It makes a series of five assertions about outcomes, though not one of these is referenced to any single paper or study, anywhere at all. I contacted the Department of Health, which ferreted out the sources especially for me. It turned out there was just one, a document from the King’s Fund. It’s not a peer-reviewed academic journal article, but the King’s Fund is pretty good, in my view. If you read this document, once again, as with other reviews of the literature, it finds that the results of GP fundholding were mixed: some things got better, some things got worse. So, the Minister has cherry-picked only the good findings, from only one report, while ignoring the peer-reviewed literature.

The Woman Who Smashed Codes: A True Story of Love, Spies, and the Unlikely Heroine Who Outwitted America's Enemies
by Jason Fagone
Published 25 Sep 2017

Queene Elizabeth is my true mother and I am the lawfull heire to the throne. Finde the cypher storie my bookes containe. It tells great secrets, every one of which, if imparted openly, would forfeit my life. —F. Bacon. Francis of Verulam is author of all the plays heretofore published by Marlowe, Greene, Peele, Shakespeare, and of the two and twenty now put out for the first time. Some are alter’d to continue this history. Francis St. Alban, descended from the mighty heroes of Troy, loving and revering these noble ancestors, hid in his writings Homer’s Iliad and Odyssey (in cipher), with the Aeneid of the noble Virgil, prince of Latin poets, inscribing the letters to Elizabeth. . . .

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Some evenings, when it was warm, Joe Mauborgne visited with his cello, and the three of them opened the windows and played together, Elizebeth on piano and William on violin, pedestrians stopping on the sidewalk outside to listen, not knowing that the musicians inside were three of the most experienced cryptologists in the country—almost the only experienced cryptologists. The world of American cryptology was still tiny. There were only three codebreaking units in government, with fewer than fifty employees among them. The largest and best-funded unit, with two dozen people, was run by the former army lieutenant Herbert Yardley. After the war he had won funding from the State Department to launch a codebreaking bureau in New York City, in a four-story town house off Lexington Avenue. He considered it a modern version of the cabinets noirs of old Europe, the secret rooms in post offices where clandestine agents melted the wax seals of letters—an American black chamber.

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“Women, plead with your sons and brothers and sweethearts.” The captain said that anyone who spoke of peace should be shot as a traitor. At the end of the speech, a boy from Elgin stood and walked to the recruiting tent. The crowd cheered, and more boys stood and followed him. A bit later, Fabyan invited the guests to tour his model trenches for a fee of twenty-five cents per person, to be donated to the Red Cross. He raised more than three hundred and fifty dollars. Men in bowler hats and women holding parasols stood at the edge of the trenches, peering down. Children ventured inside and played in the mud. William did not volunteer for the army that day, but he was starting to think about it, partly out of guilt—he was a healthy male in wartime—but also out of concern for himself and Elizebeth, their future together.

First Friends: The Powerful, Unsung (And Unelected) People Who Shaped Our Presidents
by Gary Ginsberg
Published 14 Sep 2021

As this letter bore witness, for both men—but particularly for Lincoln—that agonizing experience had enriched and deepened their bond, and Lincoln now wished to aid Speed just as Speed had aided him. How much of Speed’s new struggle arose from witnessing Lincoln’s own a year earlier is uncertain; but what is clear is how Lincoln and Speed, now at the ages of thirty-two and twenty-seven respectively, were finding it difficult to commit to marriage, in all likelihood because each man harbored fears about whether he would be able to consummate a marital bond. In five letters that he wrote to Speed in January and February of 1842—“the most intimately personal letters that Lincoln ever wrote,” according to Donald—he continued to offer quiet encouragement to his friend about the upcoming marriage.

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In light of the effort it demanded, Hawthorne now had one expectation: “Pierce owes me something.” Hawthorne got what he was hoping for (and thought owed) in the spring of 1853, when Pierce appointed him US consul in Liverpool, England. The moment echoed what had happened nearly a decade earlier, when Pierce had used his connections to pull Hawthorne out of financial ruin. Funded by fees on heavy American trade through Liverpool, this foreign service position was considered the most lucrative at the time, second in prestige only to the embassy in London. Though it required few duties and provided a steady income for Hawthorne to focus on his writing, he still insisted that the job fell short of his economic needs: “A man might be comfortable with this in a New England village, but not, I assure you, as the representative of America in the greatest commercial city in England.”

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“As a matter of fact, I told B-B-Bebe, uh, basically, be sure that people… who have contributed money over the contributing years are, uh, favored and so forth in general.” The existence of this secret fund was reconfirmed for Watergate investigators by Lawrence Higby, Haldeman’s top aide, who testified under oath that Haldeman had told him that “the president indicated that Mr. Rebozo did have some funds that could be made available to Mr. Haldeman and… Mr. Ehrlichman for the purpose of assisting in a legal defense.” The Senate Watergate Committee’s final report concluded that Rebozo’s secret fund amounted to about $400,000. As Rebozo was setting up his slush fund, he was also appearing under subpoena before the Senate Watergate Committee.

Networks, Crowds, and Markets: Reasoning About a Highly Connected World
by David Easley and Jon Kleinberg
Published 15 Nov 2010

THE SMALL-WORLD PHENOMENON phase j has to fail to come an end i − 1 times in a row, and so the probability that phase j runs for at least i steps is at most 2 i−1 1 − . 3 log n Now we conclude by just using the formula for the expected value of a random variable: E [Xj] = 1 · Pr [Xj = 1] + 2 · Pr [Xj = 2] + 3 · Pr [Xj = 3] + · · · (20.2) There is a useful alternate way to write this: notice that in the expression Pr [Xj ≥ 1] + Pr [Xj ≥ 2] + Pr [Xj ≥ 3] + · · · (20.3) the quantity Pr [Xj = 1] is accounted for once (in the first term only), the quantity Pr [Xj = 2] is accounted for twice (in the first two terms only), and so forth. Therefore the expressions in (20.2) and (20.3) are the same thing, and so we have E [Xj] = Pr [Xj ≥ 1] + Pr [Xj ≥ 2] + Pr [Xj ≥ 3] + · · · (20.4) Now, we’ve just argued above that 2 i−1 Pr [Xj ≥ i] ≤ 1 − , 3 log n and so 2 2 2 2 3 E [Xj] ≤ 1 + 1 − + 1 − + 1 − + · · · 3 log n 3 log n 3 log n 2 The right-hand side is a geometric sum with multiplier 1 − , and so it converges 3 log n to 1 3 = log n. 1 − 1 − 2 2 3 log n Thus we have 3 E [Xj] ≤ log n. 2 And now we’re done.

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(c) The seller now decides to charge an entry fee of 1. Any bidder who wants to participate in the auction must pay this fee to the seller before bidding begins and, in fact, this fee is imposed before the each bidder knows his or her own value for the object. The bidders know only the distribution of values and that anyone who pays the fee will be allowed to participate in a second price auction for the object. This adds a new first stage to the game in which bidders decide simultaneously whether to pay the fee and enter the auction, or to not pay the fee and stay out of the auction. This first stage is then followed by a second stage in which anyone who pays the fee participates in the auction.

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For example, if the order book is as depicted in Figure 11.1(a), and a market order to buy 200 shares arrives then both sellers on the book sell at their ask prices. The buyer will buy 100 shares at $5.00 and 100 shares at $5.50. We can think of this order as “walking up the book,” since executing it exposes multiple orders at different prices. Large mutual funds such as Fidelity or Vanguard, and other institutional traders such as banks, pension funds, insurance companies and hedge funds, buy and sell a very large number of shares each day. They don’t really want to trade many small lots of shares with retail traders and, as in our 200-share example, walk up or down the book. They also don’t want to submit a single large limit order to the market, as then other market participants 322 CHAPTER 11.

A Splendid Exchange: How Trade Shaped the World
by William J. Bernstein
Published 5 May 2009

On the road for approximately eight years and accustomed to traveling in style (which in that era meant a train of pack mules, luxurious portable furniture and tents, and a small army of slaves and women), he was on the brink of exhausting his family funds. When word reached him of the opportunities at the Delhi court, he heeded the call. Along the way, Battuta passed through the lower Indus Valley, revered by Muslims as the first part of the subcontinent to receive Islam in the eighth century. While he was en route, Hindu bandits attacked his party. He casually noted: The inhabitants of India are in general infidels [Hindus]; some of them live under the protection of the Mohammedans, and reside either in the villages or cities: others, however, infest the mountains and rob by highways. I happened to be of a party of two and twenty men, when a number of Hindus, consisting of two horsemen and eighty foot, made an attack upon us.

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Even though Portugal was more efficient than England in producing both wine and wool, Ricardo argued that it was better for Portugal to concentrate on what it did best-wine, which it needed only eighty workers to produce-and exchange the wine it did not consume for cloth made in England, rather than make its own cloth.M But Ricardo's conclusions proved too opaque for his contemporary audience, and even today, the law of comparative advantage is often misunderstood.65 A more cogent example will suffice. Imagine for a moment a famous attorney whose services are so highly desired that his hourly fee is $1,000. Further imagine that he is also very skilled at woodworking-so proficient that he is twice as productive as the average carpenter. Remodeling a kitchen, for example, which might take a carpenter two hundred hours would take our talented attorney only one hundred. Since the average carpenter earns $25 per hour, our attorney's woodworking skills are worth $50 per hour in the marketplace.

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The newly discovered oil reserves of the Caspian area flow through the straits, and the possibility of an accidental spill has caused the Turks to push the limits of the powers granted to them by the Montreux Convention, forbidding, for example, night transits by large tankers. In 2001, Turkey announced plans to impose significant fees on tankers, although such levies are at least technically a violation of both the Montreux Convention and international law. With luck, these issues will be resolved diplomatically. More serious is the possibility of terrorism, from either Al Qaeda or Kurdish insurgents. Scientists have estimated that the detonation of a large liquid natural gas tanker in the Bosphorus would wreak havoc far exceeding that of a Richter 8.0 earthquake.5 Farther east, oil bound for Japan, Korea, and China passes through the Strait of Malacca, which is plagued by pirates, the terrorist group Jamal Islamiya, and disputes over high dredging costs among the three nations bordering its shores: Malaysia, Indonesia, and Singapore.

Alex's Adventures in Numberland
by Alex Bellos
Published 3 Apr 2011

Dowker and Lloyd concluded that while general arithmetic performance was more or less equal between Welsh-and English-speakers, the Welsh-speakers did demonstrate better mathematical skills in specific areas – such as reading, comparing and manipulating two-digit numbers. German is even more irregular than English. In German, twenty-one is einundzwanzig, or one-and-twenty, twenty-two is zweiundzwanzig, or two-and-twenty, and this continues with the unit value preceding the tens value all the way up to 99. This means that when a German says a number over 100, the digits are not pronounced in a consecutive order: three hundred and forty-five is dreihundertfünfundvierzig, or three-hundred-five-and-forty, which lists the numbers in the higgledy-piggledy form 3-5-4.

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His follow-up book, Beat the Market, helped transform securities markets. In the early 1970s he, together with a business partner, started the first ‘market neutral’ derivatives hedge fund, meaning that it avoided any market risk. Since then, Thorp has developed more and more mathematically sophisticated financial products, which has made him extremely rich (for a maths professor, anyway). Although he used to run a well-known hedge fund, he now runs a family office in which he invests only his own money. I met Thorp in September 2008. We were sitting in his office in a high-rise tower in Newport Beach, which looks out over the Pacific Ocean.

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If you are ever tempted, for example, by a company that claims it can predict the sex of your baby, you are about to fall victim to one of the oldest scams in the book. Imagine I set up a company, which I’ll call BabyPredictor, that announces a scientific formula for predicting whether a baby will be a boy or a girl. BabyPredictor charges mothers a set fee for the prediction. Because of a formidable confidence in its formula, and the philanthropic generosity of its CEO, me, the company also offers a total refund if the prediction turns out to be wrong. Buying the prediction sounds like a good deal – since either BabyPredictor is correct, or it is wrong and you can get your money back.

How Bad Are Bananas?: The Carbon Footprint of Everything
by Mike Berners-Lee
Published 12 May 2010

So when you see a number like “2.5 kg (5.5 lbs.) CO2e” on an item such as a burger, bear in mind that it is a best estimate. What it really means is something like “best estimate of 2.5 kg (5.5 lbs.) CO2e, probably between 1.5 and 4 kg (3 and 8 lbs.) CO2e and almost certainly between 1 and 10 kg (2 and 20 lbs.).” That is the nature of all carbon footprints. Don’t let anyone tell you otherwise. Some of the numbers you’ll see are even flakier still. This generally happens when I’m trying to bring the beginnings of a sense of scale to important questions that are almost impossible to quantify. Sometimes my calculations and assumptions are highly debatable, but I’ve included them because I think that just going through the thought process can be a useful reflection on something that matters.

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If only email were taxed. Just a cent per message would surely kill all spam instantly. The funds could go to tackling world poverty, say. The world’s carbon footprint would go down by 20 million tons even if genuine users didn’t change their habits at all. The average user would be saved a couple of minutes of their time every day, and there would be a $170 billion annual fund made available. If one cent turned out to be enough to push us into a more disciplined email culture—with perhaps half the emails sent—the anti-poverty fund would be cut in half, but a good few minutes per day would be liberated in many people’s lives, and the carbon savings would be around 70 million tons CO2e—that’s nearly 10 percent of all of Canada’s emissions.

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> Slowing down from 70 miles per hour to 60 miles per hour on the highway Variable, but typically cost neutral even when the value of the driver’s time is included. No investment costs (see Driving 1 mile). > Pay farmers to keep their forests via the Amazon Fund or similar $4.5 per ton, plus biodiversity benefits (see Deforestation). > Funding family planning in the developing world $6 per ton according to the Optimum Population Trust (see Having a child). > Upgrading attic insulation to 270 mm (10 inches) where 50 mm (2 inches) currently exists $7.5 per ton. This figure is the total cost, which is shared between government and homeowner

The God Species: Saving the Planet in the Age of Humans
by Mark Lynas
Published 3 Oct 2011

This date also marks the beginning of the large-scale production of other atmospheric pollutants and the planetwide destabilization of nutrient cycles that also characterize this new anthropogenic geological era. Take population. When humans invented agriculture, some 10,000 years ago, the global human population was somewhere between 2 and 20 million.3 There were still more baboons than people on the planet. By the time of the birth of Jesus, the globe supported perhaps 300 million of us. By 1500, that population had increased to about 500 million—still a relatively slow growth rate. A global total of 700 million was reached in 1730.

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The airline industry, for example, could do the same, with a small fee per passenger or flight going to a technology fund that will find ways to decarbonize the industry and so reduce its damage to the atmosphere. Galiana and Green also suggest that this carbon price should rise gradually over time, sending a forward price signal to the energy markets. Another option is to remove the trading elements from cap and trade schemes like the European Emissions Trading Scheme, shifting the system into a simple auction of carbon credits with the proceeds allocated to an independently administered energy RD&D trust fund. So far the evidence from Europe is that its flagship carbon-trading scheme has done little or nothing to reduce emissions, while allowing the big energy corporations to pocket billions in windfall profits because pliable politicians handed them carbon credits for free rather than auctioning them.80 Never mind the “polluter pays” principle: In this case the polluter got paid.

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A version of this idea has been put at the international level by the World Future Council, which suggests using the International Monetary Fund’s “special drawing rights” facility to create a $100-billion-a-year Green Fund for investment in low-carbon infrastructure.77 Much of this money could go to developing countries, particularly those in the poorest category of “least developed.” Many of these countries would be much better off eschewing expensive fossil fuel imports in favor of using their indigenous renewables, but lack both the funding and the capacity to manage energy policy properly. In case there is a danger of some of this money getting into the wrong hands, Jasper Sky proposes a system where the projects would be backed by promissory notes issued by the IMF rather than actual cash—which would only be paid out to developers once a project was properly up and running.

The End of Doom: Environmental Renewal in the Twenty-First Century
by Ronald Bailey
Published 20 Jul 2015

Most climate researchers believe that some additional warming is inevitable, so people will have to engage in both activities. The IPCC reports offer cost estimates for both adaptation and mitigation. The 2014 Adaptation report reckons, assuming that the world takes no steps to deal with climate change, that “global annual economic losses for additional temperature increases of around 2°C are between 0.2 and 2.0 percent of income.” The report adds, “Losses are more likely than not to be greater, rather than smaller, than this range.” In a 2010 Proceedings of the National Academy of Sciences article, Yale economist William Nordhaus assumed that humanity does nothing to cut greenhouse gas emissions. Nordhaus uses an integrated assessment model that combines the scientific and socioeconomic aspects of climate change to assess policy options for climate change control.

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“Bioengineered foods have been consumed”: Action of the AMA House of Delegates 2012 Annual Meeting: Council on Science and Public Health Report 2 Recommendations Adopted as Amended. hahaha.typepad.com/files/ama-on-bioengineered-foods.pdf. “no scientific evidence”: European Commission, “Commission Publishes Compendium of Results of EU-Funded Research on Genetically Modified Crops,” December 9, 2010. europa.eu/rapid/press-release_IP-10-1688_en.htm?locale=en; and European Commission, A Decade of EU-Funded GMO Research, December 2010. ec.europa.eu/research/biosociety/pdf/a_decade_of-eu-funded_gmo_research.pdf. “no adverse health effects”: National Research Council, Safety of Genetically Engineered Foods: Approaches to Assessing Unintended Health Effects. Washington, DC: National Academies Press, 2004 www.nap.edu/catalog.php?

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At that time, Mexico could not feed itself and was importing half of its wheat supplies. Backed by $100,000 in annual funding from the foundation, Borlaug and his colleagues succeeded brilliantly in boosting the productivity of poor Mexican farmers. They did this by breeding new, highly productive dwarf wheat varieties that enabled Mexico to become self-sufficient in grains by 1956. By 1965, Mexican wheat yields had risen 400 percent over their levels in 1950. In 1952, the Rockefeller Foundation began funding a similar effort to boost the productivity of poor farmers in India. In the mid-1960s, India was importing grains to avert looming famines.

Entangled Life: How Fungi Make Our Worlds, Change Our Minds & Shape Our Futures
by Merlin Sheldrake
Published 11 May 2020

Some organisms—like most animals—find food in the world and put it inside their bodies, where it is digested and absorbed. Fungi have a different strategy. They digest the world where it is and then absorb it into their bodies. Their hyphae are long and branched, and only a single cell thick—between two and twenty micrometers in diameter, more than five times thinner than an average human hair. The more of their surroundings that hyphae can touch, the more they can consume. The difference between animals and fungi is simple: Animals put food in their bodies, whereas fungi put their bodies in the food. However, the world is unpredictable.

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Spores are found in clouds and influence the weather by triggering the formation of the water droplets that form rain and the ice crystals that form snow, sleet, and hail. Spores Some fungi, like the yeasts that ferment sugar into alcohol and cause bread to rise, consist of single cells that multiply by budding into two. However, most fungi form networks of many cells known as hyphae (pronounced HY fee): fine tubular structures that branch, fuse, and tangle into the anarchic filigree of mycelium. Mycelium describes the most common of fungal habits, better thought of not as a thing but as a process: an exploratory, irregular tendency. Water and nutrients flow through ecosystems within mycelial networks.

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The list goes on: The literature is awash with examples of the benefits that mycorrhizal relationships provide to plants. However, putting this knowledge into practice is not always straightforward. For one thing, mycorrhizal associations don’t always increase crop yields. In some cases, they can even reduce them. Katie Field is one of the many researchers being funded to develop mycorrhizal solutions to agricultural problems. “The whole relationship is much more plastic and affected by the environment than we thought,” she told me. “A lot of the time the fungi aren’t helping the crops take up nutrients. The results are super variable. It totally depends on the type of fungus, the type of plant, and the environment in which it’s growing.”

QI: The Book of General Ignorance - The Noticeably Stouter Edition
by Lloyd, John and Mitchinson, John
Published 7 Oct 2010

On the American one-dollar bill there are thirteen levels of the truncated pyramid, thirteen stripes on the flag, thirteen letters in the motto e pluribus unum, thirteen stars above the Eagle, thirteen leaves on the olive branch, thirteen arrows held by the Eagle and thirteen bars on the shield. How many Wise Men visited Jesus? Somewhere between two and twenty. It has generally been assumed that there were three of them because they brought three gifts, but it is quite possible that there were four and one forgot to get a present until after the shops were closed and had to come in on the frankincense. In St Matthew’s Gospel the number of wise men is never mentioned.

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However, for the best part of 2,000 years there was one ‘sport’ which earned the ‘royal’ tag above all others: cockfighting. Until it was banned in 1835 it was Britain’s national sport, with every village boasting at least one cockpit. Everyone from royalty to schoolboys joined in: there were even cockpits in the palace of Westminster and on Downing Street. On Shrove Tuesday, for a fee of one ‘cock-penny’, boys could bring their gamecocks to school and fight them for the day. No one knows how or when the Old English Game fowl (OEG) arrived in Britain. There is a legend that Phoenician tradesmen introduced them but it seems likely they were carried here by Iron Age tribes migrating from the East.

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In 2001, the Foreign Secretary, Robin Cook declared that: ‘Chicken tikka masala is now a true British national dish, not only because it is the most popular, but because it is a perfect illustration of the way Britain absorbs and adapts external influences.’ One in seven curries sold in the UK are CTMs – 23 million portions each year. Many of the schools and charities in the city of Sylhet in Bangladesh are funded by profits from the British chicken tikka masala boom. There are now 8,000 Indian restaurants in Britain, turning over in excess of £2 billion and employing 70,000 workers. JO Can I just say … I had a curry once on the Isle of Man, where I was doing a gig. It was served with a cup of tea and some bread and butter.

Foundation's Edge
by Isaac Asimov
Published 28 Dec 2010

To be sure, that might have meant I simply lacked the fictional talents to make up something reasonable, but I did my best.” “I’m sure you did, Janov. And what did your model tell you about Earth?” “A number of things of varying degrees of likelihood. A kind of profile. For instance, about 90 percent of the inhabited planets in the Galaxy have rotation periods of between twenty-two and twenty-six Galactic Standard Hours. Well—” Trevize cut in. “I hope you didn’t pay any attention to that, Janov. There’s no mystery there. For a planet to be habitable, you don’t want it to rotate so quickly that air circulation patterns produce impossibly stormy conditions or so slowly that temperature variation patterns are extreme.

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Trevize was jolted out of his carefully assumed mood of light irony. “Fully armed?” “Unarmed but otherwise fully equipped. Wherever you go, you will be citizens of the Foundation and there will always be a consul to whom you can turn, so you will not require arms. You will be able to draw on funds at need. —Not unlimited funds, I might add.” “You are generous.” “I know that, Councilman. But, Councilman, understand me. You are helping Professor Pelorat search for Earth. Whatever you think you are searching for, you are searching for Earth. All whom you meet must understand that. And always remember that the Far Star is not armed.”

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“We see,” said Trevize, “and I’ll try to control my sense of humor. Where do I land on the surface?” “It doesn’t matter. You just head downward and you’ll land at the right place. Gaia will see to that.” Pelorat said, “And will you stay with us, Bliss, and see that we are treated well?” “I suppose I can do that. Let’s see now, the usual fee for my services—I mean that kind of services—can be entered on my balance-card.” “And the other kind of services?” Bliss giggled. “You’re a nice old man.” Pelorat winced. 3. BLISS REACTED TO THE SWOOP DOWN TO GAIA with a naïve excitement. She said, “There’s no feeling of acceleration.” “It’s a gravitic drive,” said Pelorat.

Countdown to Zero Day: Stuxnet and the Launch of the World's First Digital Weapon
by Kim Zetter
Published 11 Nov 2014

But news from Iran is often unreliable, since it generally comes from state-affiliated publications with an agenda. Over the years Iran has accused many people of being spies for the Mossad, often with little evidence to support the claim. 23 Stuxnet 0.5 expected its target, for example, to have between two and twenty-five auxiliary valves and between three and thirty pressure transducers for measuring the gas pressure at each stage of the cascade. 24 Together, various systems constantly monitor the flow of electricity to the centrifuges, their speed and vibration, as well as the gas pressure and temperature, and the temperature of water used to heat or cool them. 25 The IAEA inspectors visited Natanz about twenty-four times a year.

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The nation’s chief cyberwarrior, NSA’s General Alexander, acknowledged this trend to a Senate committee in 2013. “We believe it is only a matter of time before the sort of sophisticated tools developed by well-funded state actors find their way to groups or even individuals who in their zeal to make some political statement do not know or do not care about the collateral damage they inflict on bystanders and critical infrastructure,” he said.37 Alexander was referring to the well-funded tools that countries like China create to attack the United States, but no one on the committee asked him about the contributions his own agency was making to the pool of tools and techniques that criminal hackers and hacktivists would adopt.

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The CAs are supposed to verify that an entity requesting a certificate has the authority to do so—to prevent someone other than Microsoft from obtaining a code-signing certificate in Microsoft’s name, for example—and to ensure that if someone applies for a signing certificate for a company they claim is theirs, it’s a real company producing real code. Some certificate authorities don’t do due diligence, however, and certificates are sometimes issued to malicious actors. There are also companies that, for a fee, will use their key and certificate to sign code for others. Hackers have used these companies in the past to sign their malware. 12 In September 2012, this is exactly what happened to Adobe. The software giant, which distributes the popular Adobe Reader and Flash Player programs, announced that attackers had breached its code-signing server to sign two malicious files with an Adobe certificate.

The Perfect Mile: Three Athletes, One Goal, and Less Than Four Minutes to Achieve It
by Neal Bascomb and Kingfisher Editors
Published 13 Apr 2004

He dashed to the telephone booth near the concrete stadium stands, put in a penny coin, and dialed the letters T-I-M. The phone rang dully before a disembodied voice came onto the line, tonelessly reading, “And on the third stroke the time will be two-thirty-two and ten seconds—bip — bip — bip—and on the third stroke the time will be two-thirty-two and twenty seconds—bip — bip — bip....” Norris checked his stopwatch: it was accurate. After McWhirter returned and told the others the result, they agreed that Bannister was certain of a very good show in Helsinki. They dared not predict a gold medal, but they knew that Bannister considered a three-minute three-quarter-mile the measure of top racing shape.

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Of course, the rewards for being a top-flight runner seem to mitigate the sacrifices involved in becoming one. Allan Webb, the first American to break Jim Ryun’s high school mile record, dropped out of the University of Michigan after his freshman year to earn six figures a year in sponsorship deals. El Guerrouj socks away more than a million dollars a year in appearance fees, sponsorships, and prize money. Beyond a desire to be the best, today’s runners have many such commercial reasons to claim the fastest mile in the world. But the steady encroachment of commerce into modern athletics over the years has taken some of the romance out of the mile record. There was more honor in pursuing it for no other reward than knowing one had pushed through the boundary of what was possible.

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But mostly it was an intangible quality that people noticed, a feeling that Landy possessed a reservoir of calm, uncompromising will. In conversation with him one immediately had the sense that he would be a rock in the storm, and that a friendship with him would endure. Although Landy had been last on the list to make the Australian team, an honor that earned him a chance to compete but not the funds to make the trip, he had done very well in the six weeks since leaving Melbourne. In London he had placed second in the British AAA Championship mile race—a surprise to himself and everybody else in White City Stadium. He followed that race with meets in Belfast, Glasgow, Middlesborough, and another in London.

Command and Control: Nuclear Weapons, the Damascus Accident, and the Illusion ofSafety
by Eric Schlosser
Published 16 Sep 2013

Indeed, if all the land-based missiles in the United States were destroyed, its submarine-based missiles could still hit the Soviet Union with 3,500 equivalent megatons—almost ten times the explosive force that the Kennedy administration had once thought sufficient to annihilate Soviet society. For these calculations, see Jerome Wiesner, “Russian and American Capabilities,” Atlantic Monthly, July 1982. somewhere between two and twenty million Americans: According to a study conducted in 1979 for the Senate Committee on Foreign Relations, a Soviet attack on missile silos and submarine bases in the United States would kill between two and twenty million people within a month. The wide range of potential fatalities was due to the unpredictability of fallout patterns, which would be largely determined by the wind, rain, and other weather conditions at the time of the attack.

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The General Dynamics Corporation lobbied aggressively for Atlas; the Martin Company, for Titan; Boeing, for Minuteman; Douglas Aircraft, for Thor; Chrysler, for Jupiter; and Lockheed, for Polaris. President Eisenhower planned to fund two or three of these missile programs and cancel the rest, based on their merits and the nation’s strategic needs. Amid Democratic accusations of a missile gap, Eisenhower agreed to fund all six. The Sputnik launches also complicated America’s relationship with its NATO allies. The Soviet Union appeared to have gained a technological advantage, and the United States no longer seemed invincible.

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Although the Air Force could recall him to duty in the future, Kennedy’s military career was essentially over. He moved back to Maine, sued Martin Marietta for $7.5 million, and settled out of court for a much smaller sum. Greg Devlin also left the Air Force within days of receiving the Airman’s Medal. His term of enlistment was over. And his lawsuit was settled out of court, as well. After attorney fees, court costs, and other charges were deducted, Devlin got a check for $6,400. • • • THE ACCIDENTS AT GRAND FORKS and Damascus had occurred during the same week, and Bob Peurifoy hoped that they would prompt a serious interest in weapon safety at the Pentagon. He traveled to Washington, D.C., and briefed a group of Air Force officials on the design flaws that could detonate a Mark 28 hydrogen bomb during a fire—and the need to retrofit the bombs with new safety mechanisms.

Dataclysm: Who We Are (When We Think No One's Looking)
by Christian Rudder
Published 8 Sep 2014

This graph—and it’s practically not even a graph, just a table with a couple columns—makes a statement as stark as its own negative space. A woman’s at her best when she’s in her very early twenties. Period. And really my plot doesn’t show that strongly enough. The four highest-rated female ages are twenty, twenty-one, twenty-two, and twenty-three for every group of guys but one. You can see the general pattern below, where I’ve overlaid shading for the top two quartiles (that is, top half) of ratings. I’ve also added some female ages as numbers in black on the bottom horizontal to help you navigate: Again, the geometry speaks: the male pattern runs much deeper than just a preference for twenty-year-olds.

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The first time someone did it in front of me, I was just blown away, not only at how little the software needed to get the song right (it can often work through walls or above the din of a bar), but at how fast it worked. It was the closest thing I’d seen to magic, at least until I came to know a certain able necromancer who, at a whim, could summon fees and add them to my goddamn kitchen renovation. But anyway, as I later found out, Shazam relies on an incredible principle: that almost any piece of music can be identified by the up/down pattern in the melody—you can ignore everything else: key, rhythm, lyrics, arrangement … To know the song, you just need a map of the notes’ rise and fall.

A Captain's Duty: Somali Pirates, Navy SEALs, and Dangerous Days at Sea
by Richard Phillips and Stephan Talty
Published 5 Apr 2010

But with his Charles Manson eyes, he would turn out to be one of the more sadistic of the pirates. And there was the other Tall Guy, who never made much of an impression on me. There was no question who was in charge—the first pirate on-board, the Leader, gave the orders and the others obeyed them. The three older pirates were probably between twenty-two and twenty-eight. Young Guy was no older than twenty-two, I would say. Between them, they had two AKs and several bandoliers of bullets. They also had what looked like a 9mm pistol, with a rope or lanyard hanging from the butt, and as I looked at it, I thought I saw a U.S. Navy insignia on the gun. What the hell were they doing with a navy sidearm?

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Copyright Front matter map of Somalia reprinted with permission from Britannica Concise Encyclopedia, © 2001 by Encyclopedia Britannica, Inc. Special thanks to DCL for the use of Somali Pirate Takedown: The Real Story, courtesy Discovery Channel and Military Channel. A CAPTAIN’S DUTY. Copyright © 2010 Richard Phillips. All rights reserved under International and Pan-American Copyright Conventions. By payment of the required fees, you have been granted the non-exclusive, non-transferable right to access and read the text of this e-book on-screen. No part of this text may be reproduced, transmitted, down-loaded, decompiled, reverse engineered, or stored in or introduced into any information storage and retrieval system, in any form or by any means, whether electronic or mechanical, now known or hereinafter invented, without the express written permission of Hyperion e-books.

Exercised: The Science of Physical Activity, Rest and Health
by Daniel Lieberman
Published 2 Sep 2020

Neanderthals were thus shorter but heavier than most humans today. If Neanderthals had similar percentages of body fat as Inuit hunter-gatherers from the Arctic, then they must have been extremely muscular. According to the anthropologist Steven Churchill, Neanderthal males and females averaged a total of thirty-two and twenty-seven kilograms of muscle, respectively, suggesting their muscles were 10 to 15 percent larger, hence stronger.30 Another reason to suspect that Neanderthals and other so-called archaic humans from the Ice Age were more muscular than people today is their robust bones. In general, the more we load our bones, especially when we are young, the thicker they become.31 However, the most intriguing evidence comes from their skulls.

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Instead, everyone just sat down by an enormous bonfire and drank from gourds of homemade corn beer. On the surface, that rarájipari was the antithesis of Ironman. It was a totally uncommercial, simple community event, part of an ancient tradition that probably dates back thousands of years.2 There was no timing, no entry fee, and no one wore any special gear. But in other respects, much about the rarájipari was familiar. Although there were no trophies or prizes for the winners, the race was a serious competition, and the winning team amassed a small fortune thanks to all the betting. Instead of Gatorade, there was pinole.

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How much do humans live to old age so they can be active grandparents helping younger generations, or how much does their hard work cause them to live long lives in the first place? Is human longevity a result of physical activity or an adaptation to stay physically active? In addition, how did our hunter-gatherer ancestors deal with the inevitable selective shadow when they could no longer hunt and gather? Some countries today have nursing homes, pensions, and government-funded health care to take care of senior citizens. Although elderly hunter-gatherers are afforded great respect, those who can’t walk long distances, dig tubers, collect honey, and schlep stuff home presumably become burdens when food is limited. It follows that if humans were selected to live long after we stopped having babies, we were probably not selected to live those years in a state of chronic disability.

Multitool Linux: Practical Uses for Open Source Software
by Michael Schwarz , Jeremy Anderson and Peter Curtis
Published 7 May 2002

Values allowed for class are: · auto · cls2 · c2.0 · data (This is the same as using the -D option) The default class is auto, which mgetty will attempt to query the modem for its capabilities. The cls2 and c2.0 select between the "class 2 fax" and "class 2.0 fax" protocols (don't ask me whose bright idea it was to have "2" and "2.0" be different instead of, say, "2" and "2.1"). I would recommend sticking with auto unless you have problems. -I fax id Use the string fax id as the fax station ID. In the United States it is unlawful to send a fax without certain identifying information. This information must include at least the business or person's name and the fax's telephone number.

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However, RAW or WAV files are still far better for editing and filtering audio clips. Depending on your software philosophy, there may also be another problem with MP3s. The MP3 encoding algorithm is patented by the Fraunhofer Group, which requires anyone who builds an MP3 encoder (but not a player) to pay a license fee. Despite this situation, when MP3s became the "next big thing," many encoders appeared, some under dubious circumstances. The resultant wide access to free encoders helped propel MP3s to the popularity they enjoy today. In addition, in their latest release of Windows, XP, Microsoft has de-emphasized the ability to create MP3s in favor of Windows Media Format.

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Festival can be obtained as a RedHat or Debian package, and can be downloaded directly from the University of Edinburgh: http://www.cstr.ed.ac.uk/projects/festival/ Festival provides several pronunication and phoneme dictionaries, and additional voices are available from other sources at no cost or for a small fee. The basic package includes: · voice_rab_diphone: A British English male speaker. The accent is linguistically known as RP, which would be most familiar to nonlinguists as the "voice of the BBC." · voice_don_diphone: Another British English male speaker, which sounds better than rab. · voice_ked_diphone: An American English male speaker

Market Risk Analysis, Quantitative Methods in Finance
by Carol Alexander
Published 2 Jan 2007

Each eigenvalue has infinitely many eigenvectors. Any two eigenvectors belonging to the same eigenvalue lie on the same line through the origin. That is, they are linearly dependent. For instance, if 1 2 is an eigenvector for a certain eigenvalue then so also are 2 4 and 1/2 1  and −1 −2 and 20 40 and so on. That is, if w is an eigenvector of A then so is kw, for any real number k. There is only a unique line in two-dimensional space or, more generally a unique plane in n-dimensional space that is invariant under the matrix transformation. We usually take a representative normalized eigenvector.

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In the above example we assumed the target return was fixed. But in most cases the performance of a fund is measured against a benchmark that is itself a random variable. In this case the normality assumption greatly facilities calculations, as illustrated in the next example. Example I.3.7: Normal probabilities for active returns The annual returns on a fund and its benchmark are assumed to be normally distributed with a correlation of 0.75. The fund and the benchmark have expected annual returns of 10% and 8% respectively, but the fund return X has a greater volatility. The volatility of the fund’s return is 25% whereas that of the benchmark return Y is only 15%.

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One reason for the lack of rigorous quantitative analysis amongst asset managers is that, traditionally, managers were restricted to investing in cash equities or bonds, which are relatively simple to analyse compared with swaps, options and other derivatives. Also regulators have set few barriers to entry. Almost anyone can set up an asset management company or hedge fund, irrespective of their quantitative background, and risk-based capital requirements are not imposed. Instead the risks are borne by the investors, not the asset manager or hedge fund. The duty of the fund manager is to be able to describe the risks to their investors accurately. Fund managers have been sued for not doing this properly. But a legal threat has less impact on good practice than the global regulatory rules that are imposed on banks, and this is why risk management in banking has developed faster than it has in asset management.

The Story of Work: A New History of Humankind
by Jan Lucassen
Published 26 Jul 2021

In 1980, the number of clerical, service and production workers per manager (that is, administrative and managerial workers) varied from between five and ten in the US, the UK, Canada and Australia, between twelve and nineteen in Scandinavia (except Sweden), Austria, Belgium, France and Japan, and between as much as twenty-two and twenty-eight in some other European countries. These variations in ‘span of control’ cannot be related directly to variations in piece and time work, as can be demonstrated by the cases of neighbouring Norway and Sweden, where close to 60 per cent of all hours worked in industry were on piece rates.

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The best organized were the journeymen hatters and journeymen cloth shearers.110 Like the guilds of masters, they collected contributions from members, so-called boxes, on a regular basis, which were used not only for social assistance but also for strike funds. Their organizational ability was strengthened by the fact that, in large parts of Europe, journeymen were obliged to gain experience elsewhere, via the tramping system.111 In Germany, they were called Wanderfögel, in France compagnons, and in the British Isles they were travelling brothers. As a result, they were definitely worldly-wise. They were also perfectly capable of organizing themselves. It is not surprising, then, that the hatters’ assistants of the southern Netherlands did not think that their local strike funds were enough and organized a national network of interconnected common boxes that, in turn, were affiliated with similar organizations, in particular in France.

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Guilds with compulsory membership were well suited in this regard. Trade unions, too, although legally unable to compel workers to join, emulated this model with success – in the rich countries, until the welfare state took over most or all of these functions.75 To a lesser degree, corporate funds, set up by management, and commercial or doctors funds could become competitors. Mutual organizations in particular offer a useful alternative for private loans, which often left poor people without collateral dependent on creditors and, in extreme cases, in lifelong bondage. Already documented for the Roman Empire and for the medieval and early-modern guilds, mutual benefit societies spread quickly with the expansion of wage labour.

The Secret World: A History of Intelligence
by Christopher Andrew
Published 27 Jun 2018

All that changed with the foundation of ID25, whose intelligence was of particular importance to the Admiralty Convoy Section, founded in June 1917 to provide escorts and organize ‘evasive routing’ to steer convoys away from the U-boats: ‘For the first time one could see the latest information as to enemy submarines side by side with the track of a convoy, and as the Commodore’s ship was always equipped with wireless, it was possible to at once divert a convoy from a dangerous area.’ As convoy losses fell, U-boat losses rose. In each of the first two quarters of 1917 ten U-boats were sunk; in the third and fourth quarters sinkings jumped to twenty-two and twenty-one, thanks in large part to the use of mines, depth charges and hydrophones (acoustic underwater listening devices).2 At the very moment when Germany was losing the Battle of the Atlantic, it was winning the war on the Eastern Front, conquering more territory than in any previous war in European history.

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In his first State of the Union message to Congress on 8 January 1790, he requested a ‘competent fund’ to finance intelligence operations. Congress responded six months later with an Act setting up the Contingent Fund of Foreign Intercourse, better known as the Secret Service Fund (‘for spies, if the gentleman so pleases’, as was later acknowledged in the Senate). For the first year the fund was $40,000. By the third year it had risen to over $1 million, about 12 per cent of the federal budget – a far higher proportion than the massive intelligence expenditure of the late twentieth century. The fund was used for a great variety of purposes, not all strictly related to intelligence, ranging from bribing foreign officials to ransoming American hostages in Algiers.

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Père Joseph had written in 1634: ‘It is important to see if one can make use of the discontents of the Catalans and the Portuguese.’ French funds were probably channelled to conspirators in Lisbon before their ultimately successful coup d’état against Spanish rule in 1640. In an attempt to diminish his own responsibility for the loss of Portugal, Olivares somewhat exaggerated the success of French secret operations. France, he told Philip IV, ‘has stripped Your Majesty of entire kingdoms in Spain by resorting to hideous treachery.’ The French agent most likely to have transmitted the funds to the Portuguese conspirators was Alfonso (or Alphonse) Lopez, a Jewish diamond merchant from Aragon who had settled in Paris in 1610 and had close links with the Portuguese Jewish community.

This Time We Went Too Far
by Norman G. Finkelstein
Published 1 Jan 2010

In Rafah, which fell to the IDF on 1–2 November, Israeli troops killed between forty-eight and one hundred refugees and several local residents, and wounded another sixty-one during a massive screening operation on 12 November, in which they sought to identify former Egyptian and Palestinian soldiers and Fedayeen hiding among the local population.... Another sixty-six Palestinians, probably Fedayeen, were executed in a number of other incidents during screening operations in the Gaza Strip between 2 and 20 November.... The United Nations estimated that, all told, Israeli troops killed between 447 and 550 Arab civilians in the first three weeks of the occupation of the Strip.4 In March 1957 Israel was forced to withdraw from Gaza after U.S. President Dwight D. Eisenhower applied heav y diplomatic pressure and threatened economic sanctions.

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Human Rights Watch, “Israel: End Ban on Human Rights Monitors” (Jerusalem: 22 February 2009); Human Rights Watch, White Flag Deaths, p. 7. 18. State of Israel, Operation in Gaza, para. 288. 19. Barak Ravid, “Group that Exposed ‘IDF Crimes’ in Gaza Slams Israel Bid to Choke Off Its Funds,” Haaretz (26 July 2009); Barak Ravid, “Israel Targets U.K. Funding of Group that Exposed ‘IDF Crimes’ in Gaza,” Haaretz (29 July 2009); Barak Ravid, “Israel Asks Spain to Stop Funding Group that Reported ‘IDF Crimes’ in Gaza,” Haaretz (2 August 2009). 20. Amos Harel, “Analysis: Can Israel Dismiss Its Own Troops’ Stories from Gaza?,” Haaretz (19 March 2009). 21. Amira Hass, “Time to Believe Gaza War Crimes Allegations,” Haaretz (24 March 2009). 22.

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In its official brief Israel reassuringly alleged that “Israel is an open and democratic society which fully respects the freedom of speech.... Information on possible misconduct of soldiers reaches the IDF authorities in various ways.”18 But after publication of the critical IDF testimonies the Israeli foreign ministry called on European governments that funded Breaking the Silence to terminate their support.19 Apart from official denials that carried little credibility—what would induce the soldiers to lie?20—the reaction to these IDF testimonies oscillated between shock and minimization.21 Like the film character Captain Louis Renault, who was “shocked, shocked!”

One Day in September
by Simon Reeve

A group calling itself “The Seventh Suicide Squad,” which came under the broad leadership of Salameh and Black September, was given the task of avenging the Beirut deaths with an attack at Athens airport on travellers to Israel. On August 5, 1973, Tallal Khaled Kaddourah and Shafik Hussein el Arida, Palestinians aged twenty-two and twenty-one, respectively, produced submachine guns and grenades in the departure lounge at Athens airport and began blazing away at what they thought were Jewish passengers leaving Greece for Israel. The two terrorists actually opened fire on passengers waiting to board a TWA flight to New York. There was carnage as they sprayed bullets indiscriminately.

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No part of this book may be reproduced in any manner without the express written consent of the publisher, except in the case of brief excerpts in critical reviews or articles. All inquiries should be addressed to Arcade Publishing, 307 West 36th Street, 11th Floor, New York, NY 10018. Arcade Publishing books may be purchased in bulk at special discounts for sales promotion, corporate gifts, fund-raising, or educational purposes. Special editions can also be created to specifications. For details, contact the Special Sales Department, Arcade Publishing, 307 West 36th Street, 11th Floor, New York, NY 10018 or info@skyhorsepublishing.com. Arcade Publishing® is a registered trademark of Skyhorse Publishing, Inc.®, a Delaware corporation.

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However, it took time for Arafat and other Palestinians to realize they would be fighting a solitary war. King Farouk of Egypt sent guerrillas (who used the name fedayeen) into Israel on raiding missions after 1949; Gamal Abdul Nasser increased Egyptian support for the raids when he took power; and the Syrians were also actively funding guerrilla operations against the Israeli state. But these raids were hardly likely to drive the Israelis into the sea. Cattle were killed, crops were damaged, and Israeli settlers were murdered. But by the mid-1950s Arafat and other Palestinian activists had realized the guerrilla operations of Egypt and Syria were self-serving — aimed not at the creation of a Palestinian state, but at the preservation of the regional status quo.

On Thermonuclear War
by Herman Kahn
Published 16 Jul 2007

Then we can estimate that an attack with about 1,000 MT of fission products could suspend agriculture in the United States for 50 years or so. However, if we are willing to envisage relaxing the peacetime standards to the point that the incidence of cancer begins to change average life expectancy by a significant amount, then we have a problem when there is between 2 and 20 kilotons of fission products per square mile. It would be very difficult to contaminate large areas to this level, for now between 2,000 and 20,000 megatons of fission products would be required to contaminate an area of about a million square miles—without the factor of 75 used in the previous calculation.

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Any payoff to the corporate beneficiaries would have to come from the wealth that survived the war, whether owned by the government or private parties. It should be the purpose of the corporation to spend its funds to increase the wealth that survives the war, and I suspect that it would be almost (but not completely) irrelevant to the corporation whether this wealth were private or public. It would also be undesirable for WDEC to use most of its funds to pay for a major portion of the cost of a personnel shelter program. Yet, it would certainly be reasonable for it to expend a portion of its funds for the survival of its customers. Probably the corporation should spend no money in the personnel protection field except where it can do so with a great deal of leverage.

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In presenting the results of such a study it would be very important not to make the mistake of saying that the study indicated that the force should be reduced to 12 wings. All that the study really indicated would be that better Command and Control is so desirable that even if the Air Force finds it necessary to reduce the number of B-52's to get the funds for this additional Command and Control, it is still worth doing. In actual practice it is quite likely that the Air Force or the Executive Office will prefer to get the funds by cutting another program rather than the authorized number of wings. I have found in practice that very few analysts or their clients really understand this point. It is that the fixed budget study does not usually attack the problem of where to get the money but only shows some restricted "trades" that may or may not be directly applicable to policy.

Gaza: An Inquest Into Its Martyrdom
by Norman Finkelstein
Published 9 Jan 2018

In Rafah, which fell to the IDF on 1–2 November, Israeli troops killed between forty-eight and one hundred refugees and several local residents, and wounded another sixty-one during a massive screening operation on 12 November, in which they sought to identify former Egyptian and Palestinian soldiers and Fedayeen hiding among the local population. . . . Another sixty-six Palestinians, probably Fedayeen, were executed in a number of other incidents during screening operations in the Gaza Strip between 2 and 20 November. . . . The United Nations estimated that, all told, Israeli troops killed between 447 and 550 Arab civilians in the first three weeks of the occupation of the Strip.3 In March 1957, Israel was forced to withdraw from Gaza after US president Dwight Eisenhower exerted heavy diplomatic pressure and threatened economic sanctions.

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Human Rights Watch, “Israel: End ban on human rights monitors” (22 February 2009); Human Rights Watch, White Flag Deaths, p. 7. 35. State of Israel, Operation in Gaza, para. 288. 36. Barak Ravid, “Group That Exposed ‘IDF Crimes’ in Gaza Slams Israel Bid to Choke Off Its Funds,” Haaretz (26 July 2009); Barak Ravid, “Israel Targets UK Funding of Group That Exposed ‘IDF Crimes’ in Gaza,” Haaretz (29 July 2009); Barak Ravid, “Israel Asks Spain to Stop Funding Group That Reported ‘IDF Crimes’ in Gaza,” Haaretz (2 August 2009). 37. Amos Harel, “Can Israel Dismiss Its Own Troops’ Stories from Gaza?,” Haaretz (19 March 2009). 38. Amira Hass, “Time to Believe Gaza War Crimes Allegations,” Haaretz (24 March 2009). 39.

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“We are going to dedicate time and manpower to combating these groups,” the director of policy planning in the Israeli prime minister’s office declared.137 “For the first time,” the director of HRW’s Middle East division rued, “the Israeli government is taking an active role in the smearing of human rights groups.”138 These groups and one of their benefactors (New Israel Fund) came under virulent attack in Israel for allegedly providing the data used by the Report to blacken Israel’s name. A Knesset subcommittee was established to “examine the sources of funding” of Israel-based human rights groups,139 and a succession of Knesset bills proposed, respectively, to outlaw NGOs that provided legally incriminating information to foreign bodies, and to compel members of Israeli NGOs to declare their foreign funders at all public functions.140 An Israel Democracy Institute poll found that “half the general public agree with the statement that ‘Human and civil rights organizations, like the Association for Civil Rights in Israel and B’Tselem, cause harm to the state,’” while a Tel Aviv University poll found that nearly 60 percent of respondents agreed that human rights organizations exposing immoral conduct by Israel should not be “allowed to operate freely.”141 Faced with these unsettling headwinds, Israeli human rights groups noticeably trimmed their sails.

Roving Mars: Spirit, Opportunity, and the Exploration of the Red Planet
by Steven Squyres
Published 2 Aug 2005

The gyros sensed the tilt, and the computer used the DIMES-sensed horizontal velocity and the gyro-sensed tilt together to figure out what was going on, firing one TIRS motor to kick us back in the other direction. Our horizontal velocity at touchdown was ten meters a second. Without TIRS and DIMES, though, we would have whacked into the southern wall of Bonneville with a horizontal velocity between twenty-two and twenty-five meters a second, which is something like fifty miles an hour. Whether or not we could have survived a hit like that is a matter of conjecture. SPIRIT SOL 17 The IDD is on Adirondack, and we’re starting to collect data. Meanwhile, we’ve converged on a long-range plan. Once we’ve taken a good first look at the rocks right around the lander, we’re going to head off to Bonneville.

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Instead, it was a tool of propaganda, broadcasting a beeping tone that could be picked up almost anywhere on the globe with a simple radio set. Sputnik’s communist beep-beep-beep was heard across the United States, conjuring visions of Soviet spacecraft flying at will over the country, ready to drop bombs like cannonballs from the heavens. The American reaction to Sputnik was an outpouring of funds that led to the birth of NASA, Apollo and everything we know as the space program of today. I sent in my RSVP. The Americans who were invited to the symposium were an oddly assorted lot of former astronauts, aerospace engineers, business executives and space scientists. Our hosts flew us from Washington to Moscow on a lumbering Ilyushin jet that was the Soviet answer to the 747.

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I’d see them at meetings, or just on the sidewalk at JPL, and I’d go out of my way to avoid talking to them, or even coming face-to-face. This was a fight, and I had to stay focused on winning it. We could be friends again after it was over. The AO came out, and it was a disaster. The budget augmentation from Congress hadn’t been all that NASA and JPL had hoped for, and the total funding for the payload was a paltry $17 million—barely more than half what we had planned to spend for the payload on our Athena Discovery mission. Getting this thing into the bag was going to be painful. The sampling scoop from the old Athena Discovery proposal was the first thing to go. After that went the Raman, which was our most expensive instrument.

A Manual for Writers of Research Papers, Theses, and Dissertations, Eighth Edition: Chicago Style for Students and Researchers
by Kate L. Turabian
Published 14 Apr 2007

Use a hyphen if the compound consists of coordinated nouns that could be joined with and or by. northeast a street running north-south southwest east-southeast winds Compounds that describe family relationships vary in whether they are closed up or hyphenated. When in doubt, consult your dictionary. (For the plural and possessive forms of in-law compounds, see 20.1.2 and 20.2.2, respectively.) grandfather stepdaughter great-grandmother son-in-law Some familiar phrases are always hyphenated. stick-in-the-mud jack-of-all-trades COMPOUNDS INCLUDING PROPER NOUNS. Leave open most compounds that include proper nouns, including names of ethnic groups. Adjective before noun African American culture French Canadian explorer Middle Eastern geography State Department employees Korean War veterans Noun, or adjective after noun an African American has written the explorer was French Canadian the geography of the Middle East employed by the State Department veterans of the Korean War If, however, the first term is shortened, use a hyphen.

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You are not required to capitalize the first word of the included question, but an initial capital helps readers identify the question, especially if it includes internal punctuation. If the sentence becomes awkward, you may instead rephrase the question as a declarative statement followed by a period. Several legislators raised the question, Can the fund be used in an emergency, or must it remain dedicated to its original purpose? Several legislators raised the question of using the fund in an emergency, which was not its original purpose. A question mark may also indicate doubt or uncertainty, as in a date. The painter Niccolò dell'Abbate (1512?–71) assisted in the decorations at Fontainebleau. 21.6 Exclamation Point Exclamation points are rarely appropriate for academic writing, except where they are part of quoted material.

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You generally need not include them in your bibliography, although you may choose to include a specific work that is critical to your argument or frequently cited. N: 34. Hazel V. Clark, Mesopotamia: Between Two Rivers (Mesopotamia, OH: End of the Commons General Store, 1957). 35. TIAA-CREF, 2005 Annual Report: College Retirement Equities Fund (New York: TIAA-CREF, 2005), 62. 17.5.7 Microform Editions Cite works that you have consulted in microform editions, including dissertations, as you would a book. (For dissertations consulted in print form or online, see 17.6.1.) Specify the form of publication (fiche, microfilm, and so forth) after the facts of publication.

Food Allergy: Adverse Reactions to Foods and Food Additives
by Dean D. Metcalfe
Published 15 Dec 2008

Table 16.6 summarizes the most important Table 16.6 Summary of pathologic and immunologic features of food protein-induced enteropathy Characteristics Infantile enteropathy Older child/adult-type enteropathy Offending foods Cow’s milk, soybean, wheat Cow’s milk, cereal grains Pathology Villous atrophy Intra-epithelial and lamina propria lymphocytes Eosinophilic infiltration Mucosal lipid content Crypt cells Basement membrane Epithelial cell renewal rate Mucosal IgA, IgG, IgM Mucosal IgE Patchy, mild to severe Increased Variable Increased Immature, cuboidal Unevenly thickened Increased Non-specific increase Inconsistent increase Villous blunting, reduced crypt–villous ratio Predominantly α/β, fewer γ/δ HLA-DR T-cell-restricted intracellular antigen α/β and γ/δ HLA-DR T-cell-restricted intracellular antigen Perforin, GrA CD1d ICAM-1, α4/β7 Pathophysiology IELs-cytotoxic CD8 phenotype Increased markers of CD8 activation High expression of lymphocyte adhesion molecules Mast cells activation Eosinophil activation Cytokine patterns upon stimulation of cells isolated from jejunal biopsies with cow’s milk in vitro Spontaneous cytokine release in duodenal biopsy samples Intestinal cytokine mRNA expression VCAM-1, ICAM-1, α4/β7 High mucosal histamine content Deposits of extracellular MBP Increased IFN-γ

increased IL-4 Reduced IL-10 Increased IFN-γ, IL-4, and IL-10, decreased TGF-β Decreased IL-2 and IL-18 in the duodenum Increased CCR-4 and IL-6 in the terminal ileum Decreased TGF-β1 in the epithelium and lamina propria 206 Chapter 16 pathologic and immunologic features of food protein-induced enteropathy. Iron-deficiency anemia Infants with cow’s milk-protein-induced occult rectal bleeding, anemia, hypoproteinemia, and respiratory signs were originally reported by Wilson et al. in 1962 [118]. Symptoms manifested between 2 and 20 months of age, frequently following the transition from breast-feeding or formula to regular cow’s milk. Hypoproteinemia was caused by increased intestinal protein leakage, but malabsorption and growth retardation were absent [119]. Subsequently, cow’s milk-induced anemia and hypoproteinemia were reported in 1 in 7000 infants in a large prospective study from Scandinavia [120].

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The decrease in herbicide applications means that growers make fewer trips over the field to apply herbicides and translates into each of management. • A reduction in herbicide costs for the farmer. It has been estimated that United States soybean growers spent $216 million less in 1999 for weed control (including a technology fee for Roundup Ready soybean), compared to 1995, the year before Roundup Ready soybeans were introduced [16]. • Less labor required due to the elimination of hand weeding and high-cost, early post-directed sprays, which require special equipment. • High compatibility with integrated pest management and soil conservation techniques [23], resulting in a number of important environmental benefits including reduced soil erosion and improved water quality [24–26], improved soil structure with higher organic matter [27,28], improved wildlife habitat and improved carbon sequestration [29,30] and reduced CO2 emissions [27,31].

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Other factors, such as the role of food processing and modification of allergens, or adjuvant effects of other food components, may also play a role in stimulating IgE, rather than IgG responses to foods such as peanuts. Only an improved understanding of these factors and the mechanisms underlying the generation of aberrant IgE responses will enable us to understand what makes a protein become an allergen. Acknowledgments Author HB wishes to thank the Austrian Science Fund Grant SFB F1802 for support. ENC Mills was supported by the Competitive Strategic grant from BBSRC. References 1 Jenkins JA, Griffiths-Jones S, Shewry PR, et al. Structural relatedness of plant food allergens with specific reference to crossreactive allergens: an in silico analysis. J Allergy Clin Immunol 2005;115:163–70. 2 Radauer C, Breiteneder H.

The Singularity Is Near: When Humans Transcend Biology
by Ray Kurzweil
Published 14 Jul 2005

In 2002 estimates based on data from the Hubble Space Telescope were between thirteen and fourteen billion years. A study published by Case Western Reserve University scientist Lawrence Krauss and Dartmouth University's Brian Chaboyer applied recent findings on the evolution of stars and concluded that there was a 95 percent level of confidence that the age of the universe is between 11.2 and 20 billion years. Lawrence Krauss and Brian Chaboyer, "Irion, the Milky Way's Restless Swarms of Stars," Science 299 (January 3, 2003): 60–62. Recent research from NASA has narrowed down the age of the universe to 13.7 billion years plus or minus 200 million, http://map.gsfc.nasa.gov/m_mm/mr_age.html. 73.

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As mentioned, we need to better balance the risks of new technology (for example, new medications) against the known harm of delay. ·A global program of confidential, random serum monitoring for unknown or evolving biological pathogens should be funded. Diagnostic tools exist to rapidly identify the existence of unknown protein or nucleic acid sequences. Intelligence is key to defense, and such a program could provide invaluable early warning of an impending epidemic. Such a "pathogen sentinel" program has been proposed for many years by public health authorities but has never received adequate funding. ·Well-defined and targeted temporary moratoriums, such as the one that occurred in the genetics field in 1975, may be needed from time to time.

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—IMMANUEL KANT (1724–1804) Most education in the world today, including in the wealthier communities, is not much changed from the model offered by the monastic schools of fourteenth-century Europe. Schools remain highly centralized institutions built upon the scarce resources of buildings and teachers. The quality of education also varies enormously, depending on the wealth of the local community (the American tradition of funding education from property taxes clearly exacerbates this inequality), thus contributing to the have/have not divide. As with all of our other institutions we will ultimately move toward a decentralized educational system in which every person will have ready access to the highest-quality knowledge and instruction.

Fly by Wire: The Geese, the Glide, the Miracle on the Hudson
by William Langewiesche
Published 10 Nov 2009

This is indeed true if you want to measure risk second by second, because the initial climb is over so quickly that it constitutes at most 1 percent of a typical flight, but accounts for 8 percent of fatal accidents in commercial jets worldwide. If you include the takeoff roll in your worries, you can bump the cumulative fractions respectively to 2 and 20 percent. That leaves 98 percent of the flight time ahead, as well as the segments in which 80 percent of fatal accidents occur—especially during approach and landing. But passengers do what they can to endure the misery of airline travel, and while others in the cabin went catatonic, this woman got her one-second intervals almost exactly right.

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The A320 entered airline ser vice in March 1988, and merely three months later the first one crashed. It was Sunday, June 26, 1988. The airplane was the fifth off the production line, the third A320 acquired by Air France. It had entered ser vice merely three days before and had been chartered for a fund-raising “aerial baptism” flight by an aeroclub near Mulhouse, a dreary French city near the Swiss and German borders, on the upper Rhine. The aeroclub was holding an air show there at a small secondary airport with a short grass runway in a beech forest outside a town called Habsheim. The plan was to fly there from Mulhouse’s commercial airport, a few miles to the south, and make two low passes for the air show crowd before heading off to the Alps to circle Mont Blanc.

Digital Photography Hacks
by Derrick Story
Published 15 Apr 2004

If the setting is high—20, for example—only areas of the image with substantial contrast between pixels get sharpened. A setting of 4 is a good starting point. If you leave the setting at 0, the default in Photoshop, every pixel edge will be sharpened. This can unduly increase image noise and make smooth areas, such as skin tones, look a little blotchy. The general range for this setting is between 2 and 20. Click OK and inspect your picture. If you feel it needs a bit more sharpening, repeat the process or use the keystroke combination Ctrl-F, which repeats the last filter you applied. These settings are designed to maintain as much quality as possible while still producing the desired sharpening effect.

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DSLRs look and behave just like your favorite 35mm single lens reflex (SLR) cameras of years past, but they have a sophisticated image sensor instead of film. Not long ago, this wouldn't be practical advice for parents, because DSLRs were just too darned expensive. But you no longer have to choose between a camera and a college fund. Both Canon and Nikon have introduced quality DSLRs for under US$1,000, and more are sure to be on the way. The Canon Digital Rebel and the Nikon D70 are two examples of DSLRs that will help you keep up with your kids without maxing out your credit card. DSLRs have minimal shutter lag times, allow for generous sequential shooting, accept a variety of lenses, and enable you to use external flash.