More Money Than God: Hedge Funds and the Making of a New Elite

By Sebastian Mallaby

Overview

Published in 2010, "More Money Than God" is a comprehensive history of the hedge fund industry by Sebastian Mallaby, a fellow at the Council on Foreign Relations. The book traces the evolution of hedge funds from Alfred Winslow Jones's pioneering "hedged fund" in 1949 through the explosive growth and periodic crises of the industry over the following six decades.

Key Themes and Arguments

The Pioneers

Mallaby profiles the key figures who shaped the hedge fund industry: Alfred Winslow Jones, who invented the long-short equity model; Michael Steinhardt, who pioneered aggressive block trading; George Soros, whose reflexivity theory and macro trading produced legendary returns; Julian Robertson, whose Tiger Management trained a generation of hedge fund managers (the "Tiger Cubs"); Paul Tudor Jones, who combined technical analysis with macro trading; and Jim Simons, whose Renaissance Technologies Medallion Fund achieved perhaps the greatest track record in investment history through quantitative methods.

The Hedge Fund Advantage

Mallaby argues that hedge funds possess structural advantages over traditional investment institutions: their partnership structures align manager and investor incentives; their smaller size allows investment in opportunities too small for large institutions; their compensation structures attract and retain exceptional talent; and their freedom from the constraints of benchmarking allows genuine contrarian investing.

Crisis Episodes

The book provides detailed accounts of hedge fund involvement in major market events, including Soros's breaking of the Bank of England in 1992, the Asian financial crisis, the LTCM collapse of 1998, the dot-com bubble, and the 2008 financial crisis. These episodes illustrate both the market-stabilizing and market-destabilizing potential of concentrated, leveraged investment pools.

The Quantitative Revolution

The later chapters document the rise of quantitative hedge funds, from D.E. Shaw's statistical arbitrage strategies through Renaissance Technologies' machine-learning approaches. Mallaby argues that the quantitative revolution represents a fundamental shift in how financial markets process information and allocate capital.

The Case for Hedge Funds

Contrary to popular criticism, Mallaby argues that hedge funds serve beneficial functions in financial markets: they improve price discovery, provide liquidity during market stress, and create mechanisms for risk transfer. He contends that the 2008 crisis was primarily caused by the regulated banking sector's excessive leverage, not by hedge fund activity.

Significance

As the most comprehensive history of the hedge fund industry, this book provides essential context for understanding both the opportunities and risks of alternative investment strategies. Its detailed accounts of how legendary traders generated returns provide valuable lessons for practitioners.