Free The Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds by Maneet Ahuja

the trade-off between profit potential in the long term and the potential for short-term fluctuation and losses. “We are all about the long run,” he says. “It’s why I say, over and over, the trend is your friend.”
     
    “If you’re a macro trader and you basically have 20 positions, you better make sure that no more than two or three are wrong. But we base our positions on statistical models, and we take hundreds of positions. At any given time, a lot of them are going to be wrong, and we have to accept that. But in the long run, we’ll be more right than wrong.” Evidently—since 1990, AHL’s total returns have exceeded 1,000 percent.
     
    Still, AHL is hardly invulnerable. The financial crisis brought on a sharp reversal, and the firm remains vulnerable to the Fed-induced drop in market volatility. In response, says Wong, the company has developed “a number of computerized trading models designed to respond better in the current macro environment.” The fund’s 15 percent rebound last year substantiates this view, and Wong anticipates further growth” beyond its 2010 size of $22.6 billion.
     
    “I think that it is quite important to really understand the risk of your business and not overreact,” says Wong. “Quite a lot of people have gone out of business because either they couldn’t explain to the investors why the market behaves as it does or they fundamentally change what they do, and then cannot recover and make back the losses. So I think that’s what we do very well—that is, we really understand the performance that we’ve generated, and we really understand the volatility and the risk.”
     
    Wong recalls that when he started at AHL, he worked under then research head David Huyton. One day, Wong expressed surprise that between 1991 and 1999, AHL’s positions on the S&P had lost money every year. Huyton shrugged. “When you have a hundred different markets in your portfolio, the finding that one market has consistently lost money for many years is not that surprising.” The key is to identify the long-term trends. “This business is about accumulating your odds over a long period of time.” Wong says he recalls that when AHL first began selling its funds in Hong Kong, investors were not very patient with the markets. “They all wanted a fund that would make them 40 percent during the first year,” Wong says. “They were skeptical about letting us hold their money for three to five years, and make a 16 or 17 percent average return, even when they saw proof of our performance. It took us three, four years of really very persistent effort before people began to give us a chance.” Today, Hong Kong is one of AHL’s our most successful investment markets.
     
    “Most traders want to be very good gamblers and beat the roulette table,” says Wong. “I would rather be the house and own the roulette table. Every day, somebody is going to bet against us and win, and, from time to time, lots of people may bet against us and win. We’ll have losing nights and losing weeks. But if we play the game over and over again, eventually we’ll win because of the statistical advantage that we have.” Pushing this advantage is the most important job of a hedge fund, says Wong.
     
    “My boss used to tell me that to win at either gambling or investing, you have to bet. And in order to do that, you have to have some chips left. If you lost all your chips, then, game over. So, risk management is actually the most important part of what we do. In our business, you don’t have to lose 100 percent. Even if you lose 40 or 50 percent, you could be out of the game. Protecting your chips is the trick.”
     
    Though Wong does admit to having been worried about a culture clash emerging from the union with GLG, his fears have been dispelled. “I talked to the people and found out that we have very similar outlooks. We are all very result focused, and we all want to deliver the performance.” Wong