Running Money: Hedge Fund Honchos, Monster Marke12: 12 PM 2/12/2008ts and My Hunt for the Big Score
Manager's memoir of running a technology long-short book through a bubble.
Summary
Kessler was a semiconductor analyst at PaineWebber and Morgan Stanley before running a technology hedge fund through the late 1990s and closing it in 2001, and this memoir covers that period.
The investment content is about identifying where value accrues in a technology stack. Kessler's framework, developed while covering semiconductors, is that the surplus generated by falling computing costs does not stay with the component makers who create it but migrates to whoever is positioned above them in the stack, and that identifying the next layer to capture it is the analytical task. He applies this to the movement of value from hardware to operating systems to applications to networks to services, and describes the fund's positioning around it.
The travel and historical sections, in which Kessler visits Britain and connects the industrial revolution's productivity gains to the same question about where surplus accrues, are the book's more unusual element and its more contested one. His argument that the same dynamic operated in the industrial revolution is suggestive rather than demonstrated.
The memoir is also an account of running a fund: raising capital, the investor relationships, the pressure of monthly reporting, and the decision to return capital in 2001 rather than continue.
The book is anecdotal and Kessler writes casually, with the humour and digression pitched to entertain. The reference has not verified its specific claims about positions and returns. The value migration framework is the transferable content.
Key takeaways 7
- The surplus generated by falling computing costs migrates away from the component makers who create it toward whoever is positioned above them in the stack.
- Identifying which layer of a technology stack will capture the surplus next is the central analytical task in technology investing.
- Falling costs in a commodity component expand the market for whatever sits above it, which is where the margin relocates.
- Semiconductor economics drove the value migration through hardware, operating systems, applications, networks and services in sequence.
- Running a hedge fund involves managing investor expectations and monthly reporting pressure that operate against the strategy's required horizon.
- Returning capital when the opportunity set has deteriorated is a decision almost no manager makes, because the fee income continues either way.
- The reference has not verified the specific claims about positions and returns in this memoir.
Who should read it
Technology investors interested in where value accrues in a stack as component costs fall, told through a fund manager's memoir.
Where it sits in the reference 2
Who recommended it 1 · 1 direct
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