Agnostic, adjective, having no bias with respect to position in the capital structure. Usage note: Merriam-Webster defines an agnostic (noun) as “a person who holds the view that any ultimate reality (as God) is unknown and probably unknowable; broadly : one who is not committed to believing in either the existence or the nonexistence of God or a god.” However, when a hedgie (an execrable moniker for “hedge fund professional”) uses the term, there’s scant chance that he’s discussing matters theological because he typically worships one thing …the almightly dollar. Moreover, despite how glamorous he allows his friends to think hedge fund life is (all the while keeping silent on the due diligence trips to places like Detroit to “kick the tires” on the sexiest of distressed auto parts suppliers), our hedge fund man simply doesn’t have time to finalize his thinking on the existence of God (or a god). When he’s not updating one of his many 20-tab Excel financial models, he’s making frantic calls to headhunters while his portfolio manager boss, a graduate of the “what have you done for me lately” school of management, continues to humiliate him in front of the entire firm over his last two consecutive dogshit stock recommendations.
Nonetheless, the hedge funder might roll out this abhorrent modifier when describing his firm’s investing style. For example, if he works at a shop (another disgraceful figure of speech, discussed here) that can invest in virtually anything it wants, the spectrum ranging from say bank loans, corporate bonds, preferred and common stock all the way to trade claims, bookie chits, and pole dancer IOU’s, then he might say, invoking the royal we (financial types hate to do anything by themselves, it’s always “going forward, we think…), “Yeah, we’re pretty agnostic with respect to capital structure.”
At this point, we have to ask the same question that we asked about corporate attorneys in our posting about that wretched preposition “notwithstanding,” videlicet: why does the hedgie talk this way? Why does he subject us to such bunk? According to Constant Agony, the Jesse Jackson Professor of Linguistics at State Normal School for Women at Harrisonburg, who has written extensively about the language of the hedge fund industry:
The stereotype is that people who work at hedge funds think they’re smarter than everyone else. They’ve gone through an asinine interview gauntlet, answering ridiculous brain teaser questions about balls, scales, and the number of razors sold last year in North Dakota. Now having survived the weeding out process, they’ve got no qualms about charging you a 2% management fee and taking an outrageous 20% of any profit. The problem is that despite knowing the answer to the question about the 3-gallon jug and the 5-gallon jug, these hedge fund people can’t beat the S&P 500. So what’s their defense mechanism? They’ve invented a ridiculous parlance to make themselves sound brilliant and baffle investors with balderdash. They confuse and dazzle with talk of forbearance agreements, covenants breaches, and fulcrum securities. They’re nothing more than highly paid hucksters and con men.
The professor might be onto something. The chart below is from GMO’s 3Q14 investor letter and shows the performance of the S&P 500, put selling, and the HFRI fund-weighted index of hedge funds since 2010 (GMO is an investment management firm with $120 billion in client assets).
If you’re lucky enough to have the kind of money that gets you targeted by some unctuous financial salesman hawking a hedge fund investment with mystifying promises of “alpha,” tell him the following: “No thanks, all my money is in an index fund.” After all, it’s good enough for Buffett.
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