In my finance sociology research I’m interested in the life transition that some people make into trading and funds management. Kate Kelly’s new book The Secret Club That Runs The World: Inside the Fraternity of Commodities Traders (New York: Portfolio, 2014) features a narrative about the formative years of BlueGold Capital Management’s chief investment officer Pierre Andurand.
Andurand’s background features the kind of background noted in Ari Kiev, Brett N. Steenbarger, Doug Hirschorn, and Mike Bellafiore’s analysis of proprietary and hedge fund traders. Andurand was a champion local swimmer who joined France’s Institut National des Sciences Appliquees in Tolouse (p. 21). During the early dotcom speculative bubble Andurand studied “both market psychology and quantitative skills” (p. 23). Then, Andurand translated this skills-set into a series of jobs with Goldman Sachs, the Bank of America, and Vitol (pp. 26-30). On the surface this is a story about mental toughness, the ability to read markets, and finding your right organisational niche as a trader.
Kelly’s reportage also suggests other reasons for Andurand’s success. Andurand benefited from Goldman Sachs’ hiring practices to screen individuals and interview questions (pp. 24-25); Bank of America’s bonus culture (p. 27), and the lack of clawback provisions for when Andurand lost $US40 million due to the SARS outbreak in 2003-04 (p. 28). Whilst at Vitol, Andurand benefited from the firm’s data collection and market intelligence about commodities trade flows (pp. 30 and 33). Andurand’s career coincided with a secular bull cycle in commodities (p. 32). Andurand left Vitol in May 2007 and founded BlueGold Capital Management in February 2008 (pp. 34-35).
There are thus two different narratives about Andurand’s life transition:
(1) The first narrative emphasises preparation and skills cultivation as the way to get selected into a hedge fund elite. This is the narrative found in most popular trading books that are aimed at retail traders. Kelly’s reportage reveals that Andurand benefited also from institutional capabilities, luck, and the right choices made relatively early on in his trading career.
(2) The second narrative emphasises the fit within the trader niche and the commodities supercycle that was underway during Andurand’s early career. Andurand again benefited from institutional capabilities, luck, and a decision pathway that led him eventually to found BlueGold Capital Management.
There are some commonalities in both narratives:
- Making a series of decisions that have an edge / positive expectancy, and that compound over an extended time period (at least 8-10 years).
- Harnessing institutional capabilities to gain asymmetric information and to create a sustainable niche in a competitive ecosystem.
- Chance and luck emerging from financial markets as complex adaptive systems (in which funds and traders make decisions that interact across specific asset classes).
- The role of allies in removing barriers and opening doorways.
That’s in part how elites sustain themselves: how to join the secret club that runs the world.