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A day with a Hedge Fund manager

Based in London, John Dennis is the manager of a hedge fund which investing in the raw materials market. He looks for the best return on investments on behalf of his clients, investors from institutions and wealthy individuals.

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Whilst not dealing with physical stock, his career as a hedge fund manager consists of buying and selling a commodity using financial contracts which act as underlying legal tender for this commodity.

In order to achieve this, John Dennis generally uses the futures market, in other words, contracts for future delivery which would allow one to benefit from changes to the original market price of the raw materials such as crude oil, gold, copper, sugar, wheat or pork belly (bacon).

He gave us below, an account of one of his typical days.

I normally arrive at the office at 07.30.

My first job of the day is to go over the latest economic and financial news of the day that could influence the basic orientation of the financial markets and and the pricing of raw materials.

I also review the meteorological conditions in specific geographical areas such as the Ivory Coast, which is the primary world producer of cocoa, and the conditions in Midwest America which is the granary of the United States.

Whilst I have my breakfast at my "desk", my team and I review our entire portfolio in each sector in which funds are invested, that is to say in the following domains: energy market, metals, agricultural products such as sugar or maize.

What it primarily involves, is to determine exactly the total risk to the portfolio if we had to liquidate under a loss and set up a "stop loss".

At the same time in the course of this meeting we determine what our potential maximum possible gain would be, should our profit levels be achieved.

This meeting lasts about an hour.

Once we have covered these questions, a section of the team assesses the daily value of the funds in conjunction with the independent estimates which the middle office have made.

Meanwhile, the other part of the team is given the task of completing the "due diligence" for a Swiss based fund wanting to invest in the "hedge funds".

At 10.00, the European markets are active, in particular the brent crude markets - the petroleum sourced from the North sea.

Generally the mornings are calm as the operators are waiting for the opening of the American markets where most of the "commodity futures" are listed.

Nonetheless, London is still the market director for base metals (aluminum,copper, zinc, lead,nickel, and tin) listed on the London Metals Exchange (LME).

At 11.00, the team is informed about the subscriptions/buy back of the day, in other words, the amounts received by or paid to the shareholders.

Today, owing to the entry of a new investor and the absence of any redemption of shares we are going to have to increase our nominal position of our investors as a result, in order to retain our level of leverage constant.

13.00. Lunch is quickly eaten at the "desk" with the entire team.

Like every Wednesday, we are waiting for the start of the afternoon and the figures form the "Energy Information Administration" (EIA).

The EIA is an independent American agency, attached to the US Department of Energy, which publishes weekly, an inventory of crude oil and petroleum products in the United States.

Today we are following this information in particular as it concerns WTI oil ("West Texas Intermediate"), one of the principle accounts in our portfolio.

As soon as we know these figures, we analyze the possible consequences for the market.

Finally, we decide not to change our position with crude.

At 17.30, I spend about 30 minutes on the phone to a potential client, based in the States with whom we have done a "due diligence" some weeks before.

19.30. This is the official closing time o the WTI "futures" market in the United States.

It is during these last few moments of trading that we have to adjust our position in the oil market and take stock of the value of our shares for the day. The tension is palpable as any adjustment must be made in a few seconds so as not to negatively influence our position on the market.

20.00. All the transactions have been checked and entered in our risk analysis system, allowing us to evaluate the day’s PNL

20.30. I have a quick debriefing with my superior whilst we make PNL report for the day. It would be now that I review with him our principle clients on our portfolio, at the same time pointing customer appointments for the week ahead

At 21.00, I leave the office after a relatively quiet day.

Next Finance October 2011

Article also available in : English EN | français FR

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