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Chasing Alpha: How Reckless Growth and Unchecked Ambition Ruined the City's Golden Decade Hardcover – 2 April 2009

by Philip Augar (Author)

3.6 7 ratings

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In 1997 it seemed that things in the City could only get better. The incoming Labour government gave the Bank of England independence, it introduced a state of the art system of light-touch regulation; and it signalled that it was happy to see finance let rip.

For ten years everything went according to plan. Buoyed by a strong pound and cheered on by an excitable media, the bankers became the heroes of the age. The City embarked on a giddy programme of innovation, asset prices boomed and Britain seemed at last to have shaken off its post-war malaise. Politicians took to lecturing their European counterparts on the need to deregulate, to focus on shareholder value and to dispense with an outdated and discredited social market model.

And then in the summer of 2007 everything began to collapse. One household name after another - Northern Rock, Bradford & Bingley, HBOS - failed or was forcibly merged. Barely a year later the government took controlling stakes in the banking sector and the reputation of the City was in tatters.

In Chasing Alpha Philip Augar tells the extraordinary story of how a major economy tried to reinvent itself as a hedge fund crossed with an offshore tax haven. It is all here: the greed, the guile, the excess. Anyone who worked in finance, and anyone who watched the disaster unfold, will be riveted by this, the first sober history of an intoxicated decade.

Print length

272 pages
Language

English
Publisher

Bodley Head
Publication date

2 April 2009
Dimensions

16.18 x 2.54 x 24.28 cm
ISBN-10

1847920365
ISBN-13

978-1847920362
See all details

Philip Augar
9
Paperback
11 offers from £0.11

Product description

From the Inside Flap

Chasing Alpha is the definitive insider's history of Britain's financial services sector, from the early days of New Labour to the present day.

At the heart of the action is the revival of the City's institutions in the mid-nineties. Augar uses his peerless connections with the people and firms that made it happen to give a compelling narrative of how the City's golden generation turned London round.

In 1997 in the City it seemed that things could only get better. For ten years everything went according to plan. Buoyed by a strong pound and cheered on by an excitable media, the bankers became the heroes of the age. And then in the summer of 2007 everything began to collapse. One household name after another failed or was forcibly merged. Barely a year later the government took controlling stakes in the banking sector and the reputation of the City was in tatters.

More than any self-consciously serious account of high politics and diplomacy, Chasing Alpha is the history of our times. It will be required reading for anyone who wants to understand New Labour, the prospects for the British economy, and the forces that drove so many of us in the past decade.

About the Author

Philip Augar worked in investment banking for over twenty years. He led NatWest's global equity and bond business before becoming a Group Managing Director at Schroders. Since 2000 he has combined consulting and writing. This is his fifth book. He can be contacted at: www.philipaugar.com

Product details

Publisher ‏ : ‎ Bodley Head (2 April 2009)
Language ‏ : ‎ English
Hardcover ‏ : ‎ 272 pages
ISBN-10 ‏ : ‎ 1847920365
ISBN-13 ‏ : ‎ 978-1847920362
Dimensions ‏ : ‎ 16.18 x 2.54 x 24.28 cm

Best Sellers Rank: 1,620,531 in Books (See Top 100 in Books)
- 1,508 in Finance & Stock Market History
- 3,642 in Economic Policy & Development
- 4,414 in Economic Conditions (Books)

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William Podmore

Useful account of the City's criminality and treachery

Reviewed in the United Kingdom 🇬🇧 on 9 June 2009

Philip Augar, a former group managing director of the pension fund managers Schroders, shows how Britain has become a hedge fund/tax haven. After Thatcher tore up all the rules, free market forces ran riot and the City offered endless credit to buy imported goods with borrowed money. Under Blair and Brown, it went from bad to worse. Predatory lending tripled under Brown.

The `value' of the world's stock markets quadrupled between 1997 and 2007. The derivatives market grew from $41 trillion to $677 trillion. But `credit default swaps', supposed to reduce risk, in fact spread it.

The City seemed to make money out of money, avoiding investment in real, value-creating, industries. As Augar notes, "Unlike France and Germany, where governments used national interest considerations to protect strategic industries from takeover by foreign companies, foreign buyers were welcomed in Britain."

When the US Federal Reserve cut interest rates, City traders could borrow cheap in the USA, lend dear and hedge the risk. As Augar writes, this was `money for old rope': "leverage and the bull market, not fund management genius, was behind many hedge funds' success." The hedge fund scam "turned out to be an ordinary investment business that for a while fooled the punters into paying very high fees for very average performance."

After the 2003 crisis, the government tinkered with the rules but left the system intact. The Financial Services Authority's remit was still to promote the City, not regulate it. In 2006, Treasury Minister Ed Balls said, "the government's interest in this area is specific and clear - to safeguard the light-touch and proportionate regulatory regime that has made London a magnet for international business."

In June 2007, Gordon Brown told the City that growth was "expected to be stronger this year than last and stronger next year than this. We will succeed if like London we think globally ... advance with light-touch regulation, a competitive tax environment and flexibility."

In September 2008, former Treasury Minister Ed Balls said, "Those who think the global market economy can be run without regulation or with self-regulation or light-touch regulation have been entirely routed."

Augar concludes, "It was modern market capitalism that did for us all." As he proves in this book, lawless greed drives the City as it strips Britain's industries. So what are we going to do about the City's criminality and treachery?

7 people found this helpful

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Fonaweb

Feels like a half time break for Augar

Reviewed in the United Kingdom 🇬🇧 on 14 June 2015

Verified Purchase

Disappointing after Augar's other excellent offerings. A summary compilation of past efforts and an overview - not more than that - of the key event of the financial crisis. One suspects Augar's big book on the clubby hedge funds and cartel-like prop trading (and the inherent informational and weight of money advantages that propel their returns) is ahead of him and this one is just the placeholder.

Reviewed in the United Kingdom 🇬🇧 on 1 January 2016

good read.

Suitable general overview, but not really penetrating

Reviewed in the United Kingdom 🇬🇧 on 2 May 2009

I really enjoyed Philip Augar's The Death of Gentlemanly Capitalism: The Rise and Fall of London's Investment Banks , about the aftermath of the UK financial services "big bang" in 1986: In that book Augar is a credible witness, having held a senior post at J. Henry Schroder, and he writes in a lively and measured way.

But in the last eight years Augar has been "writing and consulting" and his absence from the industry in that time is a little telling. I was looking forward to Chasing Alpha, and was surprised to see him fluff his lines in the very first sentence of the preface, in giving an erroneous definition of "alpha" - significant as it is ostensibly (but as it transpires, not actually) the subject of the book.

Alpha, in the sense understood in the city, is not simply "supercharged profits" as Augar claims, though certainly positive alpha can create them, but a technical term gauging the variance of an instrument's (or more usually, a hedge fund's) performance over the market average, or "beta". An investment manager's alpha, therefore, is the added value it brings you that you would miss out on if you just invested in the benchmark. Hence the supercharged profits. Strictly speaking, the measure of alpha excludes the amplifying effects of leverage (borrowing to invest in the strategy, magnifying profits and losses of a dollar invested). Leverage increases the volatility of portfolio returns. Volatility is measured by vega, not alpha.

You may think I'm splitting hairs, but for two reasons I'm not: firstly, "alpha" is therefore only relevant to investment advisers (such as hedge fund managers) and is not a meaningful gauge for corporate chief executives nor, really, investment bankers (though granted, as with all buzzwords, it was - and still is - heavily overused in selling structured products).

Secondly, by definition, not everyone in the market can generate positive alpha - it is a measure of outperformance of the mean. Therefore, in the fund context, it was a far more credible label when hedge funds were a small segment of the market comprising the crème de la crème of the city's trading talent - the Soroses and GLGs of the world, who really could outperform the rest of the market. Nowadays, as Augar clearly recounts, the unregulated fund industry amounts to a massive shadow banking system which dwarfs the rest of the market, and all too often the supercharged profits were not generated by "alpha" but by leveraging something looking a lot more like beta. As long as the cost of funding the leverage was cheaper than the return of the benchmark, the strategy worked very well. But it amounted to a massive asymmetrical bet that this benign state of affairs wouldn't reverse. And, as we know know, it did, with a vengeance. The conflation of leverage (common) with alpha (extremely rare), leading the city to believe it had eradicated risk was a large part of the complacency which led to the rout.

Enough of portfolio theory. Having mis-described alpha, Augar then barely mentions it, making you wonder why he chose that title. For the credit crunch, as he patiently recounts, was not caused by chasing alpha. Even for the hedgies, chasing alpha wasn't the problem, deluding oneself that you were catching it was (what the 2 and 20 model called "alpha" was more like the premium on a deep out-of-the-money-put).

Augar seems to have in this way tabloidised his delivery - he's looser than he ought to be with the technical details (he misdescribes investments in SIV vehicles as "shares" - actually they're short-term debt investments, and that makes a world of difference) and his estimation both of the size of the alternative fund space and the extent to which it relied on leverage seemed pretty rudimentary. My own anecdotal experience suggests it was way bigger and way more highly geared than Augar suspects.

Away from the hedge funds the rest of his analysis settles down somewhat, and Augar's history is comprehensive enough, and it does read rather like a sequel to the Death of Gentlemanly Capitalism. However, in content, it doesn't cover colossally more than could have been extracted from careful reading the FT over the last couple of years. If you haven't done that, this book comes well recommended. If you have, you're not going to learn much here.

While it was an enjoyable enough read, I don't think Augar really gets to the nub of what caused the meltdown - he drops many names and spends too much time telling individual corporate stories with which he seems very familiar, but which don't really bear on the crisis. By contrast, his treatment of the phenomena that did (the originate and distribute model, for example) is cursory and his effort to tie it to the explosion in CDOs and the consequent effect on the mortgage market is salutary. That's the real story here and we are all implicated; not just the chasers of alpha.

Gillian Tett, who has been one of the best writers in the FT over the last couple of years, has recently published a book ( Fool's Gold: How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe ) which looks like it might get nearer to the real story; if you were going to read one book about the credit crunch you might be advised to look to that.

Olly Buxton

33 people found this helpful

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Anthony Golding

A lucid and readable account of what led to the current financial crisis.

Reviewed in the United Kingdom 🇬🇧 on 20 April 2009

The bulk of this book is an exceptionally lucid and readable analysis of the developments in the international financial system in the ten years preceding the summer of 2007, when the economic "train wreck" we have since experienced first became apparent. The subsequent chapters on the credit crunch itself are inevitably less illuminating. By then, the media, which (other than the FT) had taken virtually no interest in the changing financial system when times were good, were all over the story, so the events - though ably described - are all too familiar. Augar explains the complex relationships between the various forms of investment exotica created during the boom years and identifies the inherent weaknesses that led to the the collapse of the "shiny new system" that the City and Wall Street had evolved.

16 people found this helpful

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Mr. C. R. Mills

Colin mills.

Reviewed in the United Kingdom 🇬🇧 on 11 September 2009

As always a well written and enjoyable book which for the time being brings to an end this sorry tale.
What can we learn from Philip Augars last 3 books? We can learn a lot if we choose, or for that matter if we care, we can plan the way forward if the right people are given the task of remodeling the Investment Banks but so far there is little sign of that happening. In truth we seem to be sleep walking towards the edge of the cliff!

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Chasing Alpha: How Reckless Growth and Unchecked Ambition Ruined the City's Golden Decade Hardcover – 2 April 2009

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