Quarry said, ‘So where are we on the VIX? I’ve been so busy preparing for the presentation, I haven’t actually checked our positions lately.’
‘The last time I looked, we were up to twenty thousand contracts.’
‘Twenty thousand?’ Quarry shot a look at Hoffmann.
Ju-Long said, ‘We started accumulating VIX futures back in April, when the index stood at eighteen. If we had sold earlier in the week we would have done very well, and I assumed that’s what would happen. But rather than following the logical course and selling, we are still buying. Another four thousand contracts last night at twenty- five. That is one hell of a level of implied volatility.’
Rajamani said, ‘I’m seriously worried, frankly. Our book has gone all out of shape. We’re long gold. We’re long the dollar. We’re short every equity futures index.’
Hoffmann looked from one to another – from Rajamani to Ju-Long to van der Zyl – and suddenly it was clear to him that they had caucused beforehand. It was an ambush – an ambush by financial bureaucrats. Not one of them was qualified to be a quant. He felt his temper beginning to rise. He said, ‘So what are you suggesting we do, Gana?’
‘I think we have to start liquidating some of these positions.’
‘That’s just about the stupidest goddam thing I’ve ever heard,’ said Hoffmann. In his frustration he slapped the back of his hand hard on the blinds, rattling them against the windows. ‘Jesus, Gana, we made close to eighty million dollars last week. We just made another forty million this morning. And you want us to ignore VIXAL’s analysis and go back to discretionary trading?’
‘Not ignore it, Alex. I never said that.’
Quarry said quietly, ‘Give him a break, Alex. It was only a suggestion. It’s his job to worry about risk.’
‘No, actually, I won’t give him a break. He wants us to abandon a strategy that’s showing massive alpha, which is exactly the kind of illogical, insane reaction to success, based on fear, that VIXAL is designed to exploit! And if Gana doesn’t believe that algorithms are inherently superior to human beings when it comes to playing the market, then he’s working in the wrong shop.’
Rajamani, however, was unfazed by his company president’s tirade. He had a reputation as a terrier: at the FSA he had gone after Goldman. He said, ‘I have to remind you, Alex, that the prospectus of this company promises clients exposure to a yearly volatility of no more than twenty per cent. If I see that those statutory risk limits are in danger of being breached, I am obliged to step in.’
‘Meaning what?’
‘Meaning, if the level of our exposure isn’t dialled back, I will have to notify the investors. Meaning I really must talk to their board.’
‘But this is my company.’
‘And the investors’ money, or most of it.’
In the silence that followed, Hoffmann started massaging his temples vigorously with his knuckles. His head was aching badly again: he needed a painkiller. ‘Their board?’ he muttered. ‘I’m not even sure who’s on their frigging board.’ As far as he was concerned, it was a purely technical legal entity, registered in the Cayman Islands for tax purposes, that controlled the clients’ money and paid the hedge fund its management and incentive fees.
‘Okay,’ said Quarry, ‘I don’t think we’re anywhere near that point yet. As they used to say in the war, let’s keep calm and carry on.’ He bestowed one of his most winning smiles upon the room.
Rajamani said, ‘For legal reasons I must ask that my concerns be minuted.’
‘Fine. Write up a note of the meeting and I’ll sign it. But don’t forget you’re a new boy and this is Alex’s company – Alex’s and mine, though we’re both only here because of him. And if he trusts VIXAL then we all should trust it – Christ knows, we can hardly fault its performance. However, I agree, we also have to keep an eye on the risk level – we don’t want to be so obsessed watching the instrument panel we fly into the side of a mountain. Alex, you’d accept that? So, given that most of these equities are US-traded, what I suggest is we reconvene in this office at three thirty when the American markets open, and review the situation then.’
Rajamani said ominously, ‘In that case, I think it would be prudent to have a lawyer present.’
‘Fine. I’ll ask Max Gallant to stay behind after lunch. You okay with that, Alex?’
Hoffmann made a weary gesture of agreement.
At 12.08, according to the minutes, the meeting broke up.
‘OH, ALEX, BY the way,’ said Ju-Long, turning in the doorway as they were filing out, ‘I almost forgot – that account number of yours you asked about? It turns out it is on our system.’
‘What account is this?’ asked Quarry.
Hoffmann said, ‘Oh, nothing. Just a query I had. I’ll catch up with you in a second, LJ.’
The trio walked back to their offices, Rajamani leading the way. As Quarry watched them go, the expression of suave conciliation with which he had ushered them out changed to a sneer of contempt. ‘What a pompous little shit that fellow is,’ he said. He imitated Rajamani’s flawless, clipped English: ‘“I really must talk to their board.” “It would be prudent to have a lawyer present.”’ He mimed taking aim at him along the barrel of a rifle.
Hoffmann said, ‘It was you who hired him.’
‘Yes, all right, point taken, and it’ll be me who fires him, don’t you worry.’ He pulled an imaginary trigger a second before the trio rounded a corner and moved out of sight. ‘And if he thinks I’m paying Max Gallant two thousand francs an hour to come and cover his ass he’s in for a shock.’ Suddenly Quarry dropped his voice. ‘We are okay here, aren’t we, Alexi? I don’t have to be worried? It’s just that for a second in there I had the same feeling I used to get when I was at AmCor, selling collateralised debt.’
‘What feeling was that?’
‘That every day I’m getting richer but I’m not sure how.’
Hoffmann regarded him with surprise. In eight years he had never heard Quarry express anxiety. It was almost as unsettling as some of the other things that had happened that morning. ‘Listen, Hugo,’ he said, ‘we can put an override on VIXAL this afternoon if that’s what you want. We can let the positions wind down and return the money to the investors. I’m actually only in this game in the first place because of you, remember?’
‘But what about you, Alexi?’ asked Quarry urgently. ‘Do you want to stop? I mean we could, you know – we’ve made more than enough to live out the rest of our days in luxury. We don’t have to carry on pitching to clients.’
‘No, I don’t want to stop. We have the resources to do things here on the technical side that no one else is even attempting. But if you want to call it quits, I’ll buy you out.’
Now it was Quarry who looked taken aback, but then he suddenly grinned. ‘Like hell you will! You don’t get rid of me that easily.’ His nerve seemed to revive as quickly as it had wilted. ‘No, no, I’m in this for the duration. I suppose it was just seeing that plane – it spooked me a bit. But if you’re fine, I’m fine. Well then?’ He gestured for Hoffmann to step ahead of him. ‘Shall we return to that esteemed bunch of psychopaths and criminals we are proud to call our clients?’
‘You do it. I’ve nothing left to say to them. If they want to put more money in – fine. If not – screw ’em.’
‘But it’s you they’ve come to see…’
‘Yeah, well now they’ve seen me.’
Quarry’s mouth turned down. ‘You’ll come to the lunch at least?’
‘Hugo, I really cannot stand these people…’ But Quarry’s expression was so forlorn that Hoffmann capitulated at once. ‘Oh Christ, if it’s really that important, I’ll come to the goddam lunch.’
‘Beau-Rivage. One o’clock.’ Quarry seemed on the point of saying something else, but then looked at his watch and swore. ‘Shit, they’ve been on their own for a quarter of an hour.’ He set off towards the boardroom. ‘One o’clock,’ he called, turning round and walking backwards. He cocked his finger. ‘Good man.’ He already had his cell phone in his other hand and was entering a number.
Hoffmann pivoted on his heel and headed in the opposite direction. There was no one in the corridor. He quickly put his head round the corner of the alcove and checked the communal kitchen with its coffee machine, microwave and giant refrigerator: also empty. A few paces further on, Ju-Long’s office door was shut, his assistant away from her desk. Without waiting for a reply, Hoffmann knocked and went in.
It was as if he had disturbed a group of teenage boys examining pornography on the family computer. Ju- Long, van der Zyl and Rajamani drew back quickly from the terminal and Ju-Long clicked the mouse to change the screen.
