ever since the days when Genoud was a rookie under his command. There was, in his opinion, nothing that his former colleague would not do – no principle he wouldn’t betray, no deal he wouldn’t cut, no blind eye he wouldn’t turn – if he could make sufficient money and stay just within the law.
Genoud said, ‘Yes, I installed it. What of it?’
‘There’s no need to get all defensive. I’m not blaming you. We both know you can surround someone with the best security in the world, but if they forget to use it there’s nothing you can do.’
‘That’s true. Now if you don’t mind, I ought to get on with my work. This isn’t the public sector, you know – I can’t stand here gossiping.’
‘You can learn a lot by gossiping.’
They moved towards reception. Leclerc said, man-to-man, ‘So what’s he like, then, this Dr Hoffmann?’
‘I hardly know him.’
‘Enemies?’
‘You’d have to ask him.’
‘So there’s no one here dislikes him that you’ve heard about? No one he’s fired?’
Genoud didn’t even pretend to think about it. ‘No. Enjoy your retirement, Jean-Philippe. You deserve it.’
13
The extinction of species and of whole groups of species, which has played so conspicuous a part in the history of the organic world, almost inevitably follows on the principle of natural selection; for old forms will be supplanted by new and improved forms.
The risk committee of Hoffmann Investment Technologies met for the second time that day at 16.25, Central European Time, fifty-five minutes after the opening of the US markets. Present were the Hon. Hugo Quarry, chief executive officer; Lin Ju-Long, chief financial officer; Pieter van der Zyl, chief operating officer; and Ganapathi Rajamani, chief risk officer, who took the minutes and in whose office the meeting was held.
Rajamani sat behind his desk like a headmaster. Under the terms of his contract he was not permitted to share in the annual bonus. This was supposed to make him more objective about risk, but in Quarry’s opinion it had simply had the effect of turning him into a licensed prig who could afford to look down his nose at big profits. The Dutchman and the Chinese occupied the two chairs. Quarry sprawled on the sofa. Through the open blinds he watched Amber leading Leclerc towards reception.
The first item noted the absence, without explanation, of Dr Alexander Hoffmann, company president – and the fact that Rajamani wanted this dereliction of duty officially minuted was, to Quarry, the first indication that their chief prig officer was preparing to play hardball. Indeed, he seemed to take a grim delight in laying out just how perilous their position had become. He announced that since the last meeting of the committee, some four hours earlier, the fund’s risk exposure had increased dramatically. Every warning indicator in the cockpit was flashing red. Decisions needed to be taken fast.
He started reading facts from his computer. VIXAL had almost entirely abandoned the company’s long position on S amp;P futures, its principal hedge against a rising market, stranding them with their plethora of shorts. It was also in the process of disposing of all – ‘I repeat, all’ – of its matching pairs of long bets on the eighty or so stocks it was shorting: in the last few minutes alone, the final remnants of a $70 million long position on Deloitte, taken up to hedge their massive short against its competitor Accenture, had been liquidated. And perhaps most troubling of all, as one by one the bets to the long side were lifted, there had been no corresponding move to buy back the stocks that were being shorted.
‘I have never seen anything like it before in my life,’ concluded Rajamani. ‘The plain fact is, this company’s delta hedge has gone.’
Quarry maintained a poker face, but even he was startled. His faith in VIXAL had always been unshakeable, but this was supposed to be a hedge fund – the clue was in the name, dummy. If you took away the hedge – if you dispensed with all the immensely intricate mathematical formulae that were supposed to ensure that you covered your risk – you might as well take the family silver and bet the lot on the 3.45 at Newmarket. It was true, the hedge put a ceiling on your gains, but it also put a floor under your losses. And given that there wasn’t a fund on earth that didn’t go through a rough patch every so often, if you didn’t put on a hedge, a run of bad calls could wipe you out. His skin felt clammy at the thought. He could taste his lunchtime filet mignon de veau rising like bile in his throat. He put the back of his hand to his forehead. I am literally breaking out in a cold sweat, he realised.
Rajamani continued to hammer away: ‘We have not merely abandoned our long position on S and P futures, we are actually shorting S and P futures. We have also increased our position on VIX futures to something approaching one billion dollars. And we are buying out-of-the-money puts that are so extreme – that presuppose such a massive deterioration in the market generally – that our only consolation is that we are at least picking them up for cents. In addition-’
Quarry held up his hand. ‘Okay, Gana. Thanks. We get it.’ He needed to take charge of this meeting quickly, before it turned into a rout. He was conscious that they were being scrutinised from the trading floor. They all knew the hedge had gone. Anxious faces kept bobbing up and down from behind their six-screen arrays like targets in a shooting gallery.
Van der Zyl said, ‘I’ll close the blinds.’ He started to rise.
Quarry said sharply, ‘No, leave them open, Piet, for God’s sake or they’ll think we’re forming a suicide pact in here. Actually, I’d like to see some smiles from you all, gentlemen, if you don’t mind – everybody smile: that’s an order. Even you, Gana. Let’s show the troops a little officer-class sangfroid.’
He hoisted his feet up on to the coffee table and laced his fingers behind his head in a parody of nonchalance, even though his fingernails were digging into his flesh so sharply the indentations would look like scars for the rest of the day. He glanced around at the personal photographs Rajamani had brought in from home to alleviate the gleaming Scandinavian gloom of the decor: a big wedding group taken at night in a Delhi garden, the garlanded bride and groom in the centre, grinning maniac ally; Rajamani as a student graduating from Cambridge, standing in front of the University Senate House; and two young children in school uniform, a boy and a girl, staring sombrely at the camera.
He said, ‘Okay, Gana, so what is your recommendation?’
‘There is only one option: override VIXAL and put the hedge back on.’
‘You want us to bypass the algorithm without even consulting Alex?’ asked Ju-Long.
‘I would most certainly consult him if I could find him,’ retorted Rajamani. ‘However, he is not answering his phone.’
Van der Zyl said, ‘I thought he was at lunch with you, Hugo.’
‘He was. He left halfway through in a hurry.’
‘Where did he go?’
‘Lord knows. He just took off without a word.’
Rajamani said, ‘That is just breathtaking irresponsibility. I’m sorry. He knew there was a problem. He knew we were scheduled to meet again this afternoon.’
There was a silence.
‘In my opinion,’ said Ju-Long, ‘and I would not say this except among us, I believe Alex is having some kind of breakdown.’
Quarry said, ‘Shut up, LJ.’
Van der Zyl chimed in: ‘But he is, Hugo.’
‘And you should shut up too.’
The Dutchman backed off quickly. ‘Okay, okay.’
‘Shall I minute this?’ enquired Rajamani.
‘No you damn well won’t.’ Quarry pointed an elegantly shod toe across the table at Rajamani’s computer
