terminal. ‘Now hear me well and good, Gana: if there’s any hint in these minutes of Alex in any way being mentally unreliable, then this company will be finished and you will have to take responsibility for that fact to all those colleagues out there, who are right now watching our every move, and to all our investors, who have made a great deal of money thanks to Alex and who will never forgive you. Do you understand what I’m saying? Let me summarise the situation in four words for you: no Alex, no company.’
For several seconds, Rajamani stared him out. Then he frowned and lifted his hands from the keyboard.
‘Okay then,’ resumed Quarry. ‘In the absence of Alex, let’s try looking at this the other way. If we don’t override VIXAL and put the delta hedge back on, what are the brokers going to say?’
Ju-Long said, ‘They are just so hot on collateral these days, after what happened to Lehman’s. For sure they won’t allow us to trade unhedged on existing terms of settlement.’
‘So when will we have to start showing them some money?’
‘I would expect we’ll need to provide a substantial level of fresh collateral before close of business tomorrow.’
‘And how much do you reckon they’ll want us to put up?’
‘I’m not sure.’ Ju-Long moved his neat, bland head from side to side, weighing it up. ‘Maybe half a billion.’
‘Half a billion total?’
‘No, half a billion each.’
Quarry briefly closed his eyes. Five prime brokers – Goldman, Morgan Stanley, Citi, AmCor, Credit Suisse – half a billion to be deposited with each: two and a half billion dollars. Not funny money, not promissory notes or long-term bonds, but the pure crystal meth of liquid cash, wired over to them by 4.00 p.m. tomorrow. It was not that Hoffmann Investment Technologies didn’t have that kind of money. They only traded about twenty-five per cent of the cash lodged with them by their investors; the rest they didn’t need to show. The last time he looked, they had at least four billion dollars stashed in US Treasury bills alone. They could dip into that whenever they needed it. But my God – what a colossal hit on their reserves; what a step towards the precipice…
Rajamani interrupted his thoughts. ‘I am sorry, but this is madness, Hugo. This level of risk is far outside what is promised in our prospectus. If the markets were to rise strongly, we would be left facing billions in losses. We might even go bankrupt. Our clients could sue us.’
Ju-Long added: ‘Even if we continue trading, it will be unfortunate – will it not? – if the board of the fund has to be notified of our accelerated risk levels just as we are approaching individual investors to put another billion dollars into VIXAL-4.’
‘They will pull out,’ said van der Zyl mournfully. ‘Anyone would.’
Quarry was unable to sit still any longer. He jumped up and would have paced around the office but there wasn’t sufficient room. That this should happen now, after his two-billion-dollar pitch! The unfairness of it! He clawed the air and grimaced at the heavens. Unable to stomach Rajamani’s expression of moral superiority for a moment longer, he turned his back on his colleagues and leaned against the glass partition, his palms spread wide, staring out at the trading floor, heedless of who was watching. For a moment he tried to visualise what it would be like to manage an uncontrolled, unhedged investment fund exposed to the full force of the global markets: the seven-hundred-trillion-dollar ocean of stocks and bonds, currencies and derivatives that rose and fell ceaselessly against one another day after day, whipped by currents and tides and storms into vast maelstroms that no one could fathom. It would be like trying to cross the North Atlantic on an upturned dustbin lid with a wooden spoon for a paddle. And there was a part of him – the part that saw existence itself as a gamble that sooner or later one was bound to lose; the part that used to bet $10 K on which fly would take off first from a bar table, just to feel the thrill of fear – that side of his personality would have relished it, once. But nowadays he also wanted to hold on to what he had. He enjoyed being known as a rich hedge-fund manager, the cream of the elite, the financial equivalent of the Brigade of Guards. He was ranked 177 in the latest Sunday Times rich list; they had even printed a picture of him on the bridge of a Riva 115 (‘Hugo Quarry leads the dream bachelor life on the shores of Lake Geneva – and why not, as CEO of one of the most successful hedge funds in Europe?’). Was he really going to jeopardise all that, just because some bloody algorithm had decided to ignore the basic rules of investment finance? On the other hand, the only reason he was on the rich list in the first place was because of the bloody algorithm. He groaned. This was hopeless. Where was Hoffmann?
He turned and said, ‘We really need to talk to Alex before we put on an override. I mean, when was the last time any of us actually did a trade?’
Rajamani said, ‘With respect, that’s not the point, Hugo.’
‘Of course it’s the point. It’s the whole point and nothing but the point. This is an algorithmic hedge fund. We’re not manned up to run a ten-billion-dollar book. I’d need at least twenty top-class traders out there with steel balls, who know the markets; all I’ve got are quants with dandruff who don’t do eye contact.’
Van der Zyl said, ‘The truth is, this issue should have been addressed earlier.’ The Dutchman’s voice was rich and deep and dark, marinated in coffee and cigars. ‘I don’t mean that we should have thought about it earlier today – I mean we should have done it last week or last month. VIXAL has been so successful for so long, we have all become dazzled by it. We have never put in place adequate procedures for what to do if it fails.’
Quarry knew in his heart that this was true. He had allowed technology to enfeeble him. He was like some lazy driver who had become entirely reliant on parking sensors and satellite navigation to get him around town. Nevertheless, unable to conceive of a world without VIXAL, he found himself rising to its defence. ‘Can I just point out that it hasn’t failed? I mean, the last time I looked, we were up sixty-eight mil on the day. What does the P and L say now, Gana?’
Rajamani checked his screen. ‘Up seventy-seven,’ he conceded.
‘Well, thank you. That’s a bloody odd definition of failure, isn’t it? A system that made nine million dollars in the time it took me to shift my arse from one end of the office to the other?’
‘Yes,’ said Rajamani patiently, ‘but it is a purely theoretical profit, that could be wiped out the moment the market recovers.’
‘And is the market recovering?’
‘No, I accept that at the moment the Dow is falling.’
‘Well, there is our dilemma, gentlemen, right there. We all agree that the fund should be hedged, but we also have to recognise that VIXAL has demonstrated itself to be a better judge of the markets than we are.’
‘Oh, come on, Hugo! There’s obviously something wrong with it! VIXAL is supposed to operate within certain parameters of risk, and it isn’t, therefore it is malfunctioning.’
‘I don’t agree. It was right about Vista Airways, wasn’t it? That was absolutely extraordinary.’
‘That was a coincidence. Even Alex acknowledged that.’ Rajamani appealed to Ju-Long and van der Zyl. ‘Come on, you fellows – back me up here. To make sense of these positions, the whole world would have to crash in flames.’
Ju-Long put his hand up like a schoolboy. ‘Since the subject has been raised, Hugo, could I just ask about the Vista Airways short? Did anyone see the news just now?’
Quarry sat down heavily on the sofa. ‘No, I didn’t. I’ve been rather busy. Why? What are they saying?’
‘That the crash was not a mechanical failure after all, but some kind of terrorist bomb.’
‘Okay. And?’
‘It seems that a warning was posted on a jihadist website while the plane was still in the air. Understandably there is a lot of anger that the intelligence authorities missed it. That was at nine o’clock this morning.’
‘I’m sorry, LJ. I’m being a bit slow on the uptake. What does it matter to us?’
‘Only that nine o’clock was exactly the time we started shorting the Vista Airways stock.’
It took Quarry a moment or two to react. ‘You mean to say we’re monitoring jihadist websites?’
‘So it would appear.’
Van der Zyl said, ‘That would be entirely logical, actually. VIXAL is programmed to search the web for incidences of fear-related language and observe market correlations. Where better to look?’
‘But that’s a quantum leap, isn’t it?’ asked Quarry. ‘To see the warning, make the deduction, short the stock?’
‘I don’t know. We would have to ask Alex. But it is a machine-learning algorithm. Theoretically, it’s developing all the time.’
Rajamani said, ‘Then it’s a pity it hadn’t developed enough to warn the airline.’
