Inside the House of Money: Top Hedge Fund Traders on Profiting in the Global Markets, Revised and Updated

Chapter 14

The Fixed Income Specialists

David Gorton and Rob Standing

London Diversified Fund Management London

David Gorton and Rob Standing of London Diversified Fund Management (LDFM) represent another evolutionary trend in the hedge fund world: the convergence of fixed income relative value and traditional global macro strategies. But while the rest of the investment universe is just catching on, the unassuming British pair have been on this trend for some time, quietly racking up astounding performance numbers since launching their fund within the confines of JP Morgan in 1995. For their first 10 years, they posted an average annual return of over 15 percent with a standard deviation of 5.5 percent, compared to just over 7 percent return and 6.6 percent standard deviation for the 10-year U.S. Treasury Index. In other words, versus an index of investible securities deemed virtually riskless, Gorton and Standing have given investors twice the return with less volatility.

These two 40-somethings generally eschew publicity, and neither is a household name in Britain or anywhere else. Indeed, they personally are little-known in the hedge fund world, although most are aware of their firm. Both men operate in a rather esoteric world where advanced mathematics, cerebral cunning, and superior analytics are the required tools of the trade. Gorton and Standing operate in the quantitative model–driven world of relative value, where simultaneous long and short positions are taken in similar ...