This book was originally conceived in the dark days of spring 2009, when the Standard & Poor’s (S&P) 500 index hit a low of 666. The idea was born of two conversations: one with Joseph Dear, chief investment officer of the California Public Employees Retirement System (CalPERS), and another with the former manager of a major U.S. university endowment. Both managers conceded that the model of real money management, as it was being implemented at the time, was broken. Yet they bemoaned the fact that no new model had emerged.
From those two conversations, I naively thought that I had the new model, although my model was less an asset allocation formula than a framework, a thought process. I figured, in a globalized, interconnected world where massive amounts of capital flow anywhere with the push of a button, and where risks spring up suddenly and abruptly, that the static, backward-looking approach to asset allocation employed by so many real money players made little sense. A global macro-style approach seemed the only sensible way to manage real money pools, regardless of the size of the capital base. Starting from this basic premise, I sought out people much smarter than me for further clarity and confirmation, the results of which comprise the conversations in this book.
Since the release of the original edition of The Invisible Hands, reactions to the book and to the crisis of 2008 have been bifurcated. On the one hand, many investors have made no changes to their approach ...