Alphaville is a little late to this party. But the interview, by university student Yaser Anwar on his blog Investment Ideas, with Information Arbitrage’s Roger Ehrenberg, former chief executive of Deutsche Bank’s fund of hedge funds and now president of Monitor 110, shouldn’t be missed.
The interview ranges across the shift of power towards the traders within investment banks, the relative pay of traders and bankers, Amaranth, and regulation of hedge funds.
Ahead of Credit Suisse’s third quarter results this Thursday, here’s what Mr Ehrenberg has to say on the bank’s reported $120m derivatives trading loss:
“I wouldn’t call the CS loss a calamity. I would call it an undesired outcome. All firms have very strict risk guidelines for their proprietary trading operations, as well as for the “back books” run by those in the customer-driven flow trading businesses.
“In my experience large losses either arise from a conscious decision to push risk limits, or a gapping market which causes steep losses for those on the wrong side. In either case, these possible outcomes are modeled and reflected in the risk budget for these businesses, so in the absence of fraud or a rogue trader losses on the order of the one sustained by CS should happen every so often. We’ve all got to calm down about this. Either trade risk and acknowledge the risks or get out of the business. It’s that simple.”