Thursday, January 3, 2013

Hedge Funds: Crossroad of International Affairs and Money

Hedge Funds: Crossroad of International Affairs and Money

One would hardly perceive politics as a source of income outside the realm of the government agencies or consultancy firms, yet a great deal of wealth is being generated by an unorthodox type of politicians, politicians who didn’t have to integrate the parliament to make enough money for a decent living and beyond! As we sit tight in our desks, contemplating the course of events the world has sailed on or the dynamics geopolitics has imposed on the international chessboard, many are turning history not into a set of lines inscribed in encyclopedias and articles, but into checks with as high as 9 figures.

While politics might seems as the end in itself for standard politicians, for such individuals it turns out to be a mean to generate cash without necessarily contributing to shaping the policies or decisions usually upheld with triumph by congressmen and statesmen.

Nor do these people abide by the virtues and precepts of theorists. Not concerned with the philosophical implications of communism, expressing disdain for the ethical controversies raised by capitalism, they see and read politics in the most convenient ways: the way of making money out of it regardless of the nature of a political system. If the political tide turns bright, they invest long, while if it darkens and announces sour shortcomings, they sell short: Moral of the story, they make money!

These people, with a deep appreciation for analysis and great disdain for practice, are the men and women populating the numerous hedge funds proliferating throughout the globe. Traders, not necessarily overlooking the Bull in their ivory towers in Wall Street, have grown to display a strong affinity for international affairs and world dynamics, and understood the power of geopolitics and Realpolitik in generating wealth without great deal of debate or heated conversations.

While the policy makers struggle to pass on bills or promote certain military agenda in order to earn their wages, it has now become possible to take the ready product of such political debates and analyze its implications worldwide in order, after a quick call to your broker, to make some cash flow in your balance.

Quick example: with the Russian invasion of Georgia a couple of years ago, one could look up the geography of the country and easily notice the pipeline going through its borders, thus realizing that the implications of the war would be disastrous for the pipeline in terms of output and net delivery. A trader resumes such analysis in a quick short selling of the shares of the Oil and Gas companies benefiting from the pipeline, therefore making money once the shares of BP soar in the stock market.

The availability of hedge funds, their cumulative ceiling of operations hovering around the 2.5 trillion $[1], their ability to outperform the market and their various level of operations now allows many to integrate these financial institutions that are still widely underrated, and to put at use one’s appreciation of politics, business and international affairs. The trend now is in favor of exploiting political intelligence through consultancy firms; yet as the usage of singled trusted firms makes it hard to be unique in choosing the right investments to make for hedge funds, it is projected to see funds hiring their own political analysts or political evaluation departments in order to avoid investing like everyone else.

Daniel Celeghin, a partner with the advisory firm Casey Quirk in the US, argues that the world’s top 30 hedge funds will probably all be consulting top-tier political experts, whether it is former policy professionals or high-profile government figures.[2]
The combination of politics and economics is widely seen as an academic choice meant to be split on the edge of professional tracks, yet today it is possible and profitable to opt for something beyond sole economic or political career path, it is possible to marry both and still make more money than previously hoped for. The power of knowledge and foresight is an invaluable commodity in the trading floor, and being able to speculate on the course of events in far away lands based on a great understanding of international affairs and politics is an asset most hedge funds look crazily for.

A decade ago, Political science was labeled an academic choice for theorists and students without a clear vision for their future professional involvement. The 9/11 attacks were a turning point in the perception of politics in the youth environment given the fact that international affairs and foreign political systems acquired ideological and physical reach in the heart of the Western World. The rush for Poli sci set the clock for a new wave of diplomats, ambassadors and intelligence officers with an acute knowledge of the various cultural, political, religious and social factors that shape the public opinion and political systems in Eastern nations. We are now living the 3rd revival of politics and international relations, a revival strengthened by the realization that politics and international affairs today can generate the most cherished commodity ever: profit!

Traders are no longer required to be astute in math and economics, but are demanded to absorb abundant knowledge of geopolitics and international relations in order to know how does Iran missile tests affect oil prices, or how “Fiscal Cliff aversion” spending cuts in the military budget drive down the shares of Lockheed Martin.

To conclude, it is an ever growing joy to see politics adapting to the tides of the markets, and to witness the evolution of international relations from a set of factors affecting bilateral treaties taught in university, to a critical asset used to place trades in the stock market and foresee financial implications of political decisions, or indecisions. Most of all, it is a confirmation that the rigid politics we are brought to believe in is simply the pic of an iceberg widely undiscovered, and that the confinements of governmental policy making are not the only representation of politics, but rather the apparent limitations of a system of thought that expands beyond the government and bears practicality in virtually all field of human interactions and transactions.

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