The Interview: The hedge fund riches grown from poor roots

Stanley Fink, Chief Executive of Man Group

Life is sweet for Stanley Fink. The chief executive of Man Group is top of the FTSE 100 pay league, has a £100m fortune to his name and from his offices in Sugar Quay, the old commodities landing stage on the Thames, he sits at the apex of what is now the most potent force in world markets - the hedge fund business.

Life is sweet for Stanley Fink. The chief executive of Man Group is top of the FTSE 100 pay league, has a £100m fortune to his name and from his offices in Sugar Quay, the old commodities landing stage on the Thames, he sits at the apex of what is now the most potent force in world markets - the hedge fund business.

Hedge funds, huge pools of capital that are punted on everything from shares to oil to currencies and commodities, are proving as powerful as any leading investment bank, more remunerative than private equity and, to some, more dangerous than any weapons of mass destruction.

There is paranoia among conservative City types that these debt-financed betting machines are lining up like dominoes, ready to collapse in spectacular fashion causing terrible collateral damage along the way. George Soros, one of the earliest hedge fund heroes, has described the funds as "financial weapons of mass destruction".

Naturally, Mr Fink's believes hedge funds are a force for good and that Mr Soros is living proof that the world is a better place thanks to hedge funds.

"When Soros broke the Bank of England in 1992 on Black Wednesday, which became White Wednesday, the truth was the Government was trying to keep sterling at an unsustainable rate, throwing billions of hard earned reserves at it for no real commercial end. It was really a political agenda. Now, the fact that Soros, and many banks with a lower profile, decided it was a one-way bet against sterling, was that good for the economy or bad? I would say it was very good for the economy. It has not looked back since."

Man floated in 1994, with a valuation of £463m. It is now worth £4.3bn and is the world's biggest hedge fund manager, partly explaining why London has fast become the epicentre of the world's hedge fund business.

On Thursday, Mr Fink was able to put a bit of shine on what has been a tough year when he announced that new investors, and a year-end boost to its fund performance, had increased Man's assets under management from $38.4bn to $42bn.

Rarely in the limelight, this network of publicity-shy, but highly paid, hedge fund managers is a new facet to the City. They represent a group that has embraced new technology and new ways of making money but who have also formed a tight-knit community behind a new philanthropy and a sophistication and glamour that reaches into showbusiness and the arts.

For most people, the first they ever hear about Man is through its sponsorship of the Man Booker Prize for literature. The company's boardroom offers staff one of the more civilised corporate perks. Its bookcases are a mini lending library, stacked with first editions of long- and short-listed Man Booker contenders along with other works by the same authors. Mr Fink's favourite is Life of Pi.

As well as literature, Mr Fink is closely involved in the Ark dinner, which last year raised £10m for children's charities and is organised by fellow trader Arpad Busson, the Swiss partner of Elle McPherson, the Australian supermodel turned lingerie entrepreneur. With Princess Anne he is closely involved with the Evelina Children's Hospital appeal, which will move the facility to a new state-of-the-art site on Lambeth Palace Road.

Hedge fund managers are certainly big givers. But is it because they can or is it, in part at least, to make themselves feel better; to assuage some guilt born from their vast wealth?

"For me, I was brought up in a poor home but my parents would give if there was a good cause. How much you give is a function of your wealth. Was it £10 or £50? Now its £1,000 or £100,000. I do it from wanting to help from common humanity and caring about fellow human beings. I give to human charities and not animal charities. There is a choice.

"In terms of guilt, I've never done anything in my working life that I can't face myself in the mirror about. If I've treated myself to something new or an expensive holiday, the fact that I've donated the same amount to charity in the previous week or year makes you feel that you're not only being self-centred or selfish. There's no doubt it gives you a comfort. It means that when I spoil myself it makes it a bit more seemly and less embarrassing on your conscience. Charity does fulfil that purpose. I don't do it out of guilt, I do it because it needs to be done."

His desire to do good has no doubt been heightened after he was struck down by a brain cyst while on holiday in South Africa in August. Successful neurosurgery meant a rapid recovery but it also made him realise why he carries on, given the fact he could pack up any time he chooses a very wealthy man.

"I look at my job and my life and my philanthropic causes that I'm putting more effort into and I really like the balance between that and skiing and playing golf. I'm a reasonable delegator so work doesn't take over completely. I think work is great therapy. It's great for taking your mind off trivial problems and it's a good example to your children. I have three kids and I don't want them to regard themselves as trust fund kids."

His own business, however, has shown signs of fallibility over the past year and Man's share price has felt the force of short selling by rival hedge funds, falling from a high of £18.56p down to a low of £11.56. There have been dark rumours swirling of falling profit margins, stalling growth and a pending takeover as competition increases.

But any chief executive should be willing to entertain hedge funds who have turned aggressively bearish on their stock, says Mr Fink.

"If you can convince a manager who is short of your stock, that it's a stupid position to take and that he should square it or go long, then that's more likely to influence your stock price than persuading the Prudential to increase its weighting from 2.2 per cent to 2.4 per cent. It's enlightened self-interest to spend time with people who are short your stock."

Mr Fink is keen the world does not get carried away in what he and his colleagues see as a somewhat Luddite view of hedge funds and what they do. He shies away from describing the rise of hedge funds as a new paradigm and reckons the industry is little more than a blip from a global perspective.

"The overall hedge fund market is approaching $1,000bn which sounds a very big number but it's probably less than 2 per cent of global markets which are worth about $50,000bn."

He points out that the two biggest individual hedge fund groups, Man and UBS GAM, manage about $40bn each, which is pretty small compared with $50,000bn.

Within the $1,000bn under hedge fund management, about 40 per cent is in funds that follow the most popular single strategy - taking aggressive bets on the direction of share prices, so-called "long short" funds. Even when you include the money these funds borrow to bet with, this single strategy probably holds positions worth no more than $500bn. "You can see that's only the size of a few very large US corporations."

Mr Fink reckons there is a less than 1 per cent chance of a hedge fund going bust in any one year. The rest of the financial system can only hope he's right.

A fan of Man ... and United

Age: 47

Pay: £6.7m

Education: Manchester Grammar and Trinity Hall College, Cambridge

Career: Born in the Crumpsall area of Manchester, his father made lampshades and latterly ran a corner shop grocery. After his law degree he joined Arthur Andersen, where he worked until 1982. He briefly joined the financial planning team at Mars Confectionery but soon moved to Citibank's leveraged buyout team, where ED&F Man, then mainly a commodities broker, was a client. He joined ED&F Man in 1987, becoming finance director in 1992, then leading the company's float in 1994. Two years later he became managing director of its asset management division, buying a small hedge fund called AHL, which now invests $10bn of Man's total $42bn under management. In 2000 the group demerged with ED&F, being split off, and Mr Fink became chief executive of Man Group.

Personal: Married with three children

Hobbies: Manchester United, skiing, golf, tennis and charity work