|
|
Victor Niederhoffer Matthias Knab, Opalesque: Victor Niederhoffer, the Brighton Beach-born speculator, statistician and five-time U.S. national squash champion whose career traced one of the most extraordinary arcs in the history of the hedge fund industry, has died of natural causes at the age of 82.
His death was announced by his brother Roy Niederhoffer, founder and president of R.G. Niederhoffer Capital Management, who described him as "truly an extraordinary man" and pointed to a legacy that ran well beyond markets: seven children, 15 grandchildren, and, in Roy's words, "the innumerable business leaders he mentored, partnered with, taught and started out."
A Celebration of Life, open to all, will be held at Riverside Memorial Chapel, 180 W 76th St., New York, on Sunday, August 9 at 3pm, with a continued celebration nearby from 5.30pm to 9pm.
Brighton Beach
Niederhoffer was born in Brooklyn on December 10, 1943, the son of Arthur "Artie" Niederhoffer, who served 21 years in the New York City Police Department, retired as a lieutenant, and went on to become a sociologist and criminologist at John Jay College, and Elaine Niederhoffer, an English teacher, author and editor descended from a long line of rabbis.
The formative arena was the Brighton Beach Baths, a complex of more than 20 one-wall handball courts near the family home and a mecca for that sport. It was there, among relatives who would wager on baseball, stocks and anything else that moved, that Niederhoffer absorbed the idea that markets and games are the same problem viewed from different angles - a proposition he spent the next six decades testing.
The unlikely champion
He had never held a squash racquet when he entered Harvard in September 1960. Harvard's legendary coach Jack Barnaby spotted him anyway and broke his own habit of leaving freshmen to his assistant, spending 45 minutes on court with him almost every day. Barnaby later said he had never coached a boy who learned faster.
Niederhoffer won the U.S. National Junior title in his sophomore year, played number one for three varsity seasons in which Harvard took the Ivy League crown every year, and won the 1964 Intercollegiate Individual championship. He took the U.S. Nationals in 1966, then again in four consecutive years from 1972 to 1975, and added three national doubles titles. In 1975, at altitude in Mexico and carrying a series of physical complaints, he beat the six-time defending champion Sharif Khan in the final of the North American Open - the only year in a 13-season span that Khan did not take the title.
The interruption between 1966 and 1972 was a matter of principle. The 1967 U.S. Nationals were held in Chicago, where Niederhoffer was then completing his doctorate. The host club had let him practice on its courts but rejected his membership application, and, convinced the reason was that he was Jewish, he boycotted the event, saying he would not put on a show for members who would not have him. He missed that year's championship and the four that followed.
He was a first-ballot inductee into the U.S. Squash Hall of Fame in its inaugural class of 15 in 2000. The mismatched sneakers were already a trademark by then.
The father of statistical arbitrage
Niederhoffer took a B.A. in economics and statistics from Harvard in 1964 and a Ph.D. from the University of Chicago in 1969, and taught finance at the University of California, Berkeley from 1967 to 1972. The academic work is what quantitative managers should remember him for. His 1966 paper Market Making and Reversal on the Stock Exchange, written with M.F.M. Osborne, is widely credited as the founding document of both statistical arbitrage and modern market microstructure. His 1971 paper on world events and stock prices measured the importance of news by the font size of the headline that carried it - an idea that reads today like an early sketch of sentiment analysis.
In 1965, while still a student, he co-founded the investment bank Niederhoffer, Cross and Zeckhauser with Frank Cross, pioneering a mass-market approach to selling privately held companies. He left academia in 1972, and in 1980 founded the trading firm NCZ Commodities, later Niederhoffer Investments.
That firm's results brought George Soros to his door. From 1982 to 1990, Niederhoffer was a Soros partner running all of the fixed income and foreign exchange trading. Soros wrote in The Alchemy of Finance that Niederhoffer was the only one of his managers who quit trading for him voluntarily while still ahead, and thought enough of him to send his own son to learn the business at his desk.
Number one, and then nothing
Niederhoffer Investments returned roughly 35% a year from inception. For 1996, MAR ranked it the number one hedge fund manager in the world. In 1997 he published The Education of a Speculator, which became a New York Times bestseller and remains on the shelf of a great many working traders.
The reversal came that same year. Having returned much of his capital to clients, including Soros, and finding few opportunities, he put the remaining roughly $100m into markets where, as he later conceded without qualification, he had no particular expertise. He sold put options on Thai bank stocks on the theory that the government would not let those institutions fail. The Asian financial crisis said otherwise. On October 27, 1997, with the Dow falling 554 points in a single session, the firm was finished. A business that had managed $130m was wiped out in a day, much of it his own money. "It was like a death," he told the Washington Post weeks later.
He mortgaged his house, sold his antique silver collection, and started again in 1998 trading his own account through the Wimbledon Fund. He began managing outside money once more in February 2002 with the Matador Fund. Over the five years from 2001 the funds compounded at about 50% a year, with 2005 up 56.2%, and in April 2006 MarHedge named Matador Fund Ltd. and Manchester Trading the best-performing CTA over 2004 and 2005. The subprime crisis ended that chapter too: Matador closed in September 2007 after losing more than three quarters of its value.
Few people in this industry have been ranked first in the world and then reduced to zero. Almost nobody has done it twice and come back to trade the next morning.
The Junto and the spec list
What may outlast the track record is the teaching. From 1985 to 2017, Niederhoffer hosted the NYC Junto on the first Thursday of every month, a gathering devoted to libertarianism, Objectivism and investing, modelled on the club Benjamin Franklin ran in Philadelphia from 1727. He was an unabashed Ayn Rand enthusiast, and named two of his daughters Galt and Rand.
His email circle, known to its members simply as the spec list, became the website Daily Speculations, an open forum for testing market ideas that predated Substack by two decades and never charged anyone a cent. Monroe Trout, Toby Crabel and his brother Roy all traded at his firm. James Altucher, Brett Steenbarger and a long list of others have written about what his insistence on counting, testing and refusing to accept received wisdom did to their thinking.
His rule was simple and, in an industry fond of narrative, permanently unfashionable: if you cannot count it, you do not know it. The scientific method applied to speculation was not a marketing line for him. It was the whole of the enterprise.
Nassim Taleb built part of Fooled by Randomness on the argument against him, and Malcolm Gladwell dramatised the opposition in his 2002 essay Blowing Up. Niederhoffer, characteristically, kept publishing his data.
Survived by
Victor Niederhoffer is survived by his wife Susan, his former wife Gail, his daughters Galt, Katie, Rand, Victoria, Artemis and Kira, his son Aubrey, 15 grandchildren, his sister Diane and his brother Roy.
In a brief eulogy for her father, his daughter Galt wrote that with pen and paper and a relentless drive he found patterns and predicted market moves with an accuracy that was, for a time, better than a computer. Time, she wrote, caught up before the algorithm did.
|
RSS
