Page 164

He says the principals have virtually their entire financial net worth invested in the funds.

He has three goals—to earn a significant risk-adjusted rate of return, to create an enjoyable work environment, and to build an organization with lasting value.

"What motivates me first is my love for the business," Kingdon says. "I enjoy the investment game—the intellectual and emotional challenge it represents. I like winning, and it's even more fun when you share the experience with teammates. I feel a sense of responsibility to our investors who have entrusted us with their capital and the employees who have put their capital and careers on the line to work here. At this stage in my career, money is just a way of keeping score, and asset size is a potential concern, not a goal."

Kingdon is a global equity long/short hedge fund. "One reason we have historically emphasized equity investing [as opposed] to macro trading is that it is possible to be more informed than other investors on the outlook of a given company, while macro is more of a judgment call."

From January 1995 through December 1999, global equities exposure peaked at about 90 percent in July 1997. By year-end 1999, global equities were less than 50 percent. Over that five-year time frame, equities averaged 56 percent. Of that amount, 41 percent were U.S. equities and 15 percent non-U.S. equities.

Macro trading (i.e., interest rates, metals, and currency exposure) has averaged 10 percent of Kingdon's assets under management during the same time period. Macro trading peaked at a bit over 40 percent in July 1998. By year-end 1999, it was less than 5 percent.

Cash makes up the difference between equities and macro trading. Cash reserves, futures, options, and short sales are used to hedge market exposure.

ALLOCATIONS BASED ON VALUATIONS, FUNDAMENTALS, AND CHARTS

Valuations, trends in fundamentals, and technicals (such as sentiment measures) make up the cornerstone of Kingdon's trading methodology. They are applied to the broad market and to individual stocks.

In order of importance, valuation (both asset- and earnings-based), earnings momentum, and relative price momentum are the three impor-