Page 179

grow it [the business] and make structures that work." Kovner believes that by developing different strategies, a manager can grow the size of the fund. Each strategy can handle X amount; add them up and you can continue to grow until you hit a limit.

"My goal is to develop a company that works without me in 10 years, or doesn't have a lot of input from me," says Kovner.

INFORMATION TECHNOLOGY

Kovner says that his total long exposure to the stock market has always been low. Currently, it is about 17 percent, which is historically low. This reflects a moderate bearish view on the equity environment. Technology is only a very minor percentage of the total portfolio.

"Some managers get sucked into trading what they shouldn't. . . . They tend to be momentum traders. Some managers move to where the action is. They got into Nasdaq, a big roller coaster. For example, while it may be easy to get into technology, it may be difficult to get out. It is difficult to cope with the volatility."

Nevertheless, technology is important to Kovner. Technology is needed to gather information globally. "It is hard to handle [all the information flow] without information technology," he says. This may be one of the defining success factors between the old generation and the new generation of hedge fund managers.

He suggests that some of the older hedge fund managers may not have wanted to learn new technologies—which may lead to their demise or put obstacles in their way of surviving. "The survivors will be those who are able to adapt to new markets, adapt to information technology, and instill rigorous risk control."

INTELLECTUAL HONESTY

Kovner says that Ed Banfield, his academic mentor at Harvard University, has been the biggest influence on his life. "He was an intellectual leader of the New York conservative movement; really he was a complete iconoclast. . . . I learned intellectual honesty from him. There are lots of things you don't know. You've got to be aware of that. Be honest about what you don't know. . . . I never thought I could do as well as he [Banfield], so I moved [out of academia to this area]."