The Fear Index

by Robert Harris

  ‘Eccentric is one way of putting it. Another would be stark raving bloody bonkers. But there you are. That’s Alex. He’s a genius, and they don’t tend to see the world the same way we do. Quite a large part of my life is spent explaining his behaviour to lesser mortals. Like John the Baptist, I go before him. Or after him.’

  He was thinking of their lunch at the Beau-Rivage, when he had been obliged to interpret Hoffmann’s actions to mere Earthlings twice – first when he didn’t show up for half an hour (‘He sends his apologies, he’s working on a very complex theorem’), and then when he abruptly sped away from the table midway through the entrée (‘Well, there goes Alex, folks – I guess he’s having another of his eureka moments’). But although there had been some grumbling and eye-rolling, they were willing to put up with it. At the end of the day, Hoffmann could swing naked from the rafters playing the ukulele as far as they were concerned, as long as he made them a return of eighty-three per cent.

  Leclerc said, ‘Can you tell me how you two met?’

  ‘Sure, when we started working together.’

  ‘And how did that come about?’

  ‘What, you want the whole love story?’ Quarry put his hands behind his head and leaned back in his favourite position, feet up on his desk, always happy to tell a tale he had recounted a hundred times, maybe a thousand, polishing it into a corporate legend: when Sears met Roebuck, Rolls met Royce and Quarry met Hoffmann. ‘It was around Christmas 2001. I was in London, working for a big American bank. I wanted to have a crack at starting my own fund. I knew I could raise the money – I had the contacts: that was no problem – but I didn’t have a game plan that would sustain over the long term. You’ve got to have a strategy in this business – did you know the average life expectancy of a hedge fund is three years?’

  Leclerc said politely, ‘No.’

  ‘Well it’s true. That’s the lifespan of the average hamster. Anyway, a guy in our Geneva office mentioned this science nerd at CERN he’d heard about who apparently had some quite interesting ideas on the algorithmic side. We thought we might hire him as a quant, but he just wouldn’t play ball at all – wouldn’t meet us, didn’t want to know: mad as a hatter, apparently, total recluse. We had a laugh about it – quants! I mean, what could you do? But there was just something about the sound of this one that got me interested: I don’t know – a pricking of my thumbs. As it happened, I was planning to go skiing over the holidays, so I thought I’d look him up …’

  HE’D DECIDED TO make contact on New Year’s Eve: he had figured even a recluse might be forced to put up with company on New Year’s Eve. So he had left Sally and the kids in the chalet in Chamonix – which they had rented together with the Bakers, their perfectly ghastly neighbours in Wimbledon – and, ignoring their reproaches, had driven down the valley alone to Geneva, glad of an excuse to get away. The mountains had been a luminous blue under a three-quarters moon, the roads empty. There was no satellite navigation in the hire car, not in those days, and when he got close to Geneva Airport he had had to pull off the road and look at the Hertz map. Saint-Genis-Pouilly was straight ahead, just past CERN, in flat arable land that glistened in the frost – a small French town, a café in its cobbled centre, rows of neat houses with red roofs, and finally a few modern apartment blocks built of concrete in the last couple of years and painted ochre, their balconies festooned with wind chimes, folded-up metal chairs and dead window boxes. Quarry had rung Hoffmann’s doorbell for a long time without getting a response, even though there was a pale strip of light beneath the door and he sensed that someone was inside. Eventually a neighbour had come out and told him that tout le monde par le CERN was at a party in a house near the sports stadium. He had stopped off at a bar on the way and picked up a bottle of cognac, and had driven around the darkened streets until he found it.

  More than eight years later he could still remember his excitement as the car locked with its cheerful electronic squawk and he set off down the pavement towards the multicoloured Christmas lights and the thumping music. In the darkness other people, singly and in laughing couples, were converging on the same spot, and he could somehow sense that this was going to be it: that the stars above this dreary little European town were in alignment and some extraordinary event was about to occur. The host and hostess were standing at the door to greet their guests – Bob and Maggie Walton, English couple, older than their guests, dreary. They had looked mystified to see him, and even more so when he told them he was a friend of Alex Hoffmann’s: he got the impression no one had ever said that before. Walton had refused his offer of the bottle of cognac as if it were a bribe: ‘You can take it with you when you leave.’ Not very friendly, but then in fairness he was crashing their party, and he must have looked a misfit in his expensive skiing jacket surrounded by all these nerds on a government salary. He had asked where he might find Hoffmann, to which Walton had replied, with a shrewd look, that he wasn’t quite sure but that presumably Quarry would recognise him when he saw him, ‘if you two are such good friends’.

  Leclerc said, ‘And did you? Recognise him?’

  ‘Oh yes. You can always spot an American, don’t you think? He was on his own in the centre of a downstairs room and the party was kind of lapping around him – he was a handsome guy, stood out in a crowd – but he wasn’t taking any notice of it. He had this look on his face of being somewhere else entirely. Not hostile, you understand – just not there. I’ve pretty much got used to it since then.’

  ‘And that was the first time you spoke to him?’

  ‘It was.’

  ‘What did you say?’

  ‘“Dr Hoffmann, I presume.”’

  He had flourished the bottle of cognac and offered to go and find two glasses, but Hoffmann had said he didn’t drink, to which Quarry had said, ‘In that case why did you come to a New Year’s Eve party?’ to which Hoffmann had replied that several very kind but overprotective colleagues had thought it was best if he was not left on his own on this particular night. But they were quite wrong, he added – he was perfectly happy to be on his own. And so saying he had moved off into another room, obliging Quarry, after a short interval, to follow him. That was his first taste of the legendary Hoffmann charm. He had felt pretty pissed off. ‘I’ve come sixty miles to see you,’ he said, chasing after him. ‘I’ve left my wife and children crying in a hut on a freezing mountainside and driven through the ice and snow to get here. The least you can do is talk to me.’

  ‘Why are you so interested in me?’

  ‘Because I gather you’re developing some very interesting software. A colleague of mine at AmCor said he’d spoken to you.’

  ‘Yeah, and I told him I’m not interested in working for a bank.’

  ‘Neither am I.’

  For the first time Hoffmann had glanced at him with a hint of interest. ‘So what do you want to do instead?’

  ‘I want to set up a hedge fund.’

  ‘What’s a hedge fund?’

  Sitting opposite Leclerc, Quarry threw back his head and laughed. Here they were today with ten billion dollars – soon to be twelve billion dollars – in assets under management, yet only eight years ago Hoffmann had not even known what a hedge fund was! And although a crowded, noisy New Year’s Eve party was probably not the best place to attempt an explanation, Quarry had had no choice. He had shouted the definition into Hoffmann’s ear. ‘It’s a way of maximising returns at the same time as minimising risks. Needs a lot of mathematics to make it work. Computers.’

  Hoffmann had nodded. ‘Okay. Go on.’

  ‘Right.’ Quarry had glanced around, searching for inspiration. ‘Right, you see that girl over there, the one in that group with the short dark hair who keeps looking at you?’ Quarry had raised the cognac bottle to her and smiled. ‘Right, let’s say I’m convinced she’s wearing black knickers – she looks like a black-knickers kind of a gal to me – and I’m so sure that that’s what she’s wearing, so positive of that one sartorial fact,
I want to bet a million dollars on it. The trouble is, if I’m wrong, I’m wiped out. So I also bet she’s wearing knickers that aren’t black, but are any one of a whole basket of colours – let’s say I put nine hundred and fifty thousand dollars on that possibility: that’s the rest of the market; that’s the hedge. This is a crude example, okay, in every sense, but hear me out. Now if I’m right, I make fifty K, but even if I’m wrong I’m only going to lose fifty K, because I’m hedged. And because ninety-five per cent of my million dollars is not in use – I’m never going to be called on to show it: the only risk is in the spread – I can make similar bets with other people. Or I can bet it on something else entirely. And the beauty of it is I don’t have to be right all the time – if I can just get the colour of her underwear right fifty-five per cent of the time I’m going to wind up very rich. She really is looking at you, you know.’

  She had called across the room, ‘Are you guys talking about me?’ Without waiting for a reply, she had detached herself from her friends and come over to them, smiling. ‘Gabby,’ she had said, sticking out her hand to Hoffmann.

  ‘Alex.’

  ‘And I’m Hugo.’

  ‘Yes, you look like a Hugo.’

  Her presence had irritated Quarry, and not only because she so obviously had eyes only for Hoffmann and no interest in him. He was still mid-pitch, and as far as he was concerned her role in this conversation was strictly as illustration, not participant. ‘We were just making a bet,’ he said sweetly, ‘on the colour of your knickers.’

  Quarry had made very few social mistakes in his life, but this was, as he freely acknowledged, a beaut. ‘She’s hated me ever since.’

  Leclerc smiled and made a note. ‘But your relationship with Dr Hoffmann was established that night?’

  ‘Oh yes. Now I look back on it, I’d say he was waiting for someone like me just as much as I was looking for someone like him.’

  At midnight the guests had gone out into the garden and lit small candles – ‘you know, those tea-light things’ – and put them into paper balloons. Dozens of softly glowing lanterns had lifted off, rising quickly in the cold still air like yellow moons. Someone had called out, ‘Make a wish!’ and Quarry, Hoffmann and Gabrielle had all stood together silently with their faces upturned, misty-breathed, until the lights had dwindled to the size of stars and disappeared. Afterwards Quarry had offered to drive Hoffmann home, whereupon Gabrielle, to his irritation, had tagged along, sitting in the back seat and giving them her life story without being asked for it – some kind of joint degree in art and French from a northern university Quarry had never heard of, a masters at the Royal College of Art, secretarial college, temp jobs, the UN. But even she had shut up when they got inside Hoffmann’s apartment.

  He had not wanted to let them in, but Quarry had pretended he needed to use the loo – ‘honestly, it was like trying to get off with a girl at the end of a bad evening’ – and so reluctantly Hoffmann had led them up to the landing and unlocked his door on to a vivarium of noise and tropical heat: motherboards whirring everywhere, red and green eyes winking out from under the sofa, behind the table, stacked on the bookshelves, bunches of black cables festooned from the walls like vines. It reminded Quarry of a story he had read just before Christmas about a man in Maidenhead who kept a crocodile in his garage. In the corner was a Bloomberg terminal for online home traders. On his return from the bathroom, Quarry had looked in at the bedroom – more computers taking up half the bed.

  He had come back into the living room to find that Gabrielle had made room for herself on the sofa and kicked off her shoes. He said, ‘So what’s the deal here, Alex? It looks like Mission Control.’

  At first Hoffmann had not wanted to talk about it, but gradually he had begun to open up. The object, he said, was autonomous machine-learning – to create an algorithm which, once given a task, would be able to operate independently and teach itself at a rate far beyond the capacity of human beings. Hoffmann was leaving CERN to pursue his research alone, which meant he would no longer have access to the experimental data emanating from the Large Electron–Positron Collider. For the past six months, therefore, he had been using data streams from the financial markets instead. Quarry had said it looked an expensive business. Hoffmann had agreed, although the main cost to him was not in microprocessors – many of which he had been able to salvage from scrap – or the cost of the Bloomberg service, so much as in electricity: he was having to find two thousand francs a week simply to bring in sufficient power; he had twice blacked out the neighbourhood. The other problem, of course, was bandwidth.

  Quarry had said cautiously, ‘I could help you out with the cost, if you’d let me.’

  ‘No need. I’m using the algorithm to pay for itself.’

  It had taken an effort for Quarry to stifle his gasp of excitement. ‘Really? That’s a neat concept. And is it?’

  ‘Sure. It’s just a bunch of extrapolations drawn from basic pattern analysis.’ Hoffmann had shown him the screen. ‘These are the stocks it’s suggested since December first, based on price comparisons using data from the past five years. Then I just email a broker and tell him to buy or sell.’

  Quarry had studied the trades. They were good, if small: nickel-and-dime stuff. ‘Could it do more than cover costs? Could it make a profit?’

  ‘Yeah, in theory, but that would need a lot of investment.’

  ‘Maybe I could get you the investment.’

  ‘You know what? I’m not actually interested in making money. No offence, but I don’t see the point of it.’

  Quarry couldn’t believe what he was hearing: he didn’t see the point!

  Hoffmann had not offered him a drink, or even a seat – not that there was room to sit now that Gabrielle had taken the only available space. Quarry was left standing sweating in his ski jacket.

  He said, ‘But surely if you did make money then you could use the profits to pay for more research? It would be what you’re trying to do now, only on a vastly bigger scale. I don’t want to be rude, man, but look around. You need to get some proper premises, more reliable utilities, fibre optics …’

  ‘Perhaps a cleaner?’ Gabrielle had added.

  ‘She’s right, you know – a cleaner wouldn’t hurt. Look, Alex – here’s my card. I’m going to be in the area for the next week or so. Why don’t we meet up and talk this through?’

  Hoffmann had taken the card and put it in his pocket without looking at it. ‘Maybe.’

  At the door Quarry had bent down and whispered to Gabrielle, ‘Do you need a ride? I’m driving back to Chamonix. I can drop you in town somewhere.’

  ‘It’s all right, thanks.’ A smile as sweet as acid. ‘I thought I might stay here for a while and settle your bet.’

  ‘Suit yourself, darling, but have you seen the bedroom? Best of bloody luck.’

  QUARRY HAD PUT up the seed money himself, used his annual bonus to move Hoffmann and his computers into an office in Geneva: he needed a place where he could bring prospective clients and impress them with the hardware. His wife had complained. Why couldn’t his long-discussed start-up be based in London? Wasn’t he always telling her that the City was the hedge-fund capital of the world? But Geneva was part of the attraction to Quarry: not just the lower tax, but the chance for a clean break. He had never had any intention of moving his family to Switzerland – not that he told them that, or even acknowledged it to himself. But the truth was, domesticity was a stock that no longer suited his portfolio. He was bored with it. It was time to sell up and move on.

  He decided they should call themselves Hoffmann Investment Technologies in a nod to Jim Simons’s legendary quant shop, Renaissance Technologies, over in Long Island: the daddy of all algorithmic hedge funds. Hoffmann had objected strongly – the first time Quarry had encountered his mania for anonymity – but Quarry was insistent: he saw from the start that Hoffmann’s mystique as a mathematics genius, like that of Jim Simons, would be an important part of selling the pr
oduct. AmCor agreed to act as prime brokers and to let Quarry take some of his old clients with him in return for a reduced management fee and ten per cent of the action. Then Quarry had hit the road of investors’ conferences, moving from city to city in the US and across Europe, pulling his wheeled suitcase through fifty different airports. He had loved this part – loved being a salesman, he who travels alone, walking in cold to an air-conditioned conference room in a strange hotel overlooking some sweltering freeway and charming a sceptical audience. His method was to show them the independently back-tested results of Hoffmann’s algorithm and the mouth-watering projections of future returns, then break it to them that the fund was already closed: he had only fulfilled his engagement to speak in order to be polite but they didn’t need any more money, sorry. Afterwards the investors would come looking for him in the hotel bar; it worked nearly every time.

  Quarry had hired a guy from BNP Paribas to oversee the back office, a receptionist, a secretary, and a French fixed-income trader from AmCor who had run into some regulatory issues and needed to get out of London fast. On the technical side, Hoffmann had recruited an astrophysicist from CERN and a Polish mathematics professor to serve as quants. They had run simulations throughout the summer and had gone live in October 2002 with $107 million in assets under management. They had made a profit in the first month and had gone on doing so ever since.

  Quarry paused in his tale to let Leclerc’s cheap ballpoint catch up with his flow of words.

  And to answer his other questions: no, he was not sure exactly when Gabrielle had moved in with Hoffmann: he and Alex had never seen one another much socially; besides, he had been travelling a lot that first year. No, he had not attended their wedding: it had been one of those solipsistic ceremonies conducted at sunset on a Pacific beach somewhere, with two hotel employees as witnesses and no family or friends in attendance. And no, he had not been told that Hoffmann had had a mental breakdown at CERN, although he had guessed it: when he went to the loo in his apartment that first night, he had rummaged through Hoffmann’s bathroom cabinet (as one does) and found a veritable mini-pharmacy of antidepressants – mirtazapine, lithium, fluvoxamine – he couldn’t remember them all exactly, but it had looked pretty serious.