September 23, 2011 9:55 pm

The Fear Index

A hedge fund trading on fear lies at the heart of Robert Harris’s new thriller

The financial world is a difficult milieu for the thriller writer. In theory, all that wealth and conflict – the fear and greed that animates trading floors on Wall Street and in the City of London – should be a ripe subject for drama. In practice, the daily struggle for supremacy in global markets has inspired many dud novels.

The problem is that, at the human level, most of the work of investment bankers is as interesting as that of accountants. The reward is money and the risk is losing money, which makes for low emotional stakes compared with the worlds of detectives, spies and defence lawyers. Greed is good but it is also banal.

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Undaunted, Robert Harris, the author of a series of sharp, intellectually satisfying dramas set against real-life backdrops – from an imagined post-war Berlin in Fatherland (1992) to Bletchley Park in Enigma (1995), the life of Cicero in his trilogy starting with Imperium (2006), and the Blairs in The Ghost (2007) – has thrown his hat into the ring.

The result is a fine dystopian parable, especially impressive for the fact that instead of giving up on what really goes on in most banks and hedge funds and making them the mere backdrop for money-laundering and ancillary skulduggery, as many thriller writers have done, his heart of darkness is the thing itself.

The drama contains, as he notes in the acknowledgements, “Gothic flights of fantasy” – the story is reminiscent of everyone from Michael Crichton to Ian Fleming, Stanley Kubrick and Alfred Hitchcock. Yet there is an uncomfortable core of reality there. The plot may be rampantly improbable but it is merely the logic of today’s markets taken to its extreme.

Alex Hoffman, his hero (of sorts), is one of those figures who are now familiar in high finance – a mathematics nerd who runs a vastly successful algorithmic hedge fund. Think Jim Simons of Renaissance Technologies or those who joined John Meriwether at Long-Term Capital Management. His Geneva-based fund is so profitable that high net-worthers are clamouring to invest.

When a bunch of oligarchs, Chinese entrepreneurs and life insurers assemble to hear about Hoffman’s latest software it feels like a gathering of the Smersh management committee. Yet it is not a Bond fantasy but a reflection of the reality of global finance – these venal and greedy figures are exactly the kind of intermediaries whom Bernie Madoff conned.

Hoffman is beautifully drawn – an introverted genius who lacks most social skills and has not even noticed that his assistant’s husband has died, he has many unattractive qualities yet catches our sympathy. He is arrogant and disdainful of others but has a vulnerability that his wife loves and the villain coldly exploits.

He has touches of Tom Jericho, the mathematician hero of Enigma, whose past breakdown also left a crack, and Harris nicely evokes his alienation from his own wealth. “You couldn’t buy anything with a nanosecond or a microjoule, whereas money was a sort of toxic by-product of his research. Sometimes he felt like it was poisoning him inch by inch, just like Marie Curie had been killed by radiation.”

Hoffman, in other words, is poised for a crash both financial and emotional and it duly comes. A book collector, he is mysteriously sent a first edition of Charles Darwin’s The Expression of the Emotions in Man and Animals with a mark inserted in the pages about human fear. Then a burglar resembling an illustration in the book breaks into his house and assaults him. A well-informed hellhound is on his trail.

The plot turns on the nature of Hoffman’s hedge fund and his software VIXAL-4, which uses artificial intelligence to trade on fear. Naturally enough, VIXAL-4 starts to play up, puzzling its handlers by taking a very long position in the Vix volatility index – the “fear index” – and very short ones in Procter & Gamble and a dodgy Polish airline. Those familiar with the recent history of markets will spot the clue.

Alongside the plot, Harris fits in precise colour on the nature of modern wealth. Much of it is seen through the eyes of Hoffman’s partner Hugo Quarry, who has “a first in Philosophy, Politics and Economics from Oxford, an ex-wife and three children safely stowed in a gloomy Lutyens mansion in a drizzled fold of Surrey, and a ski chalet in Chamonix where he went in winter with whoever happened to be his girlfriend that weekend”.

Quarry delights in the game of seducing and capturing money, while the Geneva detective assigned to the case gloomily reflects that he cannot afford to live on the Swiss side of the border because so many oligarchs and shysters – the people who profit from Hoffman’s miracle of “absolute return” – have squeezed him from his native country. What kind of justice, he wonders, is that?

Yet such questions get him no further than the priggish head of risk management, who recognises that things are getting way, way out of control and is mocked by Quarry for his pains. And so this unlikely, yet entirely plausible, cast of characters is carried to its ignoble end. Quite a few Financial Times readers will, I suspect, not only savour The Fear Index, but wince with recognition.

John Gapper is an FT columnist. His thriller ‘A Fatal Debt’ will be published in the US by Random House next year

The Fear Index, by Robert Harris, Hutchinson, RRP£18.99, 336 pages

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