Hedged out. Inequality and insecurity on Wall Street. By Megan Tobias Neely, University of California Press. 2022. pp. 336. £22.69 (hbk)

Abstract

Whether in the City of London, Paris, Switzerland, Chicago or Wall Street, the social sciences have been exploring financial capitalism through studying the everyday work and professional careers of its actors for more than two decades (Boussard, 2017 Finance at Work, 2017). This scholarship has examined traders (Zaloom, 2006 Out of the Pits: Traders and Technology from Chicago to London; Godechot, 2007 (2016) The Working Rich: Wages, Bonuses and Appropriation of Profit in the Financial Industry), investment bankers (Ho, 2009 Liquidated: An Ethnography of Wall Street) and private wealth managers (Harrington, 2016 Capital Without Borders: Wealth Managers and the One Percent), among many other studies of financial elites.

In Hedged Out, Megan Tobias Neely contributes to this field by exploring a “black box” at the heart of financial capitalism: the shadow-banking world of hedge funds. As Neely explains in the introduction of the book, hedge funds are private financial firms that pool large sums of money from wealthy people and large institutions to invest in the stock market. With venture capital and private equity firms, hedge funds are credit intermediaries that are less regulated (and less taxed) than better known commercial and investment banks. These are smaller companies, which are less stabilized and institutionalized than banks because of their riskier activity. As Neely explains: “When the market is in a downward spiral, as in a “bear” market, hedge funds must perform “hedges” and short-sell stock (bet that companies will fail) to profit. But when the market grows — that is, a “bull” market — hedge funds must take on more risk to outperform the market” (note 81, p. 18). The high volumes they trade in can bring enormous profits.

A former financial worker herself — she worked as an analyst in the Seattle office of one of the world's largest hedge funds from 2007 to 2010 – Neely does not describe in detail the inner workings of these companies - neither their organization nor their concrete activity - which she describes as “opaque” and “convoluted” (p. 4). For an ethnographic description and critical analysis of practices of pricing, valuation and investment in credit intermediaries, one should turn to Ortiz's book The Everyday Practice of Valuation and Investment recently translated into English (Columbia University Press 2021 [2014]), which is surprisingly not mentioned in the book. Instead, Hedged Out is primarily focused on the professional careers of hedge fund managers and specifically on the paradox of small firms, which are supposedly culturally open and horizontally organized, being run by an exclusive group of white men from the upper middle class. The concept of being “hedged out” is meant “to explore boundary-making around gender, race and social class that allows insiders to hoard resources and opportunities, sharing them almost exclusively with similar others” (p.19). Hedged Out is an important contribution to the sociology of financial elites and their separatism.

The broader macro picture is found in Neely's previous book, co-authored with Lin (2020, Divested), which offers an analysis of how the expansion of the U.S. financial sector has been a fundamental cause of rising economic inequality that has exacerbated the uneven distribution of resources according to gender, race, and social class.

Due to the difficulty of accessing financial firms and the technical nature of their activities, Neely took advantage of her knowledge of the industry as a former hedge fund employee, a classical way to start fieldwork in the financial industry (Ho and Zaloom did the same). But Neely insists that her study of hedge funds really started in 2013 when she came back and introduced herself as a scholar (instead of an insider) studying gender and race in the industry. Between 2013 and 2019 she conducted in-depths interviews (N = 48) with hedge funds workers and founders while observing several workplaces and professional events in the USA in Wall Street, Texas and California. The book is beautifully written and a page turner. Each chapter starts with a vivid vignette of her observations, and the author demonstrates great reflexivity (particularly when recounting her job interviews). The analysis is also skilfully interwoven with observations and interviews, making it accessible and embodied by real flesh-and-blood characters.

The first chapter sets the scene: hegemonic elite white masculinity is nothing new in the financial industry. This fact has been popularized through the post-WWII community banking era (captured in the 1946 movie It's a Wonderful Life), to “the Masters of the Universe” in Wolfe novel's The Bonfire of the Vanities picturing 1980s Wall Street, to the socially awkward, eccentric, non-conformists in the 2015 blockbuster The Big Short. Hedged Out is not the first social science research that focuses on gender in finance (noticeably McDowell, 1997 Capital Culture: Gender at Work in the City; Roth, 2006 Selling Women Short: Gender and Money on Wall Street; Zaloom, 2006 Out of the Pits; Ho, 2009 Liquidated). However, Hedged Out offers a systematic attempt to intersect gender, race and social class to better understand the inner workings of financial elites in the latest era of shadow banking. The clothes of hegemonic masculinity have changed, and to illustrate this shift Neely coins the term hedgemonic masculinity; in her words, “an ideology which values entrepreneurialism, trustworthiness and financial risk taking and associates these attributes with elite white men, serving as a protective hedge that legitimizes their dominant position and outsized earnings” (p.31).

The hedge fund industry claims to promote meritocracy, free market employment, openness, autonomy, innovation, intelligence, creativity, gender neutrality and an inclusive labor environment assuring upward class mobility for whoever makes money. Yet Neely finds an industry structured by what Max Weber named patrimonialism that is, a system of patronage in which the leader's authority rests on trust, loyalty and tradition shored up by transactional processes among people who look the same and share the same background, mostly elite white men with a lot of economic, cultural and social capital. “Since the hedge funds archetype legitimizes and valorises less oversight and accountability than other firms, it allows hedge funds to create boundaries around who can access the industry's immense wealth and who is hedged out” (p.56). Chapters 2 to 7 follow the arc of the hedge fund career to study this boundary-making.

Elite networks and prestigious credentials – obtained in wealthy families and elite private schooling - are the most effective entry points into this competitive job market (chapter 2). The hiring process fosters sameness mainly through alumni, fraternity and sport networks. All these shared experiences depend on class-structured access to elite universities, but also on gender-typed and race-segregated activities (chapter 3).

Inside hedge fund firms (chapter 4), Neely focuses on remuneration which is composed of three components: base salary, bonus and share ownership. She describes in fine details who gains access to status, money and power. Again a paradox arises: although hedge funds claim to be small and flat organizations with radically transparent earnings, they appear to be very hierarchical and mostly opaque. White men are overrepresented in the more prestigious and financially rewarding front office (research, trading and client services), whereas women and people of colour are over-represented in the less prestigious and less financially rewarding back office (administration, compliance, operations). Neely also points out the concentration of executive power in the hands of “key men” – such as chief investment officers (CIO) — who can leave the firm with client investors and their money (a process that Godechot 2007 (2016) calls a “hold-up”). Neely concludes that flexibility and informal organization insidiously allow inequalities and social hierarchies to flourish. Discriminations against women (seen as potential mothers) and people of colour are rarely denounced or condemned because the industry is small and reputation-based.

To move up the ranks (chapter 5), workers have to market, cultivate and capitalise on their personal brand, just as they would a financial product, according to what Neely calls a portfolio ideal. Yet the social organization of labor remains at the same time very archaic, based on patronage. People refer to hedge funds founders as “kings” and “chiefs”, and the most efficient way to move up the ranks is to be mentored by one of them as a “protégé”. The last two chapters of the book are dedicated to these kings and chiefs, who share hedge fund ownership. Reaching the top is reliant on access to great economic capital, and the easiest route is to come from a wealthy family or to have access to one of them through your social network.

The book was written in the aftermath of the 2008 financial crisis, and Neely pays attention to who won but also who lost at this turning point for the hedge fund industry. Maintaining a hedge fund at this critical time implied great economic and social capital that only a few individuals, mostly elite white men, have.

Readers, and particularly students, should not miss the fantastic methodological appendix, which is highly informative about what it means to observe this world as a white woman from a middle-class background (not related to a wealthy family) and a former worker in the industry. Following Hoang (Dealing in Desire, 2015) and Mears (Very Important People, 2020), Neely focuses on the female body – noticeably her body — as a woman who studies financial capitalism, and who experienced harassment and discrimination during her research. This methodological appendix, which deserves to be incorporated in the body of the text, brings a lot of reflexivity to this important monographic study.