the value of funds (before leverage) as a management fee, so even by doing nothing, no new trades at all, he could make many millions a year. The electricity bill was not an issue.
In his twenty-seven years in finance, one thing remained constant in Veals's view: the only way to make money was to have an edge. No trader, however brilliant or intuitive, could outperform the market over a sustained period. Veals had read all the books on 'rational' markets: he'd read the theories of Merton, Black and Scholes on the valuation of stock options; he'd weighed on the one hand their two Nobel prizes and on the other hand the trillion-dollar black hole left by the collapse and humiliation of the hedge fund for which all three had worked.
'Theory' was all, in John Veals's opinion, piffle. If you play blackjack every day for a year, the house will always win. Veals knew this for a fact since in his first experience of markets, at the age of fourteen, he was the house. His uncle was a bookmaker in Hendon and showed young John how to set the odds in a ten-horse race so that any outcome made a profit for the book. The keys, he taught John, were speed of reaction and constant recalculation. At the latter, John was a prodigious pupil. From the age of thirteen he could work out in his head what odds should be offered on an eleven-part yankee before his uncle could do it with paper and pencil. Horse racing taught him that the only way to beat the house was to have information. If you knew that Stardust Rosie had been held back by her jockey for three races till her odds were 18/1 for the next outing but on that occasion the jockey would give the horse her head, then you really could beat the bookie by backing her to win. No computer model, no algorithmic forecast, could outperform such knowledge.
Veals was viewed as old-fashioned by his peers in believing that the 'real economy' of mills and factories and making things did still have a function - which was to generate a deal flow for the financiers. And these deals, he pointed out, did generate real revenue, which in turn generated tax (some tax anyway, depending on how efficient your tax-avoidance department was) for hospitals, roads, all that.
Where Veals gained an edge on most of his rivals was by knowing that the word 'inside' in the phrase 'inside information' had a surprisingly strict legal meaning. He had known many bankers who hadn't properly understood how much 'inside' information they were legally permitted to acquire, and had thus unnecessarily handicapped themselves. He didn't tell them. They, too, could have studied the book if they'd chosen to. There was kosher inside and iffy inside. 'Know the rules' was Veals's own favourite rule.
The second obvious step towards getting a sustainable edge was to stay away from regulation. In his years as a futures trader and a banker Veals had chosen to operate in areas where regulation was either minimal or non-existent. It was only a matter of time in his own mind before he moved into the world of hedge funds, because here legal supervision was at its lightest: sophisticated investors needed flexible arrangements, not fussy inspectors.
Another obvious precaution, taken by most senior people he knew, was not to pay tax. When it came to running his own hedge fund, he naturally, therefore, based it offshore. He had chosen Zurich, because it was under the jurisdiction neither of the Financial Services Authority in London nor of the European Union. The large profits of High Level Capital were kept in the fund and rolled up abroad; it was structured so that it generated no taxable income. Vanessa, John Veals's Anglo-American wife, was for tax purposes not domiciled in Britain, and there were legal ways of making sure that the income they needed each year should be classified as foreign earnings in her name. A remittance of funds from abroad could alert the taxman, it was true, but the Veals family didn't need much income: John had no power boats or polo ponies; no collections of Sumerian stone tablets or early Picassos; no mortgage, no hobbies and no interests outside work. He hadn't even dug out the basement of his house to stick in a swimming pool. Petty cash could be also bled out of the fund through a web of trusts held in the names of