Not all trading profits are created equal, at least not when it comes to their bonus-earning potential. For example, it’s better to make your profits toward the end of the year and have them fresh in the compensation committee’s mind than to have a stellar first quarter but to go into the year-end with people thinking “what have you done lately”.
We might see this sort of dynamic play out for emerging market credit trading desks, now that banks like Goldman Sachs and JPMorgan are shutting down market-making operations in Russian debt. Earlier in the year, and perhaps surprisingly, Russian debt had apparently been an extremely profitable space for the few traders who could bring together the flow, capital and know-how to help clients wind their positions down. Traders like 29-year-old wunderkind Akash Garg were reportedly responsible for as much as $100m in PnL on their own.
It’s not clear how that might have continued into the second quarter, but in a year when there were few other bright spots, the people trading Russian debt might have had decent reason to believe that they would be among the ones to get looked after. But as the year and the war have dragged on, the positions have presumably been exited, the sanctions have been tightened and populist politicians have started demanding names of all the clients. Consequently, it appears that the banks have decided that the market is now more trouble than it’s worth.
Which leaves the heroes from earlier in the year with a bit of a gap where a key franchise ought to be. They won’t be without work, and they may even do better than most in the 2022 compensation round. There are other emerging market credits to trade, after all, and everyone who has made money in these markets will at least have been able to demonstrate their ability to keep a cool head when faced with the unexpected. But bonuses at investment banks are forward-looking and market-driven, and it’s likely that the hiring market for the stars of Q1 will be somewhat less hot now that some of their best trades have been shut down.
These are the sort of conditions in which people start seriously thinking about moving to the buy side. Hedge fund traders’ pay is often linked to performance fees, which mean that $100m of PnL is something that you can expect to be paid for whenever in the year it happens. And whatever the trade (within the limits of the law) there’s almost always a fund that is willing to take on the risk and the compliance overhead of executing it if there is money to be made.
However, this isn’t always an easy career move. Notoriously, the shift from sell to buy side involves a surprisingly steep learning curve. Some traders have made it work well, but others have found it much more difficult to make money when deprived of the information and order flow of a major bank. And in the current environment, it doesn’t feel like there will be much tolerance for early failures. If stars of the Russian credit market from Q1 start joining hedge funds in Q3, then we’ll know that they’ve made an assessment that the risks of moving are less than those of staying.
Elsewhere, if you worked in the Frankfurt offices of Goldman Sachs in the 1990s, do you remember an Austrian guy called Bernd Bergmair? He didn’t spend long there, apparently – although he made enough money to buy a nice car and live in a big apartment, he never furnished it properly and allegedly slept on a mattress on the floor. He subsequently went back to his home village in the countryside, became a consultant and wealth manager, and seemed to vanish from view.
The FT podcast series “Hot Money” has found him, though – he showed up with $500m at just the point when one of the biggest entrepreneurs in online pornography was being investigated by the government and a forced seller. He’s now apparently a “passive owner” of some really questionable businesses, keeping control through a complicated network of companies and golden shares, and he really doesn’t like to be identified. Presumably he won’t be appearing in any “alumni network” features.
Citigroup is still selectively hiring investment bankers, with Dan McDow and Andrew Delia joining from Credit Suisse and Steve Anderson from Barclays, all working in the software sector and reporting to Mark Keene. (Bloomberg)
A Swiss banking era comes to an end, as Martin Ebner, the Carl Icahn of the Alps, sells BZ Bank and begins to retire (Finews)
Coinbase’s hiring freeze has now turned into mass layoffs, with 1,100 of the company’s 6,200 employees (just over twenty times the size of FTX) being given the news today. The unlucky ones got the message in their personal email, having already been cut off from their work systems which was apparently “unfortunately the only practical choice, to ensure not even a single person made a rash decision that harmed the business or themselves”. It could be said that it’s hard to get to a situation where you’re firing 1000 people without making a single rash decision. (FT)
It might be considered a sign of how things have changed at Deutsche that rather than making hostile speeches about them, European politicians are now calling them up asking for favours; the Prime Minister of Spain wants them to make some concessions as part of an investor group that’s restructuring the debts of a Spanish steel company. (Bloomberg)
He gets “Bernard Madoff returns without being a Ponzi scheme”, and credits his success to his ability to use songwriting to clear his mind of emotional baggage. Pete Muller, former head of Morgan Stanley’s legendary “Process Driven Trading” quant team is planning succession at his hedge fund PDT Partners, so that he can concentrate on “Americana with a soul rock vibe” and his band, The Kindred Spirits. (Santa Barbara Independent)
The former CEO of Citi, Chuck Prince, famously said that while the music’s playing, you’ve got to get up and dance. The current CFO, Mark Mason has been going dancing literally rather than metaphorically – even though the S&P officially went into a bear market today, he said that a charity fundraiser at the Apollo Theater was “a cause worth supporting in any market”. (Bloomberg)
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