Morning Coffee: Top hedge fund manager was exhausted by his bad employees. Goldman Sachs and Morgan Stanley have to deal with some difficult clients

It’s hard to drum up much sympathy for the stress felt by hedge fund managers – many people would say that’s what they're paid the big money for.  But the stress is real, and very unpleasant at times.  Simon Sadler, the founder of Segantii Capital Management claimed this week that his fund was “built on borderline exhaustion”.

Sadler is on trial in Hong Kong, over some trades back in 2017 which happened shortly after an employee of Segantii spoke to a sell-side contact about a potential block trade. It’s one of those tricky, technical questions about the boundary between “exploratory conversations”  and “inside information”, which also seems to turn on questions of who said exactly what to exactly who exactly when.  As a result, detailed recollections of contemporary events are very important.

💥Follow us on WhatsApp for news alerts.💥

But it seems that when Simon Sadler casts his mind back nine years, he mostly finds memories of what a terrible time he was having.  The trades that are now under scrutiny were relatively trivial compared to Segantii’s biggest position at the time, which was going wrong.  The market in general was going through a period of volatility, and Sadler was trying to prepare to take his first proper holiday in a decade and spend some time with his family.  He had also started to attend morning meetings of Alcoholics Anonymous “after a period of heavy drinking”.

Alongside all these significant life stressors, though, his testimony in court referred to “difficult conversations with underperforming employees”.  There's a sense that these might have been at least as heavy on Sadler’s mind as any of Segantii’s other problems.

When you make a bad trade yourself, you only have one decision to make – cut losses, or wait for it to turn around.  That can be tough enough.  When one of your employees makes a bad trade, you have that problem, plus the problem of deciding whether it’s just a piece of bad luck or a sign that the employee isn’t up to their job.  If it’s the second, you have a further decision to make as to whether their performance can be turned round, or whether they need to be sacked. Even without the social awkwardness that comes in a small team where employees are also your friends, other people’s mistakes can be three times as stressful as your own.

The trial continues, and Sadler and his colleagues continue to deny all wrongdoing.  Segantii Capital itself returned capital to investors a while ago; Sadler said that “as soon as we were charged, there was little doubt in my mind that the right thing to do was shut the business”.  Ironically, it seems that the fund may have been named after a Celtic legend in which someone irresponsibly left the floodgates open and allowed a great city to be drowned.

Elsewhere, it’s unlikely that the bankers on the SpaceX IPO ever thought that the difficult part was over when they won the mandate.  Now it seems that Elon Musk wants to negotiate the fees; rather than the standard 4% to 7%,  he thinks that 0.75% might be reasonable.

Some sort of discount was inevitable – SpaceX is aiming to raise $75bn, and the banks could hardly have expected to be paid multiple billions, with a “b” for bookrunning and roadshows, no matter how complicated.  Even at 0.75% there are still more than $500m in fees to share, in line with expectations of “hundreds of millions”, the majority of which will go to Goldman and Morgan Stanley.

A fee of 0.75% is aggressive, though.  Previous mega-deals like Alibaba and Saudi Aramco have taken IPO fees down to around 1%, but the only previous large offering at 0.75% price was the relaunch of General Motors after its bailout (at a time in 2010 when the banks were in an unusually poor position to negotiate with the US government).  Not only that, but SpaceX employees seem to have taken after their founder, and are asking for sweetened deals on wealth management.  The sensation grows that bankers are going to earn their money on this one.

Meanwhile …

Citadel has launched a program which allows other hedge funds to input their trade ideas into an “alpha capture” system and feed into its own quant strategies.  This is a fairly common thing to do with sell-side recommendations, but quite avant garde in terms of soliciting input from nominal competitors and probably demonstrates how Citadel really doesn’t see itself as playing in the same league.  (Bloomberg)

This year’s “Hedge Fund Rising Stars” seems to include some people who have built entire new businesses, and others who have just come up with a pretty good trade.  Perhaps surprisingly, not all of them are AI-focused. (Institutional Investor)

David Solomon is seeing “more greed than fear” at the moment, while John Waldron notes that Goldman Sachs has its biggest lead ever in the advisory league tables, before worrying that he might have “jinxed” himself. (Bloomberg)

The timing might be coincidental, but Jérome Brassart is leaving Perella Weinberg to go to Guggenheim Securities, and so won’t have to go through the forthcoming headcount reduction. (Financial News)

Academic research discovers that, with the exception of Elliott Advisors, most hedge funds who call themselves “activist investors” don’t actually seem to do very much activism. (FT Alphaville)

Now that Andrew Left of Citron Resarch has been convicted, others in the market are asking what this means for the short-selling industry.  In particular, it seems that the business model of being a high-profile hater with  an active social media presence could be risky. (Business Insider)

Potential future Prime Minister Andy Burnham was scheduled to have a conference call with hedge fund investors about “bond market pressure”, but decided to go and drink Guinness at an Irish club instead. (FT)

Follow me on X. Follow me on LinkedIn. 

Have a confidential story, tip, or comment you’d like to share? Contact: +44 7537 182250 (SMS, Whatsapp or voicemail). Telegram: @SarahButcher. Signal: sarahbutcher.22  Click here to fill in our anonymous form, or email editortips@efinancialcareers.com. 

Bear with us if you leave a comment at the bottom of this article: comments are moderated intermittently by human beings. Sometimes these humans might be asleep, or away from their desks, so it may take a while for your comment to appear. You must take sole responsibility for comments you post on this site. We will take reasonable steps to weed out anything that we consider to be offensive or inappropriate.