Morning Coffee: The 40 year-old hedge fund manager paid millions to rest. Goldman Sachs' soft trading revenues
If you find yourself feeling fatigued with the daily grind and wishing for a spell of respite, but hesitating because it will be unpaid and you might not have a seat when you come back, you're in the wrong job. You should have been a very successful portfolio manager at a top multistrategy hedge fund.
David Lipner followed this path. After graduating from Lafayette College and then Columbia Business School, Lipner got a job at an asset management firm, then at Merrill Lynch (for a year until the financial crisis) and then at CLSA, the Asian capital markets group. It's not clear whether CLSA was a response to the upheaval at ML after the financial crisis, but Lipner used that to make a fortuitous move to hedge fund Millennium, where he's been ever since.
That was 12 years ago, and Lipner - now aged around 40 - recently decided it was time for a change. Bloomberg reports that he handed in his resignation to join a rival. Millennium didn't want him to go. It offered him a sabbatical, a paid sabbatical - for an entire year (which would have been roughly equivalent to the paid non-compete period if he'd moved), plus an 'incentive' to come back again when it was over.
While people in banks can expect miserable bonuses again this year, Lipner's experience is a painful reminder that in the world of multistrategy hedge funds, compensation is still booming. Top portfolio managers are being poached on packages of $10m, $15m, $50m and even $120m, say headhunters. It's like Wall Street in 2006; at top funds, employees and the platform now share 55% of the trading profits.
While this is happening, headcount in the multistrategy firms is rising. Bloomberg cites figures from Goldman Sachs showing that the multistrats ( Citadel, Millennium, Verition, Schonfeld, Balyasny, Point72, Eisler and ExodusPoint) increased the number of investment professionals they employ by 125% between 2015 and 2022, while single manager hedge funds kept theirs roughly stable. The universe is still tiny, however: Goldman puts total investment professionals across multistrategy hedge funds at just 7,200 last year. Our own research suggests they're split as follows:
As multistrategy hedge funds scour the world for people who can manage their assets effectively, Bloomberg says top portfolio managers are increasingly able to dictate their terms. And it's not just about pay - as Lipner shows, lifestyle also pays a role. So does access to technology, data and market insights. One CIO says multistrategy funds are fundamentally HR platforms that need to keep their people happy. If they don't, there are plenty of bids for them elsewhere.
Separately, Goldman Sachs traders keep leaving for top hedge funds and yesterday's presentation by Goldman President John Waldron was a reminder why. Waldron said Goldman's sales and trading revenues are down 25% on last year, and that the firm is "preparing for a tougher environment" against an “extraordinarily challenging” economic backdrop. Morgan Stanley is doing something similar.
Hedge fund Coatue has been using AI to to sift through sellside research, earnings transcripts and pitch decks to extract and condense key points into clear and concise briefing. VC firms have used it to assess and compare investment targets based on measures such as web traffic and new users. (Financial Times)
Banks are using AI to 'to come up with more tailored hedging solutions through instruments like interest-rate swaps and equity derivatives, enabling them to offer better pricing to clients.' Deutsche Bank is using it to analyze whether private clients are too invested in one product. Morgan Stanley has got an AI model to interpret whether communications from the Federal Reserve are hawkish or dovish. (Bloomberg)
New York lawyers face potential sanctions after they used Chat GPT and it invented citations to six nonexistent cases and invented some bogus quotes. (Bloomberg)
2,550 private equity executives in the UK made a total of £3.4bn in carried interest in the 2020-21 tax year. (Financial Times)
It's not easy finding a graduate job in China now. Youth unemployment is rising and while Chinese students in the West are still getting jobs at banks and in tech, those at home are struggling and reconsidering farming. (New York Times)
Chinese bankers are travelling less often. Stephanie Hui, the head of Goldman Sachs’ private equity business in Asia, said she used to go to the US to raise new funds. Now, “I only go to the States to see my boss.” (Reuters)
Nike cowboy boot hybrids are a thing and they cost $650. (WSJ)
Reflections of an IIT graduate. (A junior VC)
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