Q&A with Cantor Fitzgerald CEO Shawn Matthews about Cantor’s plans to build an investment bank

We spoke with Shawn Matthews, CEO of Cantor Fitzgerald & Co. While other I-banks are cutting back, Cantor is building its investment bank. This is what Shawn said to us.

Q: So, Cantor’s is building an investment bank?! What’s the rationale for going ahead at this point in time?

That’s correct. We’re embarking on this now because when you look at the financial services landscape, you have a regulatory environment that’s clearly changing. Basel III, for example, is clearly going to have major implications for how financial services firms operate. This is especially the case for large banks.

In this environment, we see an opportunity to come in and take market share from these large firms. They are going to have to change the way they operate and will need to get by with less capital and less leverage than in the past.

At the same time, the talent pool available to us is deepening considerably. If you’re working in a large bank your compensation structure will have changed significantly over the past five years – generally for the worst.

Equally, we feel that we have the best distribution channel in the world and that now is the time to build upon that.

Q: How many people have you hired so far in 2012? How many do you expect to hire before the end of the year and in 2013?

We’ve added about 25 people organically so far and are looking to add about 50-100. We’re also making acquisitions – we acquired a team in Canada and are close doing to closing a deal in Europe as well as in South America. We are growing organically and through acquisition.

Q: Where are most of these people located? Which geographical markets are you focusing on and why?

This is a global effort. Every large bank has a capital markets team and those banks will be pulling back – both from sales and trading and underwriting. As they pull out, we are going to step in and take market share. Our cost per seat is probably only 20% of the cost at a large bank and we can be far more competitive.

These big firms have built up large-scale service models that we based upon the volumes of business and the revenues of the past five years. However, those years were not the norm. As we get back to a more normalized business environment, like the 1990s or early 2000s, a firm like ours – which has stayed a 1990s style operation, will have the advantage.

Q. Which businesses areas are you focusing on?

We’re certainly always looking to grow sales and trading on a global basis. We are also paying a lot of attention to asset management. We’re building out a full service global investment bank, which is all part of our global approach.

Q: Does Cantor have a different pay model for investment banks? Do you, for example, match investment banks’ now high salaries – or do you focus on performance related pay?

We are certainly more performance based. When you look at the typical model followed by a large bank they will pay a salary and a subjective bonus. We aim to be an organization that is very concrete about how people are paid. We think that’s a clear advantage for us – we have the ability to pay on a clear performance-based metric that’s easy to understand.

Some of our compensation is deferred on a partnership basis, but the majority is paid in cash.

Q: Why should people want to come and work for your investment banking arm? Isn’t it all about scale these days?

We have massive scale in our distribution channels – for us it’s about using that distribution presence to grow our presence across investment banking.

We think that as large investment banks pull back more and more and as they compensation structures become more opaque, people are going to look for different ways to monetise themselves. They are also going to look at the direction of the firm. We are incredibly excited to transform into a major player. We are already the world’s largest private investment bank and we think we can take significant market share from larger institutions. When you look at Cantor as a whole, including affiliates, we have 8,000 employees so we’re not exactly small.

Q: What kind of person will fit with the Cantor culture?

We want people who are very confident in their own abilities, who want to work within a partnership structure that has created some great firms. We are a collegial environment where the turnover of staff is very low. We’re not a big bank in reduction mode. We’re trying to grow into our revenue capability.

We’re looking for people who have a long term vision, who have great rolodexes and who want to make things happen.

Q: Are you doing more of your hires directly, or through recruitment firms?

We always try to hire directly where we can. If a partner recommends someone as being a great hire we will give that much more credence in that over time. Ideally, we will always hire through our connections – although that’s not to say that we don’t use recruiters on occasion.

Q: Can you describe your recruitment process? Should people expect multiple rounds of interviews with everyone in the business (like at Goldman Sachs), or do you try to have a few interviews with key people?

I wouldn’t say we have many many rounds, but we will certainly ask people to come in several times. Culture is very important to us and hiring to fit our culture is key. The opportunity is significant and we want the right people. We also want to hire people we like – after all, we spend most of our waking hours with them.

Q: What kind of hire would you most like to step into your office tomorrow?

It would be someone with a great rolodex, who brings significant amount of energy and a collegial approach, who has a long term vision and who can see that in this landscape the opportunities for Cantor have never been better.