Morning Coffee: Beware hedge funds dangling unattainable pay packages. Last man standing promoted at Citi
Hedge funds are known for paying well. They are also known for paying a large proportion of their compensation in bonuses and - often - for allocating compensation on a formulaic basis. However, hedge funds are also staffed by clever people who devise pay formulas that look attractive but have as much chance of paying out as a slot machine.
The latest fund to offer a superficially attractive package (albeit not one based around bonuses) seems to be Man Group, the London-based listed hedge fund manager, which just bought Numeric, a Boston-based quant hedge fund with 75 employees. The Times reports that Man paid $219m for Numeric, but stands to pay another $275m to “a broad group of the Numeric management team and employees" over the next five years if performance requirements are met.
What are these performance requirements? Man says they depend upon the, 'run rate profitability of the Numeric business at the fifth anniversary of completion' - loosely, the expense ratio at Numeric must be kept below 52.5% for the five years following the completion of the deal. If this requirement is met, Man will activate a 'put and call' option and buy-out Numeric managers' remaining interest in the company. However, even Man admits that the chances of Numeric staff cashing in the full $275m are extremely low. - Man has reportedly told its shareholders that the additional $275m payment to Numeric staff is 'highly unlikely' to come to fruition and has penciled in $105m instead. If hedge funds' incentive payments seem too good to be true, they probably are.
Separately, Citi's James Bindler has demonstrated the importance of staying power. Bindler has just been promoted to global head of FX at Citi. His elevation follows the departure or dismissal of most other contenders. Anil Prasad, the former global head of FX at Citi, left the bank in February 2014. Prasad's replacement, Jeff Feig, quit last week. Feig's departure led to concerns that Citi was understaffed. - The Wall Street Journal said the bank lacked 'senior figures in its currencies business at a delicate time.' But Bindler's moment has (finally) come. An American, Bindler began his career in New York in 1983, before moving to Citi in 1990 and working on the bank's interest rate options and long-dated FX options desk. Bindler left Citi to become a prop trader at Natwest Markets in 1997, only to return in 2000. London-based Bindler has been global head of FX options since 2007. All things come to those who wait.
Meanwhile:
281 people working at Winton jointly earned £197.2m in 2013. It still returned 9.4% after fees. (Financial Times)
90% of Barclays’ spot FX business is now automated, and the bank aims for even more to be automated in future. (Bloomberg)
RBS will probably be able to pay its investment bankers role based allowances to supplement their bonuses. (The Sunday Times)
DC Advisory has lost various debt capital markets bankers and may need to hire some more. (Financial News)
BNP Paribas is close to paying a fine of $8bn-$9bn to the US authorities. (Reuters)
“Repeat after me. Bill Gross is the kindest, bravest, warmest most wonderful human being you’ve met in your life.” (WSJ)
What to do when you’ve taken the wrong job. (HBR)
How to answer interview questions by telling stories. (Undercover Recruiter)
Super rich have been drawing up ‘family mission statements’ amidst fears that children will succumb to idleness. (Telegraph)
When bankers build muscle. (Bloomberg)
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Top tier banker in 3rd tier firm prevails, again. Naughty Deutsche trader hired by hedge fund
