Matt Starr lost his job as a managing director on the emerging markets team at J.P. Morgan after nearly 15 years at the bank in 2014, but his first thought was not to get another one – it was to pursue his passion for wine.
So far, this sounds like a standard story of a senior trader quitting the industry, but there was a twist. He launched WineBourse, which is essentially a stock exchange for fine wine. Two years into starting his own firm, Starr is drawing on all the skills he learned as a trader over 20 years working for large investment banks.
Traders, particularly those over 35, are struggling to get new jobs in large banks after the latest round of redundancies, but this doesn't mean that they're doing something different entirely. While the ‘pit’ traders have gone on to run Macdonalds franchises or water restoration companies, the new generation of traders are exploiting skills they've learned over decades in banking, but moving out of the mainstream.
“What’s surprising is how much of an advantage I have from so long in the industry,” says Starr. “I understand risk and derivative risk, I understand trade flow and processing, interest rate funds used to finance the purchases and most wine is paid for in dollars and priced in euro, so there’s an FX market there to exploit.”
Former Morgan Stanley managing directors Pete Eggleston and Oliver Jerome have launched FX execution firm BestX. Adam French spent seven years working in equity derivatives and commodity trading at Goldman Sachs, but left recently to start online investment manager Scalable Capital along with four other colleagues.
“Even at Goldman Sachs, which is relatively innovative compared to other banks, the pace of innovation was incredibly slow compared to the likes of Google and Amazon,” says French. “But it’s not like you can start a fintech company with two guys in a garage in Silicon Valley. You need knowledge of the regulatory landscape as well as the financial products. The best way to get this is to work at a large bank full of clever people.”
Eggleston, similarly, told us that he’d already tasted life in other industries during a 2009 career break when he worked on wildlife conservation projects. Going it alone was “scary” he admits but stepping away from finance with its “clever, driven people wanting to get something done” wasn’t something he wanted to repeat right now.
The new reality for investment banking traders
“If you lose your trading job and you’re under 35, you can adapt to the new environment and secure a new role, and good man managers continue to thrive in senior roles,” says Steve Goldstein, a former investment banking trader turned trading coach at Chrysalis Performance Consulting. “After that, most people struggle.”
Traders he encounters have often left a large investment bank, started trading either on their own book or with a group of former colleagues, made it work for a time and suddenly start losing money.
“People think they had a defined edge, but they soon realise how much this was due to working for a large financial institution with huge amounts of capital, access to information and a support team,” he says. “When you’re using your own capital, making a consistent return is much harder than you realise.”
Goldstein also consults banks for trading roles and says that traders at ‘tier one’ institutions are hit by the triple whammy of banks closing certain business areas, fewer opportunities generally and banks that are hiring – usually tier two or three firms – refusing to take on senior traders with bulge bracket experience.
“The whole dynamic of the market has changed,” he says. “Right now, we’re going through the sort of destructive creativism we see every ten years on the trading floor.”
And what if you want to stay in investment banking?
“You almost have to be a sales trader to make it these days,” adds Starr. “Someone who is a product specialist, who understands PnL but who can pitch trade ideas to clients and then have the mechanism to execute them in a challenging regulatory environment. The big winner of that latest shake-up has been the buy-side – a lot of former colleagues have made the switch.”
Others on the trading floor have taken a step-back from big institutions to give them the time to pursue other business interests.
Matt Clarke left an eFICC sales role at Barclays in February (having previously worked in FX trading) to join XTX Markets – an electronic trading venue set up by Deutsche Bank’s former co-head of fixed income currencies and commodities, Zar Amrolia.
He’s also launched Safescribe – a tech start up that aims to make employees think twice before sending emails, chats or social media. Considering all the trader chat scandals around Libor rate fixing, this would be handy on the trading floor.
Meanwhile, Simon James lost his job in rates sales at Barclays and started ultra-marathon running company Run the Wild, but he still also works in the City.
The problem with quitting a high-paying banking job, even to start something close to the financial sector, is that it usually requires your own capital and also takes time to break even.
“Expect to live a poorer lifestyle,” says Starr. “It’s a cliché, but I’ve never worked harder in my life. I don’t have weekends or holidays and there are days when I wonder why the hell I did this. Anyone starting out on their own needs good partners and support, but they need to be cognizant of the fact that it will take a lot of work to make it a success and, even then, you will be poorer than when you worked in banking.”
In other words, going it alone is all very well, but think twice before you leave the sanctuary of large investment banks.
Photo: Spencer Platt/Getty Images/Thinkstock