Morning Coffee: How to infiltrate Bridgewater's "circle of trust". The new upside to equity research
If you've ever wondered what the downside is to earning big bucks at a hedge fund, look no further than non-compete agreements. Imagine signing up to a job only to be told that a condition of your continued employment is saying 'no problem' to the prospect of staying away from working for a competitor for two years after you decide to leave your current company.
Non-competes are ubiquitous among senior investment professionals on the buy-side. Citadel ties some staff into two-year non-competes, while Brevan Howard star trader Chris Rokos contested a five-year non-compete deal in order to launch his own hedge fund, Rokos Capital Management, in 2015. Bridgewater Associates, the world's biggest hedge fund, goes one step further.
Greg Jensen, the former co-chief executive of the firm, current co-chief investment officer and long-time protege of Bridgewater founder Ray Dalio, has not had a good day. The WSJ has published details of an alleged groping incident at the firm involving Jensen and a reported $1m settlement with a female employee of the firm he had a consensual relationship with. Putting these aside for a moment, the Journal article also highlights another important detail - the necessary sacrifices to be accepted into the 'inner circle' at Bridgewater.
Jensen joined Bridgewater as an intern after graduating from Dartmouth College in 1996. Since moving up the ranks, he has, according to the WSJ, signed a non-compete agreement for his entire life. The upside? Jensen has been accepted into the "circle of trust" - yes, like Meet the Parents - a select group comprising around 12 employees who are given full knowledge of Bridgewater's investment process. Still, should Jensen decide to leave, it's unlikely he'll be found wanting - aside from a long period of gardening leave, he has made $1.7bn in compensation over the past five years, according to estimates from researcher Institutional Investor’s Alpha.
Separately, while MiFID II doesn't have many fans in investment banks, there's one potential benefit to unbundling the costs of equity research from other trading charges - that research will get better if clients are paying directly for it, and the role of the analyst will gain some integrity again. Philip Augar, former City worker and a historian of London's financial district, writes in the FT that the regulation will make equity research teams smaller, but "could complete the post-Spitzer rehabilitation of sellside research as a reputable occupation". Research will be driven by market forces, which means it has to add value to those paying for it, rather than serve the interests of the companies the analysts are writing about. "All of this has the potential to restore prestige and status to a profession that long ago lost integrity and a clear sense of purpose," he wrote.
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