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Morning Coffee: Can you go it alone in IBD? Brevan Howard launches new funds, but cuts the gym

Striking out from a banking career to launch your own firm is something that’s only for the most confident among us. If you’ve got a real blue chip of a personal brand, you can get very rich this way, but if your franchise is good rather than great, then you’re likely to find out that fact pretty quickly. Three former Institutional Investor poll-winners are taking a shot at the title this week, reports Financial News, as On Field Investment Research launches as an equity research boutique, run by Mark Stockdale (former head of research at UBS), Arnaud Pinatel (most recently of Moore Capital, before that Exane) and Yassine Touahri (also of Exane). Good luck guys...

The problem that small advisory firms of all kinds tend to come up against is the most basic economics – it’s awfully difficult to get paid. For some reason, people who know that their professional advisors work for money, and who are happy to write a large cheque for an hour with a senior lawyer, tend to be reluctant to pay the same amount of money for an hour’s worth of financial advice that could generate them much more value. The way that the industry has worked over the years has been to try and treat the client as a personal friend, to emphasise relationships over transactions and to suggest options which are in line with existing priorities and beliefs. This makes it awkward for the buy side, as they experience something that feels like a chat with a pal after which you end up being led into an idea that was close to what you were thinking anyway, and then get presented with a bill.

This is less of a problem for the big banks, because they have more scope to bundle different services together, to measure profitability across the bank as a whole, and therefore to accept payment in one division for services rendered in another. Not only does this help to obfuscate the true pricing of any one service, it also handily puts a few layers of separation between the touchy-feely relationship handlers and the debt collectors. It’s even better, of course, if the payoff for five years of advice comes in the form of a big capital markets or M&A transaction, where a truly massive fee can be concealed by making it a smallish percentage of a huge number.

The one advantage that boutiques have comes from their very smallness. If an idea or a piece of analysis comes from On Field, and you’re paying a direct and identifiable fee for it, then you can have a reasonable expectation that the idea has only been given to a small number of clients. If the same idea came from a bulge bracket firm, then it would have lower value precisely because you would expect it to have already been broked all across the Street. The M&A boutiques have a similar value proposition; if you hire them, you can be more confident that there’s no conflict of interest with your competition.

And when the model works, it works well. As Stockdale says, “[in the past] the perception was that if you were a bank at the top of the rankings, the buy-side would pay for your research. In fact, they only wanted a selected number of teams, but took the rest”. If you can take even a percentage of the value of a bulge bracket relationship, and split it between three guys (after paying for an office, compliance etc), then you can do very well. No guts, no glory …

Separately, Brevan Howard is sending out slightly mixed messages. On the one hand, it’s cutting back its office space and not renewing its lease on the ground floor of its office building in London. That means goodbye to the gym, kitchen, meeting area and ground floor reception, with some of these functions presumably relocated to the first-floor space that they will continue to occupy. But on the other hand, it’s not cutting back on fund launches, with a new central bank rates fund to be managed by Fash Golchin, according to Reuters.

It’s the age-old dilemma of hedge fund marketing – what kind of a message do you want your head office to be sending? On the one hand, it needs to speak of success and money making, hence the premium locations and modern art that tends to be seen there. You also want to keep the staff happy so that you can keep attracting the best managers and traders, so the kitchens and gyms are important too. But on the other hand, particularly when performance has been so-so, you don’t necessarily want to draw too much attention to the sort of things that the management fee can pay for. Added to which, most hedge funds are partnerships, so the cost of these things comes straight out of the boss’s pocket.


Why would a superstar private banker at the “write your cheque” stage of his career decide to leave the industry for a job at an Australian retail fund manager? Perhaps because, despite his success at Credit Suisse, Francesco de Ferrari was never really a company man and more of a manager than a personal fee generator. (FINews)

High stakes for the SEC as they decide whether or not to take action against Elon Musk for market manipulation in the aftermath of the notorious “take private” tweets. If they decide to do nothing, the SEC itself could come in for some harsh criticism.(Bloomberg)

After a political candidate endorsed medical marijuana, Wells Fargo closed her campaign’s bank account. Is this an overcautious KYC policy, or have things gone too far in delegating law enforcement to the banking system. (New York Times)

How do you talk a client out of a bad idea? An American wealth manager shares some of the frequently asked questions he has experienced when his clients start to enquire about Bitcoin and ICOs (Wealth Management)

Layoffs in JP Morgan Chase asset management – about a hundred jobs at risk. (WSJ)

Some good news for Tesla as Deutsche Bank agrees to extend its warehouse loan facility. (TheStreet)

The business of private equity always used to be, according to its publicity material, adding value to companies by shrewd operational management involvement. Now it’s all about deal selection, as private equity investors increasingly take minority stakes without control rights, in order to get into growth companies. (Financial News)

Image credit: borchee, Getty

AUTHORDaniel Davies Insider Comment

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