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Morning Coffee: The Goldman Sachs associate with a great lifestyle, and crazy quant pay

In these days of gloom and pessimism, it can be hard to achieve a the banker lifestyle. To buy a million dollar house is good. To buy it while you’re still in your twenties is also good. But to win the auction for an A$1.83m (US$1.3m) property while you’re not even in the country but on holiday with your fiancée – that’s living the dream. Congratulations to Mitchell Sedgwick, of Goldman Sachs in Sydney, and to his dad, who handled the bidding. The property is nine minutes from the office by car (or, theoretically, 25 minutes by bus) and the departing owner has volunteered to leave behind a couple of his golden statues of Michelangelo’s David. And come on, who wouldn’t say yes to a deal like that?

There’s a few wider lessons to be drawn from this quirky little piece of property porn, though. First, that the real estate party is still going on in Australia. This house sold for A$200,000 above the reserve price in the auction, and in all honesty, an absentee bid from an investment banker taking out an offer 12% above the reserve in a televised auction does have a slight feel of “irrational exuberance” to it.

Another way of looking at it is that the best off young bankers have advantages baked-in. A recent report in the legal profession suggests that working class entrants to high-pressure careers are often held back by a lack of the kind of confidence that comes “pre-installed” in their posher counterparts.  The reported salary for Associates at GS in Sydney is A$180,000, which is generous, but not enough to buy an A$1.8m house. Predictably enough, then there's been some “help with the deposit” from mum and dad. The situation is similar in London, where young bankers have been complaining for years that only their counterparts with parental assistance are living the archetypal banker lifestyle, while the rest are in flat shares or living with parents in the suburbs.  You're going to feel a lot more confident in your banking career if you've attended a prestigious school and have a house an MD might aspire to live in to go home to.

Whichever school you went to, if you study data science and do well in the International Quant Championship, you’re likely to end up earning more than your parents or professors, however much natural self-confidence you have.  It’s a competition set up by WorldQuant, the hedge fund, in which teams of students from round the world were challenged to come up with trading signals, the winners being offered a research consultant role at WorldQuant.

It’s unlikely that the actual signals that the contestants came up with will be much use to the hedge funds – testing a lot of different rules on the same dataset is the definition of data mining, which is a known fallacy of model creation.  But the competition itself is a chance for potential employers to get a look at some of the brightest and most ambitious graduates in a field where there’s currently a massive shortage of talent.  Two Sigma have launched their own online computer game, called “Halite” in which players need to write code for “bots” to battle for territory in the game universe.  It serves as an ongoing technical challenge in which Two Sigma gets to look at the kind of code people are capable of writing.

A quant with five years of experience can now expect a salary of $300,000 – that’s roughly double what you’d get as an Associate with Goldman Sachs in Sydney, so you can visualise the sort of house that a good quant can get these days, with senior analysts and portfolio managers getting well into seven figures.  Job offers are being given to promising prospects before they have even graduated.  And WorldQuant is even suggesting that the quant environment they use ought to be incorporated into university curriculums, as the industry needs to generate more graduates with hands-on experience.  It is, as Two Sigma CTO Alfred Spector says, a good time to be getting a degree in computer or data science.

Meanwhile …

The latest big industry lawsuit sees GS, JPM, Bank of America, Credit Suisse, Morgan Stanley and UBS accused of forming a cartel in stock lending, and freezing out disruptive competitors like AQS and Data Explorers.  The plaintiffs assert that the big banks controlled the main platform for stock lending, EquiLend LLC, and used their positions on its board to maintain higher prices. (Reuters)

Guess who’s back?  Brady Dougan has been planning a return with an “all new retro” investment bank aiming to exploit new technology, but under an old-fashioned (and more lightly regulated) partnership structure to trade bonds and mortgage-backed instruments.  Exos Financial has had issues with its anchor investor (Scepter Partners, whose ultra-high-net-worth family offices backed out) but is close to launch (WSJ)

Visitors to Deutsche Bank offices all over the world know that Deutsche owns a lot of art.  It has now opened its own gallery, the Palais Populaire in Berlin to show off one of the largest corporate collections in existence (The Art Newspaper)

Two differing views on the future of the industry – in the FT, Tom Braithwaite suggests that Goldman Sachs’ rollout of Marcus suggests that the glory days of investment banking are behind us … (FT)

… but Jes Staley is still betting the future of Barclays on the investment banking franchise.  And he thinks the riskiest thing his bank does is still its credit card business. (Bloomberg)

A senior headhunter in New York has been arrested after attacking a wedding party with a sword (after someone refused to give him a cigarette) – it is presumed that alcohol and/or drugs were involved (Business Insider)

Marco Illy’s status with Credit Suisse has been changed from “gardening leave” to “terminated for cause”, after apparently taking a call from a CS client while relaxing in his garden. (Finews)

ShapeShift AG, the bitcoin and cryptocurrency trading platform, appears to have been taken advantage of by criminals and turned into a significant money laundry, according to a Wall Street Journal investigation. The chief executive might not be doing himself any favours by giving quotes like “I don’t think people should have their identity recorded to catch an occasional criminal” (WSJ)

Meanwhile, Russian billionaires are having to rearrange their finances to stop American sanctions from biting on them, which is limiting their ability to live a prominent life in London (Bloomberg Businessweek)

Another Goldman departure – Ed Knight, London-based head of Delta One and Research Sales (Business Insider)

Citi is staffing up in bond trading – having hired Sam Berberian in June from GS, it has now added highly-regarded CQS (and former Merrill Lynch) trader Ben Friedman (Business Insider)

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AUTHORDaniel Davies Insider Comment

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