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Morning Coffee: The best job in finance turns out to be a facade. Ominous utterances at Nomura

Who hasn't dreamed of working for a hedge fund? After all, there's the pay, the prestige and the opportunity to prop trade rather than simply making a market. Hedge fund jobs have it all. - Don't they?

Try suggesting that to 55 year-old David Goldburg, formerly of the GS prop desk, Michael Milken’s organisation and his own (putative) hedge fund. Bloomberg has got a photo of Goldburg looking curiously pallid and distraught at the state of his chosen profession. We are informed that Goldburg has been looking for a job and that despite (or maybe because of) his credentials, no one hiring. If you want to work in a hedge fund and you have more than 15 years' experience then good luck.

It's all down to that old fiend - juniorization.  First it came for the banks and now it's come for the fancy jobs in the hedge funds. Bloomberg says even the shops which are hiring are only interested in “juniorification” of their ranks. In other words they want three or four twenty-something MBAs (or twice as many outsourced analysts in Mumbai) rather than one senior guy with a track record.

Not only is it therefore unlikely that you will find a hedge fund pot at the end of your rainbow, but if you do it may not be filled with gold. As our anonymous correspondent “MarginOfSaving” put it yesterday, hedge fund portfolio managers (PMs) will never willingly pay even the very best analysts more than they think they can get away with.  And in a market where the alternative bid has disappeared, that’s going to be a low number.  It could be even worse than that; if your PM thinks that you are a bit too expensive or fancies an upgrade, there are now at least 40 investment professionals recently laid off by Balyasny to choose from...

Worse, as Goldburg also discovered to his detriment, this is the worst possible time to be doing what successful hedge fund analysts have historically done: trying to monetise a good track record by starting your own fund.  Seed capital is hard to find and even if you were lucky enough to find it, good investment ideas are more scarce and risks significantly higher than they have been for years.  As well as closing down potential alternative alleys, this has interrupted the usual upward promotion ladder; senior guys with good performance are not leaving, so they’re not creating vacancies for the level below them, and that has a ripple effect all the way down the food chain, until it reaches the analysts at the bottom.

So what to do?  As always, the biggest firms, with enough diversification of strategies and investors to smooth the impact of market conditions, are the ones most able to carry out long term planning.  Citadel are still hiring at the analyst level, although they’re also firing.  GLG is still running its two-year program to bring analysts on to managing money, on the rationale that breaking the pipeline now is bound to cause problems in the future.  But other than that, people might have to start leaving hedge funds altogether, going to the sell-side or into industry.

That’s what David Goldburg has done.  He’s now employed at Merida Capital Partners, a private equity firm which according to its Twitter profile is “focusing on the ancillary verticals in the emerging cannabis industry”.  This has led him to give the decidedly double edged quote that “before I found cannabis, it was very depressing”.  He’s talking about the industry, of course, which is “so much more interesting and exciting [than hedge funds] from a growth perspective and a money making perspective”.  So for one hedge fund analyst at least, there has been a happy ending.  - Although you would never know that from his photo.

Separately, employees on the sell side are hardly having a party either. Take the confused messages being emitted by Nomura. On one hand, the Japanese bank eradicated 50 recently hired traders in the summer. On the other, it's been hiring new people as it chases a 25% increase in credit trading revenues.  Now, Nomura's London employees have new reasons to fear for their futures. The wholesale bank moved into loss in fiscal Q2 and that trend appears to have continued into the current quarter.

Bloomberg reports that Nomura CEO Koji Nagai made an investor presentation yesterday saying there was a good start to October, but wholesale activity dropped off a cliff in November “with both individual and institutional investors”.  Ominously, the London office is going to be converted from a global booking centre to one which only serves the EMEA region, reducing its allocated capital from $5bn to $3bn.  It’s hard to see that happening without further job cuts.

This is the age old story of Japanese banks’ international operations; they tend to lurch from feast to famine, depending on the extent to which the domestic franchise is throwing off enough cash to sustain ambitions of trying to reach critical mass and profitability in the American and European markets.  This is not the first such cycle and it might not even be the last.  For the time being, though, it looks very much like the global employees of any Japanese investment bank, not just Nomura, are playing defense rather than offense.

Meanwhile ...

Some rare good news for Deutsche Bank, as it manages to settle one of the Frankfurt prosecutor’s cases in the growing “Cum-Ex” tax fraud scandal for only €4m, reflecting its relatively minor role as a custodian bank (Bloomberg)

The thundering herd is back? Despite a good year in equity IPOs, Bank of America has missed out on what it considers to be its “natural” market share in US mid-market investment banking deals.  Since it’s having a good year overall, it can afford to spend money on filling this gap and so it’s hiring investment bankers. (Business Insider)

A copy of Confusion de Confusiones, the first ever book written about stock trading (and options trading; 17th century Amsterdam had a surprisingly sophisticated derivatives market) is up for sale at Sotheby’s with a guide price between $200,000 and $300,000 for one of the last ten remaining first editions in existence. (Bloomberg)

Good news at Morgan Stanley too, where 2018 equity trading revenue is expected to reach an all time record in 2018 (Forbes)

SWIFT, the global payments system, has launched a product aimed at competing with blockchain by using its own API and database to allow banks to cross-check payment instructions before sending them, rather than relying on a distributed ledger to confirm everything. (FT)

Jamie Dimon continues to be a trouble magnet; his presentation to the GS Financials conference was interrupted twice by protestors against JPM’s lending to companies which run immigrant detention facilities (CNBC)

The latest application of AI is to search through expense receipts, trying to detect when, for example, someone has claimed for a “client dinner” that’s actually a strip club. (Bloomberg)

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AUTHORDaniel Davies Insider Comment

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