Morning Coffee: The excruciating destruction of a 30 year career in finance. Deutsche Bank cuckoos in other people's nests
It’s a tough business. One day you’re sitting around listening to people call you “the British Warren Buffett”, and the next day you’re making a painful apology video while the regulator starts talking about you on the television. Neil Woodford’s YouTube clip on the suspension of redemptions in his flagship fund isn’t quite as emotional as other classics of the genre, but if anything it’s likely to be more embarrassing simply because the pedestal he had to fall from was so high.
There are plenty of explainers out there about what went wrong with Woodford Fund Management, but since few of us are ever going to be in the position of running a wildly successful and oversubscribed start-up mutual fund, the real lessons are probably a lot simpler and more basic. Indeed, they can probably be summarised in a familiar joke that you occasionally hear around trading floors when an unpopular boss has been fired:
See, you’ve forgotten already”.
The message is that finance is an unsentimental world, and personal relationships and loyalties are usually conditional on both parties continuing to make money, or at least not to lose too much. A year or two ago, the financial advisors were lining up to competitively praise the Woodford funds and sell them to their clients. When the British Buffett spoke on subjects like the breakup of Glaxo Wellcome, the whole financial world listened. He was even prevailed upon for his views on Brexit. But now that Woodford has, "the Midas touch of being invested in companies blowing up" (in the words of one investor), all the fair weather friends are departing, and those that remain are having their motives questioned. If you want unconditional loyalty in this industry, get a dog.
The other lesson is that people will forgive poor performance, but the ultimate sin for a fund manager is to suspend redemptions. And that’s actually quite a deep truth of finance which you don’t always learn in college or on the CFA course. Liquidity risk is not like other kinds of risk; investors take it for granted and don’t think about it at all from day to day, much less do they price it efficiently. But when there’s a real prospect of asking for your money back and not getting it, they panic a lot – that’s how bank runs happen. Even Warren Buffet fans are often only really happy to hold a twenty year investment horizon if they’re sure that, in principle, they could change their minds on any given business day.
Not quite all of Woodford’s friends have deserted him – his biggest champions in the industry still had some fairly nice things to say about him, even as they removed his funds from their recommended list. And well they might, after selling them so aggressively to their clients – stockbroking firm Hargreaves Lansdown has seen its own share price crater, so close was the relationship. But it’s going to be a long time before anyone calls him the British Buffet again, and value-focused mutual fund investing doesn’t lend itself to rapid, Bill Ackman-style comebacks. And that’s the last lesson here – every day is a brand new day in the market, and a reputation that took thirty years to make can be gone in an afternoon.
Meanwhile in America, it’s never a great sign of a happy ship when personnel news gets leaked to the New York Post. There seems to be a bit of bad feeling about BNY Mellon’s cutting five bond traders. Part of it seems to be related to the timing of the dismissals – they came a day after the team’s boss had resigned to go to a hedge fund, and one of the guys who got cut was just about to go to the Bahamas for his wedding. But it also seems from the Post story (which is surprisingly detailed given that, apparently, none of the people involved spoke to them) that there’s a bit of tension between veteran BNY employees and more recent hires.
In the last few years, BNY Mellon has brought in a number of senior executives to its investment banking operations, a significant proportion of whom have been brought in from Deutsche Bank. This is always a tricky cultural problem for a smaller franchise to manage – when you bring in talent from a bigger house, particularly if the new blood are all from the same place, it’s easy for perceptions to grow up, fairly or unfairly, that there’s a clique and that existing loyal staff are being overlooked. There are enough reasons why any bank would be cutting staff in bond trading this year, but it looks like the employee communication might have been a bit lacking.
Too gay for Goldman? Goldman Sachs is being sued for discrimination by a Vice-President who claims he was kept off a client call because his voice “sounded too gay”. It’s hard to know what to make of this – it seems unlikely that there’s a systemic institutional or cultural bias at GS given what we know about its track record of winning equality awards and promoting LGBT employees to the top ranks. But on the other hand, it only takes one office bro to spoil everything. The bank’s called the claim “baseless” and the case continues (Bloomberg)
When the biggest permabear in the industry is no longer winning investor surveys and musing in his research about being fired, is that a sign of a market top? (FT Alphaville)
Real-time market data in Excel, to the joy of CFAs and the dismay of Chief Information Officers everywhere, who know that the quest to make everyone learn Python just got set back five years. (Finextra)
An example of the “new boss effect” – there have been promotions, lateral moves and departures all over JP Morgan sales and research as a result of Marc Badrichiani’s appointment to the global head position. (Financial News)
Brian Moynihan warns of “carnage” in the leveraged loans market, quickly pointing out that he isn’t referring to the part of the leveraged loans market where BoA has decent market share (Bloomberg)
The next trend? Former Soros commodities trader William Callanan has left Key Square Capital to take on a career as a consultant, providing investment themes and trading ideas to other funds. This raises the tantalising prospect that an aspiring hedge fund tycoon could outsource idea generation to a consultant, outsource trading to a prime broker and concentrate on the core competence of schmoozing investors. (FT)
Obama's ex-chief of staff is joining Centerview Partners. (CNBC)
The interviewer says “Tell me about yourself”. What do you do? (The Cut)
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