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Morning Coffee: Anatomy of a partner resignation at Goldman Sachs, and there’s no such thing as back office any more

More details are coming out about Steven Barg’s departure from Goldman to Elliott Management, and they’re a pretty fascinating insight into the delicate business of handling situations where a large part of an employee’s value consists of information and relationships that their employer might want to hang on to.

An employee's knowledge doesn't come much juicier or more sensitive than the files of an activism defence team; even the fact that a client company has consulted one might be information they’d prefer to keep secret, let alone what they had asked to be done.  That’s one of the reasons why the Activism Defence Group is such a prestigious team at Goldman and other banks.  As well as often being highly profitable in itself, the feeling is that the AD team are the corporate equivalent of the family doctor; they’ve seen the CEO in his most vulnerable and embarrassing moments, so he’s more likely to take their advice on other issues.

Therefore, when a partner like Steven Barg wants to move jobs (apparently Elliott is trying to shed their fearsome image and get more of a reputation for seeing the corporates’ point of view), he can’t exactly mention it.  There could be some genuine and serious conflict of interest issues were he working on defence cases where Elliott was numbered among the activists. 

Nonetheless, Barg is leaving. And the Financial Times has some interesting information on Goldman's reaction to this.  There's a six month notice period. The firm seems to be asserting its rights over trade secrets: Barg has signed a strictly worded confidentiality agreement and won’t be working for the hedge fund on any of the cases where he has provided advice in his previous job.  But in the current state of technology, there’s not yet any way to remove the proprietary information from his head.

For his part Barg, seems to have kept his intended resignation as covert as possible. Goldman seemingly had no inkling that he was resigning until last Friday, and kept him working on all his existing projects. Elliott too seems to have treated Barg's imminent arrival like a state secret and reportedly told hardly anyone internally about the move until Barg had actually resigned from GS. 

Although the FT has a lot of details, there's much that's left unsaid. There was seemingly no bid-back conversation with David Solomon and no handover period to Barg's successor, Avinash Mehrotra.  Given the packed calendar of a senior investment banker, Barg's departure must have been quite a logistical exercise in terms of booking anonymous locations and secluded breakfast meetings; it isn’t the kind of job interview process that can be wrapped up with a couple of phony dental appointments.

The other thing that hasn’t come out, is why Mr Barg left.  Did Elliott just offer him an unbelievable amount of money?  Was he annoyed at something internal?  Did he just get tired of needy chief executives?  Unfortunately, since it’s not obviously in anyone’s interest to make it public, we’ll probably never know.

Elsewhere, a Goldmanite who doesn’t appear to be going anywhere, Marty Chavez reckons that technology is breaking down all the dichotomies in investment banking.  The GS co-head of global securities thinks that “buy side / sell side”, “front / mid / back office” and even “data providers / users” might not be useful ways to think about the industry in the future, as companies integrate up and down the value chain and take over functions that used to belong to neighbouring industries.

That’s actually quite a radical view of the future, as these are some of the fundamental social distinctions in banking, particularly the aristocracy of the front office against the proletariat of the back.  In educational terms the gap seems to get narrower every year, but as traders start to have to learn to do their own computer programming and quants are increasingly put into revenue generating and client facing roles, the far off future in which the different tribes start to drink in the same bars and even inter-marry might be closer than we think.

Meanwhile …

Could you be the next Paul Achleitner?  The Deutsche Bank supervisory board is beginning to look for a successor.  At this stage, the search isn’t being carried out by a national competition and associated reality television show, but Achleitner’s term doesn’t end until 2022 and he intends to see it out, so there is still time for “Germany’s Next Top Banker”. (Bloomberg)

Not much change from last year in terms of the overall trends in the Emolument survey of investment banking pay in London; the gap between European and US houses continues to widen (Financial News)

Official filings are generally not that informative, so increasingly hedge fund investors are trying to do their due diligence by stalking over the fund managers’ social media.  A surprising 38% of investors surveyed found “at least one negative item” although it is not specified what this might constitute.  Watch out with those memes. (Hedgeweek)

The “rule of threes” in launching a hedge fund – it’s three times as difficult as you thought and takes three times as long as you expected to raise a third of the capital you were hoping for. (Business Insider)

The hedge fund TV drama that everyone loves to hate, “Billions”, has thinly fictionalised versions of plenty of Wall Street characters but, unfortunately, used the real name of the Cayuga Native American nation, and are now getting sued for portraying them as unethical casino operators (Bloomberg)

Fintech founder Bill Clerico left his investment banking job at the age of 22 to start up the business that became WePay, acquired by JP Morgan for $400m.  Photographic evidence seems to suggest he’s pretty damn happy about it. (Forbes)

A business school professor is spending the summer taking a clown show about management ethics to the Edinburgh Festival, possibly because Festival accommodation and venue hire is one of the few things that make an MBA look cheap (FT)

And come on, you know you want to – quit your [redacted] job and become a competitive dancer (Vice)

Photo by v2osk on Unsplash

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AUTHORDaniel Davies Insider Comment

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