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Morning Coffee: The strange life of employees of a quant hedge fund manager. Rags to riches story of BoA’s AI supremo.

When your job is testing a mattress for the boss

It’s not all glamour and adrenalin on the buy-side, you know.  A very few people live the actual life of a hedge fund titan making billion dollar trades in nanoseconds.  A slightly larger number are close enough to the action to be able to credibly pretend to be “a hedge fund manager” on social media and in their dating profiles.  And then, at quantitative hedge fund DE Shaw, there apparently used to be people whose job it was to literally pretend to be the eponymous Mr Shaw, taking the same flights as him in the same seats and using the same car services a few days ahead of all his trips, to see whether there are any difficulties en route.

Of course, David Shaw has more or less given up on active money management to concentrate on his research interests, but stories about his obsessive optimisation of everything are part of the folklore of the company.  Staff were given all sorts of assignments to optimise things which aren’t susceptible to algorithmic modelling, like the best Chinese food for the boss to eat, or the best mattresses to rest his billion dollar brain on.  There has even been an off-Broadway play written about his demands, in which the character based on former Shaw employee Elizabeth Meriwether is driven so crazy that she develops a fear of bathing.

Why did he do it?  There’s something of an echo of an old joke people used to make about Bill Gates – that if he dropped a $50 bill, he would be best off to leave it on the pavement, because the ten seconds it took him to bend down and pick it up would be better spent generating value for Microsoft.  And you can sort of see how quant culture might incline people to think this way.  After all, sports teams focus huge amounts of attention on marginal gains.  In principle, if you could save David Shaw half an hour’s thinking time by planning the best route through an airport, or get him slightly better refreshed from a night’s sleep on the best mattress rather than the second best mattress, that might turn into an idea worth 0.2% extra performance on the Shaw funds, which would pay for a couple of dozen full time concierges.  As one employee was told, “if eight hours for you saves five minutes for David, that would absolutely be a good use of your time”.

It’s almost a convincing argument.  But surely there’s a danger that if you kept up this sort of micromanagement of your daily life, after a while you might sort of lose your grip on reality. Nobody’s time is really that valuable, and nobody is really spending every waking moment perfectly optimally.  A culture of perfectionism is all very well, but it tends to mean that you don’t ever have small problems, only large ones, particularly when dealing with fallible human beings.

Elsewhere, she was born poor in a house with no shower and became captain of her swim team despite losing most of her races.  Sounds like the opening verses of a Dolly Parton album track, actually is the backstory of Cathy Bessant, Chief Operations and Technology Officer at Bank of America. She has also continued working through cancer treatment, climbed Kilimanjaro and turned round BoA’s Detroit regional operations during an auto industry slump.

These days, as well as supervising $14bn of annual budget, Bessant runs the Council on the Responsible Use of Artificial Intelligence, dedicated to reminding technologists that humans write computer programs and often accidentally build in their own biases.  She’s also keen to make sure that the use of AI in banking (including chatbots like BoA’s own “Erica”) doesn’t demoralise existing staff or lead to an escalating “war for talent”.  In fact, one use of AI within Bank of America might be to track staff internally who might be able to retrain as coders.

Until machine learning can do the job, though, Ms Bessant is responsible for a good deal of senior tech recruitment.  When interviewing job candidates, she always asks them to talk about a setback they have had.  Apparently, plenty of people either don’t want to admit that they they’ve ever had a setback, or make up really obvious fake adversity.  When this happens, “I may finish the interview, but my ears shut down”.

Meanwhile …

More tales of woe from smallcap stockbroking – despite money from Qatar and leadership from Bob Diamond, Panmure Gordon is still making losses. (FT)

But things are no better at the other end of the scale – high frequency traders Virtu have suffered badly from low volumes and volatility too. (WSJ)

Deutsche Bank is, by some estimates, putting together “the biggest desk on Wall Street” to trade private distressed credit.  Unusually, its global head of credit trading, Chetankumar Shah, is based out of Asia, in Singapore. (IFR)

Conversely, people are still sceptical about Christian Sewing’s strategy of retained equity research and capital markets while getting rid of equities sales & trading.  Generalist sales and relationships with portfolio managers are not as important as they were, but it’s still a huge handicap not to be in the loop of who’s buying which stocks. (Euromoney)

Having been quite publicly disappointed by Morgan Stanley’s failure to get into the WeWork IPO (and blamed by many for his apparently visible lack of enthusiasm for the business model), Michael Grimes might be permitting himself a last laugh. (FT)

Georges Elhedery has carried out his first big reorganisation since taking over as head of markets at HSBC – the structure will now have regional heads for Emerging Markets, Western Markets, Greater China and the UK, plus a head of Global Financing Products to be appointed later. (Financial News)

One bad year is all it takes … after losing $30m in 2018, BNP Paribas’s proprietary trading subsidiary was shut down. (Bloomberg)

A British headhunting firm is staffing up in Zurich and other European centres, to serve client demand for interim help around Brexit. (Finews)

The board of troubled fund Woodford Patient Capital Investment Fund is considering whether to remove Neil Woodford as its fund manager.  No word on whether this means they will just be called Patient Capital. (FT)

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Photo by Claudio Pecci on Unsplash

AUTHORDaniel Davies Insider Comment

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