Morning Coffee: Reports of better bonuses at Barclays might be premature. Massive money to be made at hedge funds

It's that time of year and the phrase of the moment is “expectations management”.  In almost every bonus round, there’s a period during which management has a reasonable idea of what the size of the pool is going to be, but employees don’t.  During that period, it’s the managers’ job to work on perceptions and make sure that when the announcements are made, they don’t come as too much of a shock.  Received wisdom in the industry is that if you want to hang on to your staff while paying them less than they think they deserve, it’s better to serve up a series of incremental small disappointments than one big disappointment.

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In that context, the latest comments from Stephen Dainton of Barclays are likely to be closely read by his bankers.  What might he mean when he said yesterday that “it was a constructive year last year”? And what did he mean when he said, “nothing is finalized for us” in terms of bonuses?

It’s a mystery. It's also particularly important to understand this, because as we noted toward the end of last year, Barclays might have quite a wide expectations gap to manage.  Their staff were among the most optimistic in the eFinancialCareers bonus survey. As Barclays compensation committees convened, there were also whispers that bonuses there would be up 10-20% up on last year for capital markets and 5-10% for trading.

Given that, “constructive” is probably a word which means “good, but don’t get carried away,” this might be optimistic. It carries an implication of one year building on another, which fits nicely with the rest of the views expressed in Dainton’s interview – he thinks that 2025 will be a great year for dealmaking, and that in particular the gap between US and European stock prices will benefit European investment banks that have a credible US franchise (a small group, of which Barclays is one).

Of course, a great year is only a great year if you have the staff to take advantage of it.  Which might be the importance of “nothing is finalized”.  The one thing that Barclays can’t risk is a situation in which its key rainmakers decide that they’re disappointed with their 2024 numbers, and that rather than hang around to see things get better in 2025, they’re going to move to the competition.

Which means that the Barclays bonus outcome this year (and the same logic might apply to a number of other firms) could be quite bi-modal.  If you’re in demand, and if there’s a credible perception that you’ve got strong alternative offers, you might be well looked after.  If you’re not happy but Barclays still wants to keep you, then bonuses for 2024 could be a bit meh, but with a general vibe of hope for something better if 2025 turns out as well as expected. If Barclays doesn’t really see you as part of next year’s story, of course, then you’re quite possibly already gone.

Elsewhere, someone at Rokos Capital Management has been making the kind of money that might make a banker feel the same way as people in normal jobs feel about bankers.  A lot of caveats have to be made in comparing “allocations” in LLP accounts to compensation, particularly when the composition of the partnership has changed (Rokos got a new CEO during the year in question). But bearing this in mind, the “member with the largest entitlement” received profit of over £110m (US$127m).  That’s despite the actual profit falling 42% year-on-year.

It's good to be one of a small number of people managing a business where the revenues are a percentage of a very large pool of money.  Years aren’t always quite this great (one might think of BlueCrest, where the highest paid partner’s entitlement was down 94% in the same accounting period, or Said Haidar’s Jupiter Fund, where performance has had a downward swing).  But the thrill of global macro investing has always been that it sometimes gives an absolutely massive payout. And last year that happened at Rokos.

Meanwhile ….

Sometimes a victory delayed can be all the sweeter.  Four years ago, Goldman Sachs’ commodities desk made a massive profit in natural gas futures; so massive, in fact, that the Mexican utility who was the counterparty refused to pay up.  After a lot of political and legal wrangling, GS has finally got agreement to receive $300m of the $400m they had claimed.  It might be unlikely that this will feature greatly in the traders’ bonuses, though – the profit seems to have been a genuine freak event, arising from a normal trade which happened to take place at the same time as a bizarre cold snap in Texas. (Bloomberg)

Stuart Jempson has been poached from Barclays shortly before bonus time – he’s joining the JP Morgan UK coverage team as a Managing Director. (Financial News)

Lots of global macro investors pay more attention to the performance of their own stake in their funds than to allocations from the management partnership – Mike Platt will presumably be happy with another 38% gain. (Bloomberg)

Mike Barr, the Fed’s Vice-Chair for Supervision and the architect of the Basel “Endgame” capital regulations, has chosen to resign (although remaining on the Fed board) rather than fight to implement them. (BBC)

Abdallah Nauphal of Insight Investment presumably always hoped that when he retired he’d be known as “The Godfather Of Liability-Driven Investing”.  But perhaps he might have hoped for that title to have a different context. (Institutional Investor)

There is not yet an Institutional Investor All-American Team for analysts of “Memecoins”.  But maybe there soon will be, as there are a growing number of researchers, saying things like “So many large investors view it as, ‘this is stupid and all these retail investors are going to lose all their money,’ but I think it has the ability to inform culture”. (NY Post)

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