Morning Coffee: JPMorgan banker takes gardening leave and then goes on a world tour. The AI investor that hallucinated into a terrible trade

One of the great things about being a banker is that occasionally you change jobs, and then you get three months “gardening leave”.  It’s like having a sabbatical.  Lots of people use it to find out what their children have been up to, or catch up with a huge stack of unread books or to go travelling.  But when Klaus Hessberger left JP Morgan to become global co-head and European head of Lazard’s financial sponsors business, he took his big trip after, rather than during, his time off.

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This partly seems to have been because he spent much of his gardening leave in the other way that senior bankers like to relax – dreaming up extravagant plans for world domination. He wants to make Lazard a “premier global financial sponsors house”, and that will require shifting clients’ perceptions of it as a collection of regional franchises which are all well-respected on their home turf, but don’t necessarily talk to each other.

Hessberger’s counterpart in the Americas, fellow global co-head Adam Cady, has been in the job for a year now, and seems to be signed up to the same plan.  Hessberger says that “we had this freedom to set up a global proposition in the way that clients want … if I was working at another boutique they might have someone running the US who does not want to work with someone in Europe”. 

The big opportunity for the financial sponsors group at Lazard seems to be that their European “rock stars” have extremely good contacts with the kinds of CEOs who don’t usually pick up the phone to US private equity firms.  But persuading the rock stars to make that kind of introduction isn’t necessarily going to be easy; it will require a lot of trust to be built.

And that’s why Hessberger has spent 100 days – a period slightly longer than his actual gardening leave – on a “world tour of Europe”, spending some time meeting global clients, but mainly showing his face in Frankfurt, Munich, Madrid, Paris, Stockholm, Amsterdam and Brussels, to reassure everyone that he’s not just going to be a presence in London trying to force them into meetings with US funds.  The timing was pretty good, as it turned out – Hessberger’s gardening leave coincided with an absolute deal drought for financial sponsors, so he didn’t miss anything, and he’s now held his first offsite and set expectations for the team just as activity is returning to the market.

Elsewhere, not so long ago, the combination of phrases “private credit” and “artificial intelligence” must have been absolute marketing gold.  Anthelion Capital Partners was able to claim exactly that, using Large Language Models to scan documentation and look for bargain investments to put in its CLOs.

But some of that gold might have turned to Kryptonite.  Anthelion’s first CLO had a higher proportionate exposure to First Brands than any other, according to research firm Valitana.  It seems that either the LLM hallucinated that a bad credit was actually good, or that skim-reading documentation with a machine is just as dangerous as getting a junior to do it.

However, it’s not a complete vindication for the sceptics.  Although Anthelion had a lot of First Brands exposure, they were also a lot quicker to sell than most other investors, and exited their position with a significantly smaller loss.  It’s not disclosed whether that decision should be credited to the machine or the human beings.

Meanwhile …

Jane Fraser will now be chair of the board of directors at Citi as well as CEO, and has been given a $25m bonus as a reward.  According to a statement, the management restructuring has now made Citi a “simpler and more focused bank”, so it no longer needs to split the roles of chair and CEO. (FT)

What’s “Smarsh”?  It’s a “communications surveillance” company with a “portfolio of cloud-native digital communications capture, retention, and oversight solutions”, that’s apparently impressed Jefferies enough that they will be Smarshing even more of their employees’ communication channels, having started with mobile messaging and Teams.  (Citybiz)

Barclays CEO Venkat seems a little bit frustrated at the slow progress in expanding its franchise from leveraged finance and debt underwriting into ECM and M&A.  As he suggests, it’s mainly due to the fact that the league tables were dominated by a small number of big deals this year, and Barclays wasn’t in ‘em.  So the bank’s CEO contacts are going to be shown yet more love, to try to get them to try the new product lines. (Bloomberg)

Earlier in the year, some people were wondering about the Sequoia partner who was tweeting unusually outspoken views about Zohran Mamdani and about Islamism.  It now seems that this was a factor in the resignation of COO Sumaiya Balbale, and has caused tension with Middle Eastern investors. Another piece of evidence that it’s best to keep politics out of the office. (FT)

Lawyers and judges in the bankruptcy of Claire’s Accessories seem to have spent quite a lot of time reminiscing about their youthful ear piercings.  One of the counsel made a bet with the judge that if an investor group could be found, he would get re-pierced, and they ended up bringing a Claire’s employee into the courtroom with special permission for her needle gun to carry it out.  (WSJ)

If you train AI models on low quality social media slop, they get stupider. (WIRED)

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