Morning Coffee: The highest earning hedge fund managers are not the most sexy. The thriving industry that can’t seem to stop poaching bankers

Some hedge fund strategies are just cooler than others.  Activist investors, for example, get to show off their sarcastic wit with open letters.  Short sellers get nicknames like “the assassin” and have stories to tell like spies or detectives.  Even structured credit gives you a slight chance of being played by Christian Bale or Steve Carrell in the movie.  If you want to be thought of as a sexy finance person, you need to choose one of these careers.

Alternatively, you can just hunker down behind a terminal, draw up a list of stocks that are about to be added to or deleted from major indices, buy or sell them ahead of time and then take advantage of the small, but consistent edge that can be acquired by a flood of price-insensitive trading.  It does not sound great in conversation to admit that you make a living by effectively shaving a few slivers off index investors’ savings, but it’s a big part of the hedge fund industry. The Financial Times says these index rebalancing trades had a huge quarter following the reconfiguration of the S&P Dow Jones and Russell indices, as well as the addition of SpaceX to the Nasdaq 100. “It’s not a cool, sexy thing that’s new,” says one hedge fund executive, speaking to the FT of the strategy.

Of course, the fact that it’s not sexy doesn’t mean that it’s an easy way to make money.  In order to make economically meaningful amounts of profit from index trades, you need to do them in huge size, with large amounts of borrowed money.  And when a trade is highly leveraged, the difference between “nearly right” and “exactly right” can become a career-limiting disaster.  The index inclusion/deletion trade is easy to describe in general terms, but in order to execute it you need to forecast the changes, build and liquidate your position faster than the rest of the Street and do so without getting eaten alive by trading commissions and slippage.  It’s every bit as complicated as the US Treasury basis trade, another hugely profitable, insanely tricky and very unsexy hedge fund staple.

But having said that, sheer profitability can sometimes bring its own kind of sexiness. Millennium’s Glen Scheinberg runs one of a pair of index trading teams that made $3.7bn between them in a single month, and he does it out of Dorado Beach, a resort in Puerto Rico.  Even if it’s still doubtful that any A-listers (or even C-listers) will be lining up to audition for the movie roles, it’s hard to tell someone making that kind of money from an island paradise that they’re not full of pheromones.

In fact, it’s probably because it’s not sexy that index trading is so profitable – when things are cool and fun and everyone wants to do them, the alpha quickly gets competed away. As JM Keynes said “the game of professional investment is intolerably boring and over-exacting to anyone who is entirely exempt from the gambling instinct; whilst he who has it must pay to this propensity the appropriate toll.”

Elsewhere, the bankers of Australia’s “millionaire factory” at Macquarie know a bit about “paying the appropriate toll” – a lot of their most profitable deals have come from infrastructure deals like toll roads.  But the most important infrastructure category right now is data centres.

Data centres need a lot of financing, and they need to be built on the basis of sound financial projections.  They need people who can handle spreadsheets, negotiate with investors and spot the pitfalls in long term contracts.   Where do you find people like that, hopefully with at least a little understanding of the actual industry?  You find them in the technology teams of investment banks.

And so, a data centre firm set up by a pair of Macquarie alumni have been recruiting aggressively among their former colleagues and competitors.  As well as recruiting their CFO from their former employer, they have taken Bob Chen, JP Morgan’s Australian head of TMT research, to be their head of investor relations.

This seems to be happening across the AI and datacentre industry, not just in Australia.  It’s often a sign of an impending bubble, when investment bankers find that they can earn more money in industry than in finance. But that doesn’t mean it’s going to imminently pop.  It could be a good few years for bankers who are able to talk about “gigawatts” and “compute” with confidence.

Meanwhile …

Aileen Taylor, HSBC’s chief people and governance officer, is going to relocate to Hong Kong.  The bank declined to comment on why. HSBC is carrying out a restructuring of its middle- and back-office functions there, but has told the HK government that there will be no layoffs.  This might need a bit of on-the-ground presence to handle. (Bloomberg)

The project at PJT Partners to capitalise on the deal slump of 2022-25 by adding quality headcount seems to be paying off.  Fees were up 41% for the first half of 2026, reaching an all time record. (Financial News)

Jens Becker, formerly head of energy and mining M&A for the Americas at JPMorgan, is going to Morgan Stanley to be a managing director in its energy investment banking group. (Bloomberg)

It is interesting to see that former DeepMind researchers have partnered with Tower Research to use AI to come up with new algorithmic trading signals, but people backing them financially may end up being disappointed.  Algo trading has exactly the opposite set of characteristics from what VCs are looking for – the more people join in, the worse it gets. (FT Alphaville)

IPO deal volumes in Hong Kong are closing in on six-year highs, driven by chipmakers and AI infrastructure plays.  Nobody in the market is planning a restful summer holiday. (Bloomberg)

Ross Turner of Pelham Capital is cruising around Mallorca in a superyacht big enough to make the local news. (Majorca Daily Bulletin)

Dermatologists are being asked to leave behind “strategic wrinkles” rather than a perfectly smooth Botox forehead, so that people can express at least a few emotions, like raising their eyebrows at the latest data centre IPO. (WSJ)