Even at the most collegiate of firms, there’s always a little bit of needle between different groups. Trading versus M&A advisory, research versus sales, wherever you have different specialities there will be different priorities, disputes over the division of the bonus pool and so on. Everyone considers themselves and their friends to be salt-of-the-earth hard-working types who are responsible for all the real value add, while the people two desks over are either flashy and superficial or boring and uncommercial. Even at a quant fund like Two Sigma, there seems to be a divide between the “modelers” who research new investment strategies and the “engineers” who handle the high-frequency, low-latency code needed to make them work in practice.
It’s the job of management to make sure that this rivalry stays friendly and that it doesn’t stop people working together. Unfortunately, according to a recent SEC filing spotted by the Wall Street Journal, at Two Sigma it’s the top management – specifically, the two founders, David Siegel and John Overdeck – that seem to be the biggest problem. Since the earliest days of the firm, Overdeck has been in charge of the modelers and Siegel of the engineers, but now, apparently, their working relationship has deteriorated to the extent that they’ve had to disclose it as a material risk that “the Management Committee” (a committee of two people) is finding it difficult to agree on anything and that this could affect decision-making at the business.
This is really unusually bad; plenty of people in banking don’t like each other, but they’re usually able to keep things civil, rather than letting feuds get to the point where the compliance staff feel they have to get involved. Apparently the founders are in the habit of sniping at each other in meetings, and major projects are getting pre-emptively cancelled because the staff (who are increasingly forming into rival factions too) can’t get any consensus.
Which raises two questions – why, and for heaven’s sake why? When this sort of culture develops in investment banks, it’s usually the result of an ongoing blame exercise – the pressure of tough business conditions getting to people’s nerves. But that’s not happening at Two Sigma. Their funds are all performing well, average compensation seems to be in the region of $340,000 and as recently as February it was being described as a “chill” place with a “tech company” vibe. Admittedly, someone who was very good at reading between the lines might have seen a warning sign in the Glassdoor quote that “the only way to be fired through the mid levels is fraudulence or dickish behaviour” (emphasis added).
It seems more likely that what’s happened is just a version of the phenomenon you see in rock documentaries, whereby people who were best friends at school and made the decision to spend their careers together end up having to take separate limousines from the hotel to the stadium. Minor inconveniences tend to accumulate over the years, and constant close proximity (Overdeck and Siegel’s offices are still only 30 feet apart) can drive the most robust quant minds a little crazy. Let’s hope that there’s someone out there who they both respect and who is able to sit them down in a room together for a kind but firm lecture on acting like a grown-up.
Elsewhere, glum bankers don’t win mandates, and that may be the main reason why Goldman Sachs is predicting a recovery in IPO fees in the second half of the year, while Kevin Brunner, the co-head of global M&A at Bank of America, is talking about a similar bounce back in activity. This isn’t really a new analysis; Jim Esposito and Dan Dees of Goldman Sachs were making very similar predictions earlier in the year. The thing about predicting an end to bad times is that eventually you’ll either be right or out of the market, and in the meantime it keeps everyone’s morale up.
There is at least some evidence that CEO confidence is returning and markets improving – Goldman has a “Barometer” index tracking these sorts of variables, and it is back into the territory historically associated with higher issuance. But really, this is just a quantified version of Brunner’s more intuitive feeling that “most buyers are expecting a soft landing”. The vibes have improved a bit, is the best that can be said.
It does at least mean that there is some space for bankers to hope. It’s probably too late in the revenue year to save the 2023 bonus pool from being anything other than a disappointment, but for several investment banking teams, a mild sign of recovery could make the difference between a modest bonus and a zero, or for that matter another round of headcount cuts.
Meanwhile …
There are some asset management firms with a healthy office culture – at PGIM, “we have fights about inflation, but then everyone goes and has a beer”. (Financial News)
The struggle continues for Chinese investment bankers; as well as being told to take less compensation and be more humble in their public comments, the “common prosperity” policy is requiring them to be less ostentatious in spending the money they already have. (Reuters)
Multiple scandals collide, as a report compiled by JPMorgan for the Jes Staley litigation sugests that Jeffrey Epstein might have offered to help Staley get a family member into a prestigious university. The company is not commenting, Staley’s lawyers deny it, and the family member didn’t reply. (WSJ)
Credit Suisse and UBS are both ranked in the top ten for equity research, and the economics of that business usually means that there isn’t room for more than one star on a sector team. That means that highly-regarded analysts are left in limbo, knowing the two franchises are going to be merged. The magazine which is the main source of the rankings, unsurprisingly, is all over the story (Institutional Investor)
You can guess how investment bankers are still regarded in popular culture by noting that TV presenters consider it a grave insult to be told that they dress like one. (Daily Express)
Who’s the Manchester City of investment banking? Well, if you go by the criterion of sovereign wealth fund bids, it’s Lazard, who were seriously talking to Abu Dhabi about a take-private deal earlier this year. Of course, by that criterion, Credit Suisse are Newcastle, but even so. (Financial News)
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