Morning Coffee: Hedge fund superstar does due diligence on his new boss. People are getting protective of their clients

It might be a cliché, but it’s worth repeating because it’s very true – finance is a people business. For every hedge fund, bank or brokerage that collapses because of operational failures or financial losses, there are a dozen that fall apart simply because relationships between key people broke down. So if you’re in the position of someone like Gustav Rydbeck, who was recruited from Balyasny last year to build a long-short equities business for Verition Capital, the most important thing to know is not the risk management framework or the AuM. It’s what kind of people you’re getting involved with.

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So, Rydbeck quietly and subtly reached out to friends in the industry who had worked for Nick Maounis and Josh Goldstein, Verition’s founders. He claims that nobody had a bad word to say about them, even people who had been made redundant. 

This is, to say the least, rare in the world of multistrategy funds, where risk management policies are strict and opportunities to feel hard done by are plentiful. Verition claims to want to “build an environment where people can develop long-term careers”, and disdains the “pod shop” image, but so does every other pod shop. Unless Gustav Rydbeck’s friends are unusually lucky or tactful, they must have been walking the talk better than the rest of the sector.

And it seems that Rydbeck is trying to preserve this collegiate and people-centred atmosphere. It’s noticeable that in the list of high-profile hires he has made to Verition’s equities pod so far, traders and portfolio managers are less prominent that people with titles like “head of analyst development” and “head of long-short portfolio manager engagement”.

The trouble with this approach is that it costs money. When you’re trying to grow a business, there is always a temptation to prioritise hires who are going to contribute directly to either asset gathering or portfolio returns. Persuading investors that their pass-through expenses are well spent on people whose job is to provide the social and human infrastructure isn’t always easy. That’s one of the reasons for the well-known “valley of death” phenomenon which seems to have stricken hedge funds as diverse as Balyasny, Schonfeld and Brevan Howard, where you reach a certain level of AuM and headcount, and then see performance and outflows go into crisis as the business becomes too large to run itself.

Verition now has $14bn under management and 500 employees, so it is arguably through this stage, even if it’s not quite at the scale of Citadel, Millennium and the real multistrat giants. And according to its internal statistics, 90% of its profits over the last ten years have been generated by teams who are still there. In the hedge fund world, it seems that it’s nice to be profitable, but it’s profitable to be nice.

Elsewhere, a lawsuit in the UK has brought into focus one of the most controversial questions in the wealth management industry - who owns the client relationship?

When times are good, it’s something that everyone has a bit of a vested interest in keeping ambiguous. Firms obviously want to think that clients have a relationship with the company, rather than with  any employee. On the other hand, most people find it quite weird to think of having a relationship with an LLC, PLC or Inc. And if you want client relationships, you have to recruit the advisors who bring them in, which means that you can’t afford to appear too grabby when it comes to people’s personal franchises.

In tougher times, though, companies would ideally like to cut costs, but not lose the revenue. And so questions of “whose account is it anyway?” start having to be given clear and definite answers. Which is a fertile ground for disagreement, discontent and litigation.

This is likely to become a more serious problem. Increasing use of AI is likely to increase the importance of personal relationships compared to other parts of the banking value chain. And in many cases, it’s arguable that sell-side bankers have at least as much of a personal claim on corporate clients as wealth managers do for high net worth individuals. It’s not impossible to see a world in which ownership of key relationships becomes an important negotiating point in hiring.

Meanwhile…

Christopher Willcox’s wholesale division at Nomura has ambitions. While the whole firm is increasing its earnings target by 50%, the wholesale division wants to get its RoE into double digits, boost equities revenues by 20-30% and global advisory by 50%, while expanding in EMEA, credit and commercial real estate. (Bloomberg)

Hopefully none of the bankers on the SpaceX deal were naïve enough to think that they would get through the whole transaction without receiving an email titled something like “Elon’s recent post”. He’s said something controversial about an important revenue transaction during the quiet period, apparently. (FT)

SocGen has hired Anna Repetto from Barclays to be the new head of European equities syndicate and corporate broking. (Financial News)

JPMorgan apparently meant it when they said that they did not accept the accuracy of the FINRA arbitration panel in the “$642.50 deli plate” case brought by Brent Ryan Bodner. They are filing an appeal against the $4m decision which went against them, and providing more details of the case, which seems to involve a lot of people who are family members, clients, and/or employees at the same time. (WSJ)

Apollo CEO Marc Rowan has lost a lawsuit which appears to, in part, relate to the septic tank for a lobster restaurant. (FT)

The husband of a London banker wants us all to feel sorry for how guilty he feels about his extramarital affair. (Telegraph)

Just in time for investment bank internship season, New York City has relaxed zoning laws to make it easier to bars and restaurants to allow dancing. This could make for some entertaining Instagram-related content over the summer. (NY Post)

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