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Morning Coffee: How to earn $39m as a trader without moving to a hedge fund. A terrible time for big-spending 27-year-olds

If you want to earn really startling sort of money from your proficiency as a trader, it's usually the case that you'll be best off as a portfolio manager in a large hedge fund, where your pay will be closely aligned with your profits.

But there are exceptions. There are traders in banks earning fortunes too.

It's no secret that some commodities traders in some banks earn a lot of money. Goldman Sachs was said to pay its top people like Ed Emerson (who subsequently left for a hedge fund) $30m each in 2021. And Goldman is not alone in rewarding its top commodities people lavishly: Australian bank Macquarie does the same.

Nick O'Kane, Macquarie's circa 50-year-old head of commodities and global markets, earned $39m last year. O'Kane's windfall has been widely reported since it was revealed in Macquarie's annual report last Friday, meaning the only real remaining question is 'How?' - How did O'Kane come to earn more than Jamie Dimon at JPMorgan?

Mostly, it was by running the whole trading business rather than simply trading a book. Kane is responsible for running all commodities trading, all global markets trading and all asset finance. His report card stresses that he had a great year doing this and that profits were up 50%. He also delivered some new risk teams and projects, and hired and trained diverse staff. 

Secondly, it was by working for a bank that focuses on pay for performance. O'Kane's salary was only 2% of his total package. The rest was O'Kane's portion of profits and reflected what Glenn Stevens, chair of Macquarie, described as the bank's “time-honoured” profit-share model. 

Lastly, it was by working at the same bank for his entire career, earning plaudits as he scaled the corporate structure and using every opportunity possible to praise the bank and its ethos in interviews and YouTube videos

“It’s worth emphasizing that he’s put that collection of businesses together over 25 years, assembled an incredibly capable team of people, and the model here is that the people that generate the return, share with shareholders in that return,” said Stevens last week.

O'Kane's interviews over the years are dotted across the internet. Mostly he says the same thing: the people at Macquarie are great and the organisation is also great. Maquarie lets people take risk, declared O'Kane in 2019: it has a "consistency in approach to things like allocation of risk, allocation of capital, and the openness and bias towards saying yes." Presumably he's even happier with his choice of employment now. 

Separately, while O'Kane splashes money on trophy homes in Sydney, young people who have been earning smaller but still impressive fortunes, are having to rein it in. 

The Wall Street Journal has spoken to various young developers whose financial bubbles have burst. They include 27-year-old Samantha Voigt, who had a fortune after receiving stock in payments firm Square after graduating from college. Having put $500k in a brokerage account, paid off her student loans and bought a car with cash, Voigt had plenty left for bi-weekly therapy, regular haircare sessions, a dog groomer, and a self-funded year out due to burnout. 

“I used to be able to kind of spend whatever, and it would be fine,” she told the Journal. “Now I’m having to think about it a lot more.”

Voigt's lifestyle has changed. She's got a new job; these days she's spending less and washing the dog herself.

Meanwhile...

Goldman Sachs is paying $215m to 2,800 women who say it systematically underpaid them. (Bloomberg) 

If you want get married, have two children, send them to private school, live in a nice house, take two foreign holidays a year and shop at Waitrose, you will each need to earn more than £100k. (The Times) 

Commodities trading firms like Hartree and Freepoint are expanding in Dubai. (Bloomberg) 

Zoltan Posnar, a rock star Credit Suisse economist and expert on the internal workings of the monetary system has quit. He wore a nametag that gave his professional affiliation as “TBD,” when he spoke at a conference on Friday. (WSJ)

UBS is revamping its management team ahead of the Credit Suisse takeover. Credit Suisse chief executive Ulrich Körner will join UBS's executive board and all existing Credit Suisse executive board members who are also division heads will report to Körner and their respective UBS executive board members. (Financial Times) 

Deutsche Bank agreed to buy Numis for £410m in cash. Deutsche’s offer values Numis people at £1.2m. This is nearly three times their through-the-cycle revenue. (Financial Times) 

NatWest appointed Credit Suisse banker Scott Roose head of US capital markets. (Financial News) 

EY lets its neurodiverse cybersecurity people work entirely remotely and gives them quiet spaces when they come into the office. (WSJ) 

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AUTHORSarah Butcher Global Editor
  • Do
    DoubtingThomas
    9 May 2023

    I find these huge payouts very annoying (and not only because I never got one ...). A trader a GS or Macquarie will have a huge franchise behind them - balance sheet, technology, market expertise that they can call upon as needed etc. When market conditions are right, they can ride the wave (ok, assuming they are competent enough to do that) and make a fortune for the bank and their bonus. And if market conditions don't work out well, then they can lose a fortune (for the bank only), and perhaps their job and salary as well.

    So, in conclusion, I don't believe that these traders are that talented that they can justify such a large bonus. Most of the team behind them who help directly or indirectly never get such payouts.

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