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Morning Coffee: When Bank of America's nice guy got angry, to good effect. Multistrategy hedge fund hiring may be faltering

Sports fans know that an inspiring speech can sometimes turn round a faltering team.  Whether it’s “Give yourselves a chance to be heroes” for Liverpool at the Champions League Final, or “Not this game, not tonight” from the US Olympic “Miracle On Ice”, screenwriters love the idea of an emotional manager telling their players to “Crawl out of hell one inch at a time”.  Even though the reality of half-time talks is often more like the famous “hairdryer treatment”, when Sir Alex Ferguson used to tell his players exactly what he thought was wrong with them, at length and at high volume.

In banking too, heads of division often give what they hope will be rousing and positive oratories, but sometimes the most effective interventions are the ones where a manager has the nerve to tell and underperforming franchise the truth without any sugar-coating.  Jim DeMare, the head of global markets at Bank of America and the man credited with transforming the culture of the markets business for the better, seems to have done exactly this. In an “uncharacteristic outburst” at a town hall meeting last year, DeMare reportedly told the traders bluntly that anyone who didn’t have the ambition to do better ought to think about working elsewhere.

It seems to have been effective; unlike all of its bulge bracket competitors, BoA saw a rise in fixed income revenues a year later, and was recognised in the Euromoney awards as “the world’s best bank for markets”.  The bank has increased its market share steadily and even appears to be gradually creeping up on JPMorgan.

So how was the speech so effective?  Partly because it really was an uncharacteristic outburst.  Since being put in charge of sales and trading in 2020, DeMare has developed a reputation for creating a pleasant atmosphere.  When someone who’s generally “subtle and reserved” starts shouting at you, it tends to have more impact than the same message coming from someone who’s angry all the time.

It was also because the words were backed up with actions.  Behind the scenes, it looks as if the town hall scolding was part of an ongoing strategy to reposition BoA’s trading businesses.  A lot of outside observers would suggest that the dip in market share in Q2 last year – the one which made Jim DeMare so unhappy – had little to do with an outbreak of laziness on the part of the traders, and much more to do with a risk management decision to withdraw capital rather than chase hot trades related to the Russian invasion of Ukraine.

Ever since DeMare took over, he’s been on an internal program of making the case to CEO Brian Moynihan that the trading operations need to be given more capital, backing it up with data from client interviews identifying this as the key requirement to be in the top tier.  Russia-related blips aside, he’s been successful in making this argument over the last three years.  Which means that Bank of America’s traders need to be ambitious; every year they have a bigger book to turn over.  That’s also why it keeps on hiring.  Hopefully soon the speeches at town halls will have more of a flavour of “Don’t forget, today is the day we’re going to win

Elsewhere, Schonfeld Strategic Advisors isn’t quite as big as multistrat giants like Millennium and Citadel, but it’s not small – nearly a thousand employees and about $15billion assets under management.  And it’s been growing very rapidly over the last few years, with significantly less staff turnover than the “pod shops”.

That growth appears to be grinding to a halt; the technology team has lost a few senior employees, while the “talent acquisition group” responsible for non-investment hiring has lost eight people since the start of the year.  They were still recruiting macro and Delta One portfolio managers earlier in the year, but apparently it’s “been eerily quiet” for recruiters working with the firm.

What seems to have happened is a lull in performance, partly because Schonfeld is overweight macro trading when compared to other multistrats and partly because “they are exactly where every multistrat that raised assets quickly has been” – Brevan Howard and Balyasny also had significant growing pains.  It’s a reminder that fast growth in the hedge fund world tends to be self-limiting, although the CEO’s own job is probably safe – he’s a lifelong family friend and mentee of Steve Schonfeld, the trader whose family office the firm started out as.

Meanwhile…

Other banks are having a hard time with Greater China, but Standard Chartered are the home team in Hong Kong, and they are “still hiring” according to CEO Benjamin Hung.  Particular shortages are in “sustainability and digital” as well as relationship management roles. (Bloomberg)

Would everyone please stop kissing their pet turtles? The scaly little darlings carry salmonella. (WSJ)

All the other social media sites have become a little bit more unbearable and apparently a new generation think it’s “at least marginally acceptable” to be posting cringey personal growth thoughts and trying to be a thinkfluencer.  Yes, LinkedIn is apparently cool these days. (Bloomberg)

“The two worlds of Python and Excel are colliding”, something which could be either very good or very bad.  Microsoft is going into partnership with Anaconda, for a project which is intended to allow advanced data analysis in the cloud with results displayed in Excel worksheets, but which seems very likely to proliferate desktop coders writing “Def VLOOKUP()” thousands of times. (The Verge)

Jefferies still doesn’t seem to believe in slowdowns – it continues to expand in Asia with ten new hires (at all levels from Associate to MD) planned in India. (Bloomberg)

The economics of small London brokerages always used to be that everyone got a very low base salary, meaning that there were good and bad bonus years but the business always more or less broke even.  The bonus cap has changed all that; Redburn Securities has had to pay up to keep its executive team as it was acquired by Rothschild, while research fees have continued to come under pressure, pushing it to a £23m loss. (Financial News)

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AUTHORDaniel Davies Insider Comment

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