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Morning Coffee: Goldman Sachs bankers to get enormous bonuses, or not. Urine on the floor at top hedge fund

It’s getting near the end of the year, when junior bankers start looking forward to the party season.  Senior managing directors, however, know that they’ve got one more grueling task to get through before they can relax – the annual round of compensation committees.  Dividing up the bonus pool is a fraught, political business at the best of times; in a year when there’s precious little surplus revenue to be shared out, it can be incredibly difficult. 

The task is always made worse when there are a small number of key employees who absolutely have to be looked after, or they’ll move to the competition.  This might be part of the reason why Goldman Sachs is adjusting the bonus system for select employees in its asset management division. A bigger share of their pay will be determined by the performance fees or carried interest on the funds they manage.

That could solve an immediate problem.  By aligning the pay to be closer to the structure of the rest of the alternative funds industry (Apollo has done something similar recently), it’s less likely that Goldman will see its portfolio managers poached by the opposition.  It could also reassure top performers in the asset management division that they won’t lose out from the fact that some of their top executives, who might have been expected to fight hard for them in the committees, have resigned over the last year.

But it comes at a price, for both Goldman and the employees.  Banks are usually quite reluctant to have too much “direct drive” in the compensation system, because it makes things much harder to manage.  Other successful teams and franchises are likely to start asking what’s so special about the asset managers, and demanding a similar deal for themselves.  It becomes much more difficult to persuade one business unit to help out another, if the principle of “eating what you kill” starts to take over from the “one team, one dream” ideal.

And as far as the people benefiting from the new deal are concerned – is it really a good time to be linking your compensation to the performance of the alternative asset management industry?  Interest rates are rising, deals are getting harder to structure and the profitable exits which usually fill up the “carry pool” are getting much rarer.

Elsewhere, the amazing weirdness of Bridgewater Associates has been an industry in-joke for decades.  Now, thanks to the imminent publication of the book (and forthcoming TV series) “The Fund”, it’s going mainstream, with selections from the battiest anecdotes all over the media.

Like the time that founder Ray Dalio discovered some urine on the floor in the men’s room at the hedge fund’s offices.  His very normal reaction, according to the book, was to launch an internal investigation, assign staff to take notes on everyone who entered, install new urinals and document the whole process in the corporate “Transparency Library”.  It’s interesting to note that although almost every other anecdote published so far has been accompanied by a strongly worded denial from Bridgewater’s lawyers, that one seems to have gone unrefuted.

It might be said that it’s hard to pass judgement on whether this was a proportionate response without knowing the size of the puddle.  Sometimes, public soiling can be a sign of serious mental health problems.  But the context seems to indicate that it was more likely to have been the result of carelessness than a cry for help.  And given all the other stories in the book, it seems more likely to guess that although Bridgewater has as many as 375 “Principles”, a sense of proportion isn’t one.

Meanwhile …

“Every expense is on the table”, six words that haven’t been heard in the private equity industry for a while.  They were in an all-staff memo at Carlyle, which has cut consumer, media and retail teams in the USA, with investment staff also at risk in Europe and Asia.  It would be nice to blame this all on an industry-wide downturn, but KKR seems to be noticeably doing fine. (FT)

James Gorman won’t be hanging around looking over Ted Pick’s shoulder – he will be leaving Morgan Stanley before the end of 2024 rather than staying on as Chairman.  He says he wants to play more golf and to teach at a university.  It doesn’t say what subject. (Bloomberg)

Taylor Swift is paying out $55million in bonuses to people on her world tour.  These are presumably mainly roadies and technicians, but in a money-making colossus like that, there’s bound to be one or two accountants and quite possibly a corporate finance guy. (FT)

A rare instance of someone walking down Boutique Boulevard in the other direction – Andrew Jardine has left Moelis to join the software banking team at UBS. (Bloomberg)

Elon Musk’s Neuralink is looking for volunteers to allow a robotic surgeon to remove part of their skull to insert some wires and electrodes.  The noise you just heard was that of a million dads saying “I need that like a hole in the head”. (NY Post)

Some of the rising stars promoted to MD at Goldman Sachs, including Ilana Wolfe, who has carved out a niche helping firms to find people to meet the requirements of banks (like Goldman) who have committed not to IPO anything that doesn’t have a single diverse board member. (Business Insider)

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AUTHORDaniel Davies Insider Comment

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