Morning Coffee: Intense times at the hedge fund with employee pictures on the wall. Another reason to work for Jane Street in Hong Kong

As the wisdom of motivational posters might have it, the culture of a financial institution is a bit like a teabag.  You never know how strong it really is until it’s in hot water.  When everything is going well, lots of companies are keen to about their unique collaborative and collegiate environment.  It’s easy to get along when everyone’s making money.  But more troubled times often make the fault lines extremely obvious.  And it seems that hedge fund Marshall Wace, particularly in its credit team, might currently be going through those kinds of times when the flavour seeps out.

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Marshall Wace has always tried to have a slightly different culture from the typical “pod shop”. More collegiate, less aggressive, less … American?  Paul Marshall, the co-founder, has pointed to its unusually high average employment duration and culture of cooperation and teamwork rather than eating what you kill and quickly cutting underperformers.  His concern with creating the right atmosphere goes right down to taking a personal interest in the interior design of global offices, including portraits on the walls of valued employees in the style of a British pub celebrating its regulars.

The trouble is that MW has historically been dominated by its market leading long/short equities franchise, and so when it wanted to build up other asset classes and strategies, that meant hiring people from outside.  And new hires often come with their own culture and habits; it’s one of the best-known problems in the industry that it’s difficult to maintain your culture during a period of rapid growth.

Adding to the problems, when MW hired Dan Schatz from Citadel to be the head of credit, Citadel got very angry and lawyered up.  Lawsuits are, famously, a massive sink for management time and effort that could be better spent elsewhere; whatever your problems are, a bit of litigation will always make them worse.  Just at the time when the credit team needed to be concentrating on developing a strong culture and building relationships, they had this unwelcome distraction.

And Murphy’s Law dictates that just when it would be really helpful to have a good run of luck in the market, the opposite tends to happen.  Performance figures aren’t separately disclosed for the main credit strategies, but it might be assumed from the Alpha Plus fund to which they contribute that things haven’t been stellar.  The end result seems to have been a number of departures from the credit unit over the last couple of years.

Of course, these aren’t unique issues for Marshall Wace; everyone in finance will go through some periods of adversity, and managing the teething troubles of rapid growth is the whole business of multistrategy investing.  It might even be argued that tough times are what build a culture, as well as challenging it.  When things stabilise at Marshall Wace, everyone on the credit desk will at least know how their colleagues react when the chips are down.  That’s actually quite useful.

Marshall Wace declined to comment.

Elsewhere, some very good news for asset managers in Hong Kong. It seems that they may also benefit from a planned change to the tax law which would effectively replicate the “carried interest loophole”  beloved of private equity fund managers.

The local tax authorities have made it clear that “The scope of the proposed enhanced tax concessions for funds and carried interest is not confined to particular types of funds or asset managers. Rather, eligibility is dependent on whether the relevant conditions and requirements are met”.  In plain English, that means that employees will benefit from it as long as they are getting a contractual share of the fund’s profits, rather than a discretionary bonus.

Which means that there might be some quite difficult decisions to make.  Lots of firms, including some very big hedge funds, try to incorporate some element of discretionary payment into their employees’ compensation, in order to encourage things like teamwork, management development and good compliance habits.  But if this makes a big tax difference, the employees will be very resistant.  Firms like Jane Street and Citadel are already likely to be on the right side of that line, but many other asset managers and family offices might end up deciding that although they don’t like formula-driven compensation, they can’t afford not to give it.

Meanwhile …

Driss Haj Khalifa, formerly head of euro swaps at Bank of America in Paris, has gone to Susquehanna in London.  Lots of sell-side traders seem to have made this move to macro and multistrategy hedge funds in the last year. (Financial News)

It’s going to be a bumpy few years for the hard working men and women in investment banking HR in the UK. The cap on compensation at employment tribunals is going to be removed, and the minimum period of employment before someone can bring one will be shortened from two years to six months. At the same time, stricter rules on the duty to prevent sexual harassment at work are likely to be translated into non-financial conduct regulations.  (The Banker)

“Who needs income when you have wealth?”  The strong performance of the stock market has had an unexpected effect – boomers are finding that they have enough savings to take early retirement. (WSJ)

Because there are so few ECM deals in their domestic market, London law firms are having to provide secondments to Asia and Europe for their junior staff so that they don’t lose their expertise. (Financial News)

Most people react to a colleague showing up with a holdall of sweaty gym gear simply by complaining or making sarcastic remarks.  Former Citadel trader Maria Cabral Menezes saw it as a possible opportunity to quit and launch a business selling “dry shampoo for clothes”. (Business Insider)

Someone is suing Kalshi for launching prediction markets on flight cancellations, pointing out that it is almost certainly going to lead to someone doing something stupid or dangerous in order to benefit their trading book. (WSJ)

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