Thursday, March 17, 2005
IDD on Sell Side Talent Exodus to HFs
This Trader Exodus Has Legs
Carolyn Sargent (carolyn.sargent@sourcemedia.com); Judy McDermott (judy.mcdermott@sourcemedia.com)
March 14, 2005
The dot-com world proved irresistible to many an ambitious Wall Street investment banker in the late 1990s, but another exodus currently under way is beginning to far outpace the Internet migration: that of big-name (and not so big) Street traders decamping for the potentially more lucrative world of hedge funds.
The latest emigre is Sal Naro, global co-head of fixed income for UBS, who resigned that post last week to launch his own hedge fund. Jeff Bersh, head of distressed credit trading at Credit Suisse First Boston, is also reportedly leaving the bank to start his own hedge fund (a CSFB spokesman declined comment). In perhaps the highest profile of such moves, Eric Mindich, a former Goldman Sachs trader, raised $3 billion for a new fund that opened last November. His former partner-Dinakar Singh-opened a similar-sized fund last month.
Traders who aren't starting their own funds are joining the funds of others. Last week also saw the resignation of Geoff Sherry, JPMorgan's co-head of trading for loans, bonds and credit-default swaps, who is said to be joining the hedge fund Caxton Associates.
Of course, the post-bonus season always sees its share of musical chairs, but this one has a different feel to it. Consider the happenings in high yield, for instance. In recent weeks, some 20 junk traders have left-some to other Street firms or retirement, but most to hedge funds, sources said. And the lure is not just the potential payday: Some traders were disappointed by their bonuses after such a big year in high yield, and some are simply concerned about where the sell-side junk market goes from here. Firms that suffered defections include Citigroup, Credit Suisse First Boston, Deutsche Bank, Goldman, JPMorgan, Merrill Lynch & Co., Morgan Stanley and UBS.
The end result is that hedge funds are luring some of the best and brightest traders away from the investment banking industry.
Naro is setting up shop with Mark Fishman, a director of fixed income at SAC Capital Advisors, to launch a credit-focused fund to be called Sailfish Capital. The new fund will be seeded by SAC, though it will not be an SAC affiliate. Fishman brings with him a team that helped him manage SAC's Genesis Fund.
It was just in December that Naro was named UBS's global co-head of fixed income, alongside Chris Ryan. Still, observers didn't find the move astonishing, given the potential payout Naro could reap at Sailfish.
How big could that payout be for Naro and others? First, consider the compensation structure at a top-tier global bank, where a head of fixed income or proprietary trading might make, all in, $15 million to $20 million annually or more. "There are a fair number of people-maybe 15 or 20-who are in that range, and a handful who are even higher," said Joe McCann, CEO of JH McCann & Co., an executive search firm. Not far behind are some 20-plus players in the $10 million to $15 million range. Still, McCann said, "if you are at a top-10 financial institution, it is highly unlikely that you're going to make more than $20 million."
For political reasons, it's hard for publicly traded institutions-essentially all of the global banks-to justify compensation levels that are any higher. That means these professionals have to be capped, when their real interest is in making even more money.
That's where hedge funds come in. While the explosion of funds means returns won't necessarily be in the 20% range that was commonplace in late 1990s, these funds still offer much greater potential for riches than investment banks. According to published calculations, at least 17 hedge fund managers made more than $100 million in 2003. "The very fact that there is a number out there like that makes all of these guys salivate," said one observer. Hedge funds typically charge fees of 2% of assets under management plus 20% of the fund's profits.
For traders, hedge funds offer a much higher percentage of their profits. While a high-yield trader at an investment bank might earn 10% of the profits from his trading book, a trader at a hedge fund could earn 15% of the book or even more, executive recruiters said. "A lot of [high-yield] traders are getting X% of the prop book, and they feel they can get more running their own book out of a hedge fund," said one junk trader.
However, the movement hasn't been all one way, and the Street still scores a victory of its own now and then. Lehman Brothers announced last Thursday that Jolyne Caruso, the president and a founder of hedge-fund giant Andor Capital Management, will join Lehman as head of its global absolute return strategies business.
The junk exodus
Bonuses were a particularly nettlesome point in high yield this season, as opposed to last year, when high-yield professionals across the board did exceptionally well and many chose to stay just where they were. Firms this year were much more selective in doling out the big bonuses, headhunters and market sources said.
Junk traders had another concern, as well. "They're concerned about the outlook for fixed income as it relates to sell-side business," a portfolio manager said. "Where does the market go from here?" Perhaps staffers are going to the buyside because the same technicals don't apply to the buyside as they do to the sellside, he added.
In addition, distressed trading desks are seeing less business these days as defaults continue to stay extremely low. "With defaults going on where they are, distressed is very quiet," the portfolio manager said, predicting that the situation will last well into 2006. One buzz last week had the co-heads of distressed debt at UBS-Drew Doscher and Jeff Horan-leaving the firm. However, a spokeswoman said both are still currently working for UBS, declining further comment.
Even those who don't go to hedge funds are finding a way to leverage their positions. With so many leaving the sell side altogether, some who remain are capitalizing on the resulting trader shortage by jumping ship to another bank that pays a bigger package. "[And the] banks are willing to write some big checks" to get them, one high-yield trader noted.
High-yield staffers said to be jumping ship for another bank include Deutsche Bank's Scott O'Callaghan, managing director and head of the high-yield sales team, and Joe Faughnan, trader, who both were said to have left the bank for positions at Banc of America Securities. A Deutsche Bank spokesperson did not provide comment by press time. JPMorgan's Jerry Lee, a managing director and crossover credit trader, was also said to have left for BofA last month, while Goldman welcomed an ex-Citigroup high-yield staffer last week: Rohit Bansal started a week ago as a vice president in high-yield trading.
(c) 2005 Investment Dealers' Digest Magazine and SourceMedia, Inc. All Rights Reserved.
http://www.iddmagazine.com http://www.SourceMedia.com
Carolyn Sargent (carolyn.sargent@sourcemedia.com); Judy McDermott (judy.mcdermott@sourcemedia.com)
March 14, 2005
The dot-com world proved irresistible to many an ambitious Wall Street investment banker in the late 1990s, but another exodus currently under way is beginning to far outpace the Internet migration: that of big-name (and not so big) Street traders decamping for the potentially more lucrative world of hedge funds.
The latest emigre is Sal Naro, global co-head of fixed income for UBS, who resigned that post last week to launch his own hedge fund. Jeff Bersh, head of distressed credit trading at Credit Suisse First Boston, is also reportedly leaving the bank to start his own hedge fund (a CSFB spokesman declined comment). In perhaps the highest profile of such moves, Eric Mindich, a former Goldman Sachs trader, raised $3 billion for a new fund that opened last November. His former partner-Dinakar Singh-opened a similar-sized fund last month.
Traders who aren't starting their own funds are joining the funds of others. Last week also saw the resignation of Geoff Sherry, JPMorgan's co-head of trading for loans, bonds and credit-default swaps, who is said to be joining the hedge fund Caxton Associates.
Of course, the post-bonus season always sees its share of musical chairs, but this one has a different feel to it. Consider the happenings in high yield, for instance. In recent weeks, some 20 junk traders have left-some to other Street firms or retirement, but most to hedge funds, sources said. And the lure is not just the potential payday: Some traders were disappointed by their bonuses after such a big year in high yield, and some are simply concerned about where the sell-side junk market goes from here. Firms that suffered defections include Citigroup, Credit Suisse First Boston, Deutsche Bank, Goldman, JPMorgan, Merrill Lynch & Co., Morgan Stanley and UBS.
The end result is that hedge funds are luring some of the best and brightest traders away from the investment banking industry.
Naro is setting up shop with Mark Fishman, a director of fixed income at SAC Capital Advisors, to launch a credit-focused fund to be called Sailfish Capital. The new fund will be seeded by SAC, though it will not be an SAC affiliate. Fishman brings with him a team that helped him manage SAC's Genesis Fund.
It was just in December that Naro was named UBS's global co-head of fixed income, alongside Chris Ryan. Still, observers didn't find the move astonishing, given the potential payout Naro could reap at Sailfish.
How big could that payout be for Naro and others? First, consider the compensation structure at a top-tier global bank, where a head of fixed income or proprietary trading might make, all in, $15 million to $20 million annually or more. "There are a fair number of people-maybe 15 or 20-who are in that range, and a handful who are even higher," said Joe McCann, CEO of JH McCann & Co., an executive search firm. Not far behind are some 20-plus players in the $10 million to $15 million range. Still, McCann said, "if you are at a top-10 financial institution, it is highly unlikely that you're going to make more than $20 million."
For political reasons, it's hard for publicly traded institutions-essentially all of the global banks-to justify compensation levels that are any higher. That means these professionals have to be capped, when their real interest is in making even more money.
That's where hedge funds come in. While the explosion of funds means returns won't necessarily be in the 20% range that was commonplace in late 1990s, these funds still offer much greater potential for riches than investment banks. According to published calculations, at least 17 hedge fund managers made more than $100 million in 2003. "The very fact that there is a number out there like that makes all of these guys salivate," said one observer. Hedge funds typically charge fees of 2% of assets under management plus 20% of the fund's profits.
For traders, hedge funds offer a much higher percentage of their profits. While a high-yield trader at an investment bank might earn 10% of the profits from his trading book, a trader at a hedge fund could earn 15% of the book or even more, executive recruiters said. "A lot of [high-yield] traders are getting X% of the prop book, and they feel they can get more running their own book out of a hedge fund," said one junk trader.
However, the movement hasn't been all one way, and the Street still scores a victory of its own now and then. Lehman Brothers announced last Thursday that Jolyne Caruso, the president and a founder of hedge-fund giant Andor Capital Management, will join Lehman as head of its global absolute return strategies business.
The junk exodus
Bonuses were a particularly nettlesome point in high yield this season, as opposed to last year, when high-yield professionals across the board did exceptionally well and many chose to stay just where they were. Firms this year were much more selective in doling out the big bonuses, headhunters and market sources said.
Junk traders had another concern, as well. "They're concerned about the outlook for fixed income as it relates to sell-side business," a portfolio manager said. "Where does the market go from here?" Perhaps staffers are going to the buyside because the same technicals don't apply to the buyside as they do to the sellside, he added.
In addition, distressed trading desks are seeing less business these days as defaults continue to stay extremely low. "With defaults going on where they are, distressed is very quiet," the portfolio manager said, predicting that the situation will last well into 2006. One buzz last week had the co-heads of distressed debt at UBS-Drew Doscher and Jeff Horan-leaving the firm. However, a spokeswoman said both are still currently working for UBS, declining further comment.
Even those who don't go to hedge funds are finding a way to leverage their positions. With so many leaving the sell side altogether, some who remain are capitalizing on the resulting trader shortage by jumping ship to another bank that pays a bigger package. "[And the] banks are willing to write some big checks" to get them, one high-yield trader noted.
High-yield staffers said to be jumping ship for another bank include Deutsche Bank's Scott O'Callaghan, managing director and head of the high-yield sales team, and Joe Faughnan, trader, who both were said to have left the bank for positions at Banc of America Securities. A Deutsche Bank spokesperson did not provide comment by press time. JPMorgan's Jerry Lee, a managing director and crossover credit trader, was also said to have left for BofA last month, while Goldman welcomed an ex-Citigroup high-yield staffer last week: Rohit Bansal started a week ago as a vice president in high-yield trading.
(c) 2005 Investment Dealers' Digest Magazine and SourceMedia, Inc. All Rights Reserved.
http://www.iddmagazine.com http://www.SourceMedia.com
# posted by Tom @ 9:31 AM 
