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ELI LEDERMAN: It’s not sufficient simply to be a perfect robot if you want to make money in finance now

Eli Lederman

Back in the big banks’ glory years, clever professionals progressed up the ranks almost mechanically, like perfect robots programmed to achieve their appointed tasks. In that environment – now a forlorn memory – just pulling levers on established businesses was enough to post higher numbers every year, and if one wasn’t richly rewarded for it, there was always the credible threat of switching firms.

Now at those same banks, staff don’t count down to next year’s comp day; instead their time passes in hours filled with dreadful apprehension of any call from HR, knowing that any day can be the last. Lavish off-sites and first class trips are in the rear view mirror, the closest thing to fun is attending someone else’s leaving drinks.

Maybe it could have played out differently. If banks hadn’t laboured and lobbied so intently to preserve the status quo, maybe smart executives would be directing another act and not an ending. Instead, we have a hasty retreat and the jettisoning of entire businesses to pare down staff and shore up balance sheets.

The industry is being humanized in the process. The old perfect robots didn’t feel fear, but anyone with a desk still to go to is very human now.

And that’s fortunate because, blessed with craft and creativity, humans can make decisions. Like what to do next.

Needless to say, you could get out of finance altogether. But for those with the industry in their veins, there are still options.

In the mad rush to de-leverage and raise capital, the banks have cut back drastically even in their core functions, like lending to real businesses that produce goods and services (and jobs). With some irony, however deserved, browbeaten banks can now barely even lend.

Except to hedge funds, that is, to whom lending continues unabated, fueling these high performance vehicles for their next mission. Where are they going? Many of the smartest hedge funds race now to fill the void left by the very banks who lend to them.

Last week in New YorkI saw it up close, from the perspective of a young company in need of funding and also from a hedge fund providing innovative financing to pre-IPO businesses. Without a bank to borrow from, the entrepreneurs want money without ceding control to venture capital accustomed to dictating terms; the hedge fund, competing in new territory, arrives more openly. Supply, meet Demand.

Sometimes called “Shadow Banking” by detractors looking to attach a stigma, in fact these deals connect capital from sophisticated investors to constructive innovation. Ordinary depositors (and taxpayers) stay off the hook, unless the new order outgrows its grassy roots.

Anyone yearning for new frontiers of finance should follow the money. And right now, that’s with hedge funds seeking new sources to juice returns. Bear in mind, though, that unlike the bloated banks, the nimblest hedge funds still feel like they’re spending their own money. You’ll need passion again to produce and create. In the new regime, there’s no desk for perfect robots any more.

Eli Lederman is the former CEO of Turquoise, the pan-European stock market. Prior to that he was a managing director at Morgan Stanley where he had a 14 year career. He is the author of “HIGH FINANCE – a Wall Street novel” which is available now worldwide.

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