When Mercuria Energy Group buys JPMorgan’s physical commodities unit, only around half of the 400 staff will keep their jobs. With commodities trading in investment banking increasingly being scaled back, trading houses comparatively small, and hedge funds focused on the sector experiencing their own problems, what options are available?
For Gavin Rankine, a 20-year commodities trading veteran who has worked at JPMorgan since 2007 – having previously held roles at RBS Sempra and Enron Metals Brokers – the answer is to go it alone. After six months on gardening leave, he’s decided to trade from home, something he’s always “wanted to give a go”, according to his LinkedIn profile.
The concept of trading from home, perhaps understandably, is derided by traders in investment banking and hedge funds. The copious number of trader-training colleges, which claim to offer the secret to earning vast amounts of money – provided you’re able to shell out upwards of $3k for course materials – hasn’t exactly added to its reputation. One, Trading College, is run by Lee Sandford, a former professional footballer who retired from the game in 2002.
Arguably, however, increasing numbers of FICC traders, particularly those in commodities, rates and FX, are likely to lose their jobs in the near future with few new opportunities available. Add in the fact that trading in investment banking is being increasingly dominated by algorithms, and perhaps those with experience and expertise can genuinely make it work under their own steam.
Anton Kreil, the former Goldman Sachs, Lehman Brothers and JPMorgan trader who has been attempting to stir up controversy by suggesting that investment banking is a career dead end, has been making an argument that trading from home is the fast-track to riches. Chris Cathey, a former Goldman Sachs director and Bank of America Merrill Lynch trader, also joined Kreil’s venture The Institute of Trading and Portfolio Management, at the tail end of last year as ‘trading mentor’. Lex van Dam, the former head of prop trading at Goldman Sachs, has also been running his own trader training academy since 2010 in an attempt to combat the proliferation of courses that he compares to "selling snake oil".
In a series of videos and presentations released in March, Kreil argued that senior traders in investment banking earning a ‘mere’ $200-300k annually were living hand to mouth. Around 80-90% of a traders’ time in investment banking is now spent monitoring algorithms or unwinding positions for clients, rather than taking any actual positions, meaning a mere 10% is spent on ‘positive selection portfolio’, or actually trading something they want to.
The “best traders” have left the industry, he says, and what is left is “deadweight”. Trading from home is both the best way to make money and make it into a hedge fund, which is then the best method to carve out a good career in trading, he said.
“As an aspiring professional trader you must be seeking to build expertise in trading with your own $$$, so you can target joining a hedge fund or do your own thing,” he writes. “This is where the opportunities in the trading and portfolio management business exist in today’s market.”
As someone who runs his own trader training firm, Kreil’s argument is always going to be a little biased. However, many hedge funds do want to see evidence of a passion for markets, alongside a solid track record, and this could come from trading under your own steam.
Nonetheless, as such an experienced trader, Rankine’s decision appears strange. Even if – as the closure of Clive Capital and Higgs Capital in the past few months demonstrates – the commodities hedge fund space is struggling, traders are still taking this route.
Paul Schurman and Patrick Sundberg, former Goldman Sachs commodities traders, launched oil and agriculture-focused hedge fund Tulos Capital to outside investors in February, for example.