Morning Coffee: Mass job cuts at the high paying hedge fund that poached junior bankers. Jamie Dimon's activist appendage

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Balyasny layoffs

When blue-chip hedge funds start making offers to junior bankers, there’s a clear trade off between risk and return. On the one hand, it's the buy-side and hedge funds can pay very well indeed. On the other, hedge fund jobs can be precarious and fluctuations in investment performance can see you abruptly let go through no fault of your own.

The downsides are currently making themselves felt at Balyasny Asset Management. Balyasny was one of the most aggressive hirers last year, taking staff from UBS, JP Morgan, Goldman Sachs and Morgan Stanley. The fund nearly doubled the size of its London operation, raising average salaries by 24% in order to do so. It was particularly aggressive in hiring from the sell-side and from investment banking, rather than from other hedge funds. All the signs were that Balyasny were building up a substantial operation, with a particular focus on equity research and trading.

It didn’t last. Earlier this year, Balyasny employees in London started dropping off the FCA Register and showing up at new employers. Ten traders were cut from the “macro trading program”, and portfolio managers and analysts started leaving, often after having spent less than two years at the company.  Some of the departures – like a five person team moving to Point72 – might have reflected other growing hedge funds following a similarly aggressive approach. Others couldn’t really be explained in this way; few had any obvious signs of being performance related.

Now we have the latest move. Bloomberg reports that 125 employees, including 40 investment professionals, have been let go.  That’s roughly a fifth of Balyasny’s total workforce and just under a sixth of the investment professional headcount.  Some of the junior bankers might still be there, but Balyasny's cuts are unusually deep. The fund has eliminated 13 teams from a total of roughly 80. People leaving include big names in the hedge fund space, like Arancha Cano (formerly of Moore Capital) and Jay Rao (previously at Millennium). The cause appears to be the most basic hedge fund economics; the assets under management have been falling. November was not a good month for Balyasny’s flagship Atlas Global Fund (it lost 3.9%) and a combination of investment performance and client withdrawals mean that the overall group is likely to start 2019 with $7.3bn under management, $4bn less than it opened the year.

This is the risk that one has to bear in mind. Hedge funds are more strategically nimble than big banks, but this means that they can be quicker to cut as well as quicker to grow.  Even if your own job performance is good, you’re exposed to the overall cycle and to the firm’s ability to grow assets under management in a much more leveraged way than you are in the bulge bracket.  And if you happen to have a poor year (as everyone does), you’re in an even weaker position.  If you’ve already got a good franchise, and a pot of cash, you can probably handle this risk.  The people who need to be a bit more cautious are the junior bankers who joined hoping for a pot of gold and who are now back on the market in distinctly worse hiring conditions than those of last year.

Separately, everyone’s got their own problems ... Jamie Dimon has an unusual set of troubles, though, mainly related to his high profile and longevity in the top role at JP Morgan Chase. His track record and punchy personal style (which have also caused him to be talked about as a potential write-in candidate for a Presidential run) mean that he’s one of the few bankers that people recognize by name. And that means that lots of people who have an axe to grind against the banking system will choose to grind it with Jamie, personally.

Wherever the JP Morgan Chase CEO goes, particularly if he’s delivering a public speech, there is now a community of political activists who follow him about, carrying out publicity stunts and challenging him. Since JPM is so big, it’s connected to almost everything going on in the world that someone might protest against; most recently, his apartment building has been subject to recordings of crying children in order to protest banking relationships with two Texas firms that run immigration detention facilities.  An activist called Ruth Breech has now interrupted so many Dimon speeches with protest banners against fossil fuels that he greets her with a, “Nice to see you again”.

“I don’t know why they’re following me around”, Dimon apparently said to a bank analyst, and he has also been known to exasperatedly explain to protestors that JPM has no role in setting government energy policy. But that’s one of the problems of successfully taking a bank through the crisis; people think you can do things.

Meanwhile ...

A US court officially rules that “it is not illegal to be smarter than your counterparties.” Don Wilson, of swaps trading firm DRW, thought he had found a mispricing in interest rate contracts which led to potential arbitrage profits.  However, his own trades were big enough to systematically move the price, leading the CFTC to prosecute him and his firm for manipulation.  Today, the charges were thrown out and the regulators censured for failing to make a case that a “false price” had been established. (FT)

Damned if you do, damned if you don’t – after banks have been warned to get ready for Brexit moves, the FCA has now started handing out warnings to not move too many clients to their EU subsidiaries, unless they can be sure it’s in the clients’ interests to do so. (FT)

Crazy tales of spending on plastic surgery and luxury consumption, as millions of dollars of sports stars’ money sat idle, from the trial of Australian hedge fund Goldsky and its former car salesman founder (AFR, also background)

International Assets Advisory, a Florida wealth management firm, specializes in hiring advisors with some trouble in their past.  Some of them stole a hot dog while drunk in college, some of them racked up dozens of regulatory sanctions or marketed fraudulent products.  The marketing pitch to clients seems to be effectively “we keep a better eye on our staff, because we have to”. (Business Insider)

In the #MeToo era, some male bankers have decided the best way to protect themselves against hypothetical sexual harassment claims is to commit actual sex discrimination, and are withdrawing opportunities and mentorship from female colleagues. (Bloomberg)

Combining today’s themes of “job security” and “second chances”, a profile of David Sproul, an Arthur Andersen veteran who managed to overcome the stigma to become chairman of Deloitte.  He’s described as “just dull enough that the clients love him”. (FT)

And the big question of the day – why are octopuses so intelligent, and given they’re so intelligent, why don’t they live longer? (NYT)

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