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Morning Coffee: The European banks handing out big pay rises. Bridgewater’s evolution shows where to work in hedge funds

It seems like only yesterday that Deutsche Bank’s employees were the object of sympathy across the industry.  How things change – this week, if you go into a financial district bar, the chances are that the corner table covered in champagne bottles will be occupied by people toasting the names of Ram Nayak and Mark Fedorcik.  Those who hung on to their limited edition Deutsche Bank sneakers rather than selling them on eBay will be able to wear them with pride.

The loudest shouts of “Prost” are likely to be directed at Mr Nayak, however, as it seems that fixed income traders at Deutsche have done best of all, with bonuses rising for the rates, forex and emerging markets teams.  These teams have delivered spectacular performance, to be fair, with rates revenues increasing five-fold, and the flow forex franchise being compared to Bob Dylan in industry surveys.

We noted back in December, when rumours first started to circulate about the Deutsche bonus split, that it didn’t seem to be proposing much cross-subsidy between the sales & trading bonus pools and those of their advisory colleagues.  It appears that there hasn’t even necessarily been much sharing between different product teams within the fixed income franchise, though. Credit trading didn’t have quite as good a year as the flow products at Deutsche, and consequently they have seen their bonus pool fall, according to Bloomberg.  As always, it pays to be in the right place at the right time.

That’s also potentially the lesson to take away from the news that Andrea Orcel is getting a 30% increase in base salary, which given the EU bonus cap rules, also means that he’s getting a substantial increase to his possible total compensation in the event of meeting all his targets.  This was the controversial remuneration committee decision which resulted in leak accusations and resignations from the board a short while ago.

But the controversy isn’t all one way – according to the FT, some shareholders think Orcel ought to be paid even more.  Unicredit’s share price has more than doubled since he joined and profits were up 48% last year.  Sceptics might ask how much of this can be attributed to Orcel’s own strategic initiatives, which are only just getting started, and how much is a result of either years of past restructuring under previous CEO Jean-Pierrer Mustier, or simply the rising interest rate environment.

But skeptics can always find some reason to grumble about the contents of someone else's wallet.  Moving to where the action is going to be is one of the most important skill-sets in the financial industry, and Orcel has proved on numerous occasions that he’s great at it.  If he spotted the potential in Unicredit when the market couldn’t quite see it, then no wonder the bank is prepared to pay handsomely for his services.

Elsewhere, Nir Bar Dea at Bridgewater appears to have decided that enough water has gone under the bridge, so to speak, for him to make some profound strategic changes to the firm founded by Ray Dalio.  Rather than relying on macro calls and an involved but consistent process, Bridgewater is going to bring in more stockpicking in individual equities, more use of artificial intelligence and machine learning, more sustainability and much more Asian exposure (particularly, doubling the size of the Singapore office).  He’s also going to cap the size of the flagship Pure Alpha fund and cut as many as 100 jobs (from an overall staff of 1300) to create space and budget for the new ideas.

According to Bar Dea, “The only way to stay relevant is by innovating”, so presumably he would be quite insulted if anyone used the hackneyed term “pod shop” to describe this diversification into uncorrelated smaller strategies to mitigate capacity constraints.  Whether or not Bridgewater is blazing new trails or following in the footsteps of Citadel and Millennium, its new priorities certainly look like a decent checklist of what’s hot in the hedge fund space at present, and what a lot of very intelligent people have agreed is likely to remain hot for a significant period of time.  Anyone planning to build a career over the next decade could do a lot worse than picking one of Bar Dea’s ideas and building a resume around it.

Meanwhile …

A French labour court has ruled against BNP Paribas in the case of Jean-Christophe Wantz, who argued that if the bank didn’t give him anything beyond a warning when a female colleague made a complaint about him in 2012, it wasn’t really on to then fire him in 2017 when a press article came out about the same episode.  The bank is appealing the decision and Wantz continues to dispute the original allegations.  (Bloomberg)

One of the biggest law firms on Wall Street don’t seem to believe that the deal drought is here to stay, or that post-Brexit Britain isn’t worth bothering with.  Cravath Swaine and Moore is the latest to launch an English-law offering, having poached a team from Shearman & Sterling. (Financial News)

The pandemic seems to have significantly affected the psychology of traders.  They are now much less “agreeable” (in the sense of being trusting and not finding fault) and have less of a “locus of control” (believing in their own ability to direct their life).  Basically, they have lost their mojo, and the Fed researchers who found these results think it will affect the structure of markets until a younger and less scarred generation is able to take over. (Bloomberg)

Mary Erdoes is going to be deposed in the US Virgin Islands litigation over Jeffery Epstein, but JPMorgan continues to argue that the decision to keep Epstein as a client had nothing to do with Jamie Dimon. (FT)

Bankers need to give up on hedonistic lifestyles, and stop pretending to be among the elite, according to the latest memo from the Central Commission for Discipline Inspection in China.  (Bloomberg)

What happens if you try to use a quant algorithm to optimise every decision in your daily life? (You end up with a hangover) (WIRED)

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Bear with us if you leave a comment at the bottom of this article: all our comments are moderated by human beings. Sometimes these humans might be asleep, or away from their desks, so it may take a while for your comment to appear. Eventually it will – unless it’s offensive or libelous (in which case it won’t.)

AUTHORDaniel Davies Insider Comment
  • Un
    2 March 2023

    Not surprised the decision went against BNP Paribas on this one. Please keep us posted - will be interesting to see if they actually go through with the appeal.

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