Morning Coffee: Trump tariffs & the new nightmare of private equity & hedge fund jobs. CFA scores boast-fest

Whatever you think of Trump's 'Liberation Day' tariffs and the complicated-not complicated formula used to calculate them, they seem like bad news for jobs in financial services. 

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For the moment at least, deals that were were supposed to happen will not, which bodes badly for M&A bankers who were already clinging to jobs with a silken thread in the hope that the pipeline would save them. "Crazy sh** t"is "horrendous for dealmaking" declares one lawyer. But bankers, at least, are already down with a challenging jobs market. For hedge fund and private equity professionals, the post-tariff reality might be more of a shock. 

Bloomberg reports that some hedge funds are already applying the brakes to hiring. Others are sitting out of the market after big funds like Millennium, Citadel and Balyasny made losses in March. The best that can be hoped for is a flat April. Portfolio managers themselves are exhausted and sleeping three hours a night. A trade placed one day can blow up the next, depending upon White House whim, and there are deep debates over whether tariffs are the new reality or a bargaining chip. One very senior hedge fund figure said every big portfolio manager has been through "hell," and this appears to be one of those times. 

Life in private equity may be even worse. Hedge funds are in the business of buying and selling easily traded products, but private equity funds are in the business of buying, holding, improving and selling over a five to seven year period. This is a nightmare when the parameters change completely halfway through.

Macro portfolio manager Karim Al-Mansour, has a brilliant analysis of the horrors now facing private equity firms on his Substack. If you're a private equity firm managing portfolio companies with complex global supply chains, traditional forms of hedging just stopped working, says Al-Mansour. FX swaps and forwards don't function against the asymmetric non-mean-reverting structural change that a tariff represents. Different forms of hedging are needed. Things like like FX basis swaps that track price adjustments across multiple countries, including primary suppliers and their alternatives, or mid-curve swaptions that hedge against rate changes at the point of refinancing, are suddenly popular.

Most of all, though, Al-Mansour says private equity firms are having to think a lot more deeply about hedging in the whole portfolio context - it's now about portfolio structure rather than individual hedges. Cross-portfolio risk exposure and centralized hedging have become far more important. Due diligence just became more diligent than ever and means digging deep into supply changes. 

In the short term, the tariff chaos also means that private equity funds still won't be exiting investments and realising losses. Secondary sales (where funds effectively sell investments back to themselves) will continue, says Al-Mansour. So will the disputed activity of NAV-based (net asset value based) financing, which allows private equity firms to take out loans against the collateral of portfolio companies. Also described as "pray and delay", NAV loans amount to kicking the can down the road. This looks even more dubious when the road is collapsing. Carried interest, at the very least, is unlikely to be on offer to private equity professionals for a while. 

Separately, CFA Institute has devised a new way of tantalising its failed test takers to try again. 

Bloomberg says there's a new scorecard system accompanying CFA exam results which shows exactly how well you performed against the minimum passing score of 1,600. Accordingly, when CFA 1 results came out yesterday, people took to Reddit to boast of their high scores, or not. 

The highest possible score on the exam was 1,900. Various people scored 1,800+. Many scored >1,500 but < 1,600. "Scored 1595 and two wine bottles deep," said one. There's always next time.

Meanwhile...

The KBW Bank Index closed 9.9% lower, with shares of Citigroup down 12%. Fees are going to be lower and credit losses are going to be higher. (Bloomberg) 

Traders may be doing well for the moment. Goldman Sachs Partner: “Our desk is a 9.5 out of 10 in terms of activity levels and I would not be surprised to see close to 20 billion shares trade across all US equity exchanges today,” where the average this year is 15 billion." (Bloomberg) 

The tariff formula: divide a country’s trade surplus with the US by its total exports, based on data from the US Census Bureau for 2024. Divide that number by two, producing the “discounted” rate. (Bloomberg) 

The tariff formula is silly. “The formula . . . gives you a level of tariff that would reduce [the] bilateral trade deficit to zero. This is an insane objective. There is no economic reason to have balanced trade with all countries...So in this sense, this policy is very unorthodox and cannot be defended at all.” (Financial Times) 

Nike employs 500,000 people in Vietnam. They are mostly women. Does this mean 500,000 shoe making jobs are coming to the US? (Adam Tooze) 

The other issue: "We worry this risks lowering the policy credibility of the administration on a forward-looking basis. The market may question the extent to which a sufficiently structured planning process for major economic decisions is taking place...Crucially, major additional fiscal decisions are lining up over the next two months...." (Financial Times)

Bill Gross: “This is an epic economic and market event similar to 1971 and the end of the gold standard except with immediate negative consequences.. Trump can’t back down anytime soon. He’s too macho for that.” (Bloomberg) 

Trump says he might be open to reducing tariffs, though. "“The tariffs give us great power to negotiate...Every country has called us.” (Bloomberg) 

Reflections of a 60-year old hedge fund manager: "I should have sold more." (WSJ) 

Stefan Selig, the former US under secretary of commerce and ex-executive vice-chair for global investment banking at Bank of America: “We are entering into a world where there is now more uncertainty than we have seen perhaps since the end of World War II.” (Financial Times) 

Citi FX trader John Nihill has joined hedge fund White Elk Partners as a senior portfolio manager. (Financial News) 

PWC hired Hugh Man from Jefferies for M&A. (Financial News) 

Jes Staley's lawyer says no one cares about Jes Staley's alleged friendship with Espstein. “What does it matter if Mr. Staley is reported to have told Mr. Gillies that he visited the island once if he told others it was twice and that he may have been three times? What does it matter if he had dinner with Mr. Epstein more than once annually?” (Bloomberg) 

Fintech firm Plaid completed a new round of funding but it's now worth $6bn instead of the $12bn it was worth in 2021. (Financial Times) 

Playing Tetris can be great for calming the mind and is proven to cure symptoms of PTSD. (Business Insider) 

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