The decision by Mike Cavanagh, co-CEO of investment banking at JPMorgan, to move to private equity firm Carlyle should not be viewed as a surprise. Cavanagh has taken himself out of the running for the role of successor to JPMorgan group CEO Jamie Dimon in order to make a late entry in the stakes to follow Carlyle founders David Rubenstein and Bill Conway.
There will be much elbowing and use of the whip before either firm decides on a succession plan, but in the meantime Cavanagh stands to earn far more at Carlyle than he would have done at JPMorgan.
The main surprise in the announcement of Cavanagh’s shift is that more senior bankers have not already made a move to private equity firms or other buy-side perches.
Cavanagh received stock worth $9.75 million for his performance in 2013 at JPMorgan, the same level as Matt Zames, the chief operating officer who had been widely viewed as his main competitor in the Dimon succession stakes, and the same total as Daniel Pinto, the London-based co-head of investment banking who will now take sole charge of the division.
The three co-founders of Carlyle were paid roughly 10 times this amount in dividends last year by contrast, at $92.9 million each. Rubenstein, Conway and their co-founder, Daniel D’Aniello, actually split a total of $750 million of gains at Carlyle for 2013.
This gap might widen as bank executive compensation remains under relentless attention, even as the industry returns to health. Downward pressure on compensation might be exacerbated as it is more openly debated.
BNP Paribas CEO Jean-Laurent Bonnafé took a not even slightly disguised swipe at the compensation levels of some of his European peers in an interview to accompany the bank’s investor day on March 24, for example. He pointed out that his compensation of roughly €3 million was well below the €8 million paid to leaders of less profitable banks, in a clear reference to Deutsche Bank’s co-CEOs Anshu Jain and Jürgen Fitschen, who each saw their compensation rise to around that level for 2013, and to Barclays CEO Antony Jenkins, who is paid a similar amount. That remark could help to keep compensation levels in the spotlight as the heads of Barclays and Deutsche Bank try to convince investors that they can overcome formidable regulatory and capital challenges.
A mass migration of investment bankers to more leanly staffed private equity firms is not likely, of course, nor can Mike Cavanagh expect to multiply his compensation by 10 times simply by shifting to Carlyle. The value of a stake as a partner in private equity builds slowly and is dependent on benign capital markets that allow for cheap borrowing and cashing out of corporate stakes.
But there is no question that Cavanagh has far more potential financial upside at Carlyle than he had at JPMorgan. And as he settles into his new role as co-president and co-chief operating officer at Carlyle he will know that one thing is fully fungible across all areas of finance: relentless competition over minor details of status.
The press release to announce Cavanagh’s arrival at Carlyle was a classic example of the genre in underscoring the sensitivities of the principals involved. Glenn Youngkin, a 19-year Carlyle veteran who may be feeling a little put out to be sharing his existing COO role with Cavanagh, was assuaged with an additional title as co-president (which is a new position!). He was also given a quote in the release to make it clear just how happy he is about all this. "I am pleased to welcome Mike to Carlyle as my partner... it will be great to have Mike here to help us realize our ambitions," Youngkin said, entirely convincingly.
Cavanagh in turn said that he looks forward to "partnering with Glenn and the rest of the Carlyle team to help take the firm to the next level of success".
Cavanagh also found room to get in a last word of praise for Jamie Dimon by extolling his friendship and support, because old habits die hard, even if the money trail does seem to be leading away from investment banking.