27 June: Does size matter?
David Cameron, the Global Borrowers and Investors Forum and banks v boutiques...does size really matter?
Over to this year’s Euromoney global borrowers and investors forum. The Central Hall venue, at the heart of Westminster, oozes history. It was opened in 1912 to mark the centenary of the death of John Wesley (the founder of Methodism). The suffragettes, campaigning for votes for women, met there in 1914, and Mahatma Gandhi addressed the temperance movement in the hall in 1931. And this was the venue where, during World War II in 1945, Winston Churchill speaking at the Conservative Party conference thundered: “Victory is certain, victory is near.”
The Rt Hon David Cameron, MP, the present UK Conservative party leader, would have loved to have been able to repeat Churchill’s exhortation when he gave the keynote speech at the Euromoney conference last Thursday. Ironically, Dave and I have seen rather a lot of each other over the past few weeks.
I was invited to a fund–raising dinner in mid-June organized by a Conservative dining club, the United and Cecil Club. Cameron was the guest speaker. As patrons finished their boeuf en croute, a minder shepherded the opposition leader from table to table for a quick paw shake. Dave’s demeanour reminded me of an exuberant cocker spaniel. I expected him to start wagging his tail at any minute.
It worries me that Cameron’s two speeches were very similar. The introductory jokes were identical. Is this because he can only afford a part-time speech writer? Or does he believe the best way to stay “on message” is to repeat himself continuously? More worrying, perhaps this “off the shelf” speech reflects an underlying lack of policies?
At the Cecil Club dinner, my neighbour, a distinguished City economist, described Cameron’s speech as “form over substance”. He added, though: “But at least he comes over as ‘electable’ which is more than can be said for his rival, Gordon Brown.” When the next UK election is contested (probably in June 2009), it will be interesting to see whether the bicycle-riding, carbon-emission–hating Cameron will be more careworn and less full of chubby-cheeked, cherubic innocence. Has he got the drive and mettle to reinvigorate the Tory party, which at present resembles a soggy soufflé? What do you think? Cameron was, however, just one morsel on the bill of fare at the Euromoney conference. Another highlight was the interview with William McDonough, a former president of the Federal Reserve Bank of New York and the man who organized the 1998 bail-out of hedge fund Long Term Capital Management. “Does anyone know what a hedge fund is any more?” he lamented presciently. McDonough is vice-chairman and special adviser to the chairman of Merrill Lynch. Despite such a spurious title (what does a special adviser do that other advisers don’t?), I can see that the Doughnut (as I am always tempted to call him) must add value to the thundering herd.
I also attended the Merrill workshop on balance sheet and capital management. Alex von Sponeck, head of CEEMEA debt capital markets and Amir Hoveyda, head of EMEA debt capital markets, (who is said to be a rising star) made a tedious subject interesting. Although, again, these titles are disconcerting. So many initials confuse rather than clarify and imply creaking bureaucracy instead of entrepreneurial flair.
I glimpsed a number of old friends at the conference including David Clark, Doris Herrera-Pol, Hakan Lonaeus, Adrian Kearns, René Karsenti and Michael Somers. And then there were the parties featuring fashion shows, wine tasting, trapeze artists, and gallons of champagne. For me, the Euromoney conference is synonymous with summer: Ladies’ Day at Ascot, strawberries and cream at Wimbledon, ice-cold Pimms at the Henley Regatta and finance at the Euromoney Forum. It all goes together perfectly.
As an interesting postscript, Mr Cameron’s fragrant wife, Samantha, is creative director of the ludicrously expensive stationers Smythson of Bond Street. Mike Sherwood, co-chief executive of Goldman Sachs in Europe was part of the consortium that purchased Smythson last year. Why is it that in this column all roads lead back to the City?
And even when it looks as if the road leads out of the City, it doesn’t. Financiers are addicted to the adrenaline rush of a deal and most find it impossible to kick the habit. Joe Perella, for example, previously head of investment banking at Morgan Stanley, resigned last year. And what did he do next? Establish his own financial services firm of course! Perella, with his lack of cranial hair and excess of white facial hair reminds me of Noah in the Old Testament but commentators insist he is far from being ancient history. The recent formation of advisory boutique Perella Weinberg caused me to ponder the big/small divide. In other words does size matter in investment banking? And my conclusion is that it probably doesn’t. It’s about horses for courses. But both horses should come with a health warning. During the past decade, the boutique has gone from being a fad for the career-fatigued to a reputable part of the financial landscape. No longer does small mean inadequate. In a way, it started with the hedge funds. In 1992, George Soros’s Quantum Fund sold the pound against the Deutschmark and kept selling until John Major’s government scuttled out of the Exchange Rate Mechanism. The lesson was learnt that one man can move markets: you didn’t have to work for an investment bank to achieve the impossible. But many people regarded Soros’s behaviour as bordering on treachery. A trader involved in shorting sterling at that time apparently still has a porcelain pig on his desk bearing the legend “It takes courage to be a pig”.
Today is perhaps the pinnacle of the boutique trend – whether it is in fund management, private equity or corporate advice. And this is not surprising: 23,000 people work for Goldman Sachs, 170,000 for JPMorgan Chase. When an organization is so large, it’s hard not to suffer from the “mere cog in the machine” syndrome. Both sides are passionate about the merits of their model. The big firms insist that the advisory boutiques lack longevity and “have no engine room underneath the bridge”. Big firm employees argue that “Business is no longer about some old goat sitting in a boardroom, puffing on a cigar and pontificating. You need products and depth to service a client efficiently.” The boutiques riposte that the billion-dollar overhead of the banks has transformed them into battery hen farms. The essential thing for these “farms” is to force fees though the production line. The relationship guy turns up accompanied by a posse of product heavies. The client is pitched to from every angle until he rolls over and signs a mandate. Finance has always been about both the numbers and the people. Those who denigrate the role of the individual in investment banking are being disingenuous. The adage is “my word is my bond” not Lehman’s (or Deutsche’s or Gleacher’s). And what is so intriguing about the big firm/boutique dilemma is the ease with which some bankers, who become brands in their own right, can do both. Bruce Wasserstein is a good example of a straddler: in the late 1980s, he left First Boston to found Wasserstein Perella. He then sold this firm to Dresdner in 2001 and marched off to join Lazards, a quasi-boutique that he later took public. A friend who was at Harvard Business School with Bruce describes him as “super smart”. And adds opaquely: “Now that Dresdner Kleinwort is to drop the Wasserstein, Bruce can have his name back. I wonder what he’ll do with it.”
A cornucopia of coincidences has facilitated the ascent of the small firm. The tangled web of conflicts that the big banks suffer deters some clients. And the rising tide of recent favourable market conditions has made it easier for individuals to contemplate the upheaval and start-up costs of a new venture. But crunch time will come when there is a downturn and business shrivels. Will the smaller firms – essentially untested in adversity – have the staying power to survive? Or will it be a case of “gone with the wind”. When the going got tough, the leading hedge fund of its day, Long Term Capital (essentially a spin-out from Salomon Brothers) blew up.
Next week: A girl can’t always focus on finance. As the hazy, lazy summer days loom, my thoughts turn to travel.