“To a man with a hammer, every problem begins to look like a nail.”
Ah management. Just when you think they can’t possibly make a situation any worse, they proceed to do precisely that. And they do this again and again and again, every single time. It’s uncanny.
Case in point: the ongoing saga of Jimmy the Kid. Contrary to all reasonable expectations, the management’s masterstroke of promoting Jimmy to head of investor relations has worked out very well. Of course Jimmy doesn’t know a thing about finance, but he is very well dressed, he has an expensive education from an elite school, he works very hard, he’s available to handle questions at all hours of day and night, he never lets an email go unanswered, and he can talk the hind legs off a donkey. He’s on the phone to investors from dawn till dusk, holding their hands, massaging their egos, explaining every little fluctuation in the market with reams of jargon and sophisticated terminology.
Most importantly, Jimmy is a true believer. He truly believes in the Sopwith way of doing things – in our traders, our technology, our magical ability to make money. You can’t buy sincerity like that. This sincerity is in fact his main weapon in going out to sell the fund, and it has served him very well. Not that Jimmy has ever actually closed a deal; he lacks the brashness and sense of timing – the killer instinct – required to get a client to sign on the dotted line. But he does enough to keep current and future investors off the traders’ backs and away from the CEO’s desk, which is all that anyone really cares about.
If only matters had stopped there. But no. It appears that senior management, emboldened by their success at promoting Jimmy, have decided to apply the same solution to another pressing problem facing the firm: our abject lack of leadership.
For years, leadership at Sopwith has been minimal to the point of non-existence. Our multibillionaire CEO, at whose desk the buck supposedly stops, is utterly uninterested in the day-to-day grind of running the firm; for him, Sopwith is just a vanity project, kept in place to maintain his self-image as a Wall Street hotshot. The traders, who are the real power in the firm, are likewise disinclined to manage, because frankly it’s boring; playing the markets is much more fun. Other senior figures like the CFO and COO and so on might have been good managers but they have no political power in the firm compared to the traders (who after all are the ones who bring in the dough). So management at Sopwith is a vacuum; in fact, the entire concept of administration is considered a tedious and unrewarding chore, best avoided.
And people know this; it's no secret. Everyone knows it’s an unhealthy situation, but it’s in nobody’s self-interest to do anything about it.
Until now.
You can see where this is going. Yup. The management committee has, as of today, decided to promote Jimmy the Kid to the role of executive manager of the firm.
Let me remind you again of Jimmy’s background. Jimmy is barely six months out of graduate school. He has no experience, no expertise, no credentials, in fact absolutely nothing to recommend him beyond his tailored suit and his perfect set of teeth. Being put in charge of investor relations was already a step too far for him, but now he’s also being put in charge of managing the traders, operations, technology, risk management, settlements, lawyers, the works.
And the amazing thing is, everybody is thrilled with this arrangement. With all the managerial responsibilities dumped onto Jimmy’s shoulders, Sopwith’s other employees are free to do as they please. The traders can trade merrily, the programmers can program away with minimal supervisory intrusion, the CEO can hit the golf course at 11am instead of 3pm, and nobody needs to bother with administration.
In fact, it gets even better. Not only has our management lacuna been filed, but investors, some of whom were beginning to chafe at the removal of their direct line to with the CEO, are now being granted full-time access to the guy who actually runs the fund from day to day. The one, the only, Jimmy the Kid. Needless to say, they are thrilled, when in fact they should be screaming and rushing for the exits.
I will be watching Jimmy’s career in management with the closest of attention. These will be interesting times.
To be continued...
Friday, November 27, 2009
Wednesday, November 18, 2009
Hot Potato
I have never understood the fascination that investors have for meeting star portfolio managers in person. Okay, sure, I know that human beings like to be dazzled; bumbling amateurs get vicarious gratification out of associating with market wizards, even if nothing productive comes out of the association. And I concede that if you’re going to hand out millions of dollars to a hedge fund then the very least you deserve is a meeting with the principals, not with some wet-behind-the-ears MBA droid.
But insisting that the CEO be at your beck and call, 24 hours a day, 7 days a week, 52 weeks a year, for the entire duration of your investment? That’s not just self-centered, it’s actively perverse. Because of an unintended (but perfectly foreseeable) consequence: if every investor behaves the way you do, the star portfolio manager will end up spending all his time meeting investors, while the actual trading is done by the aforementioned wet-behind-the-ears MBA. As a rational investor, would this be your preferred outcome?
Of course most investors are not rational, and so this is precisely the outcome that eventuates in 9 out of 10 cases. Most fund principals recognize this fact and have made their peace with it, because they also know the answer to a very fundamental question: what is the role of the hedge fund manager? Is it to make money? No, absolutely not. The role of the successful hedge fund manager is to raise pots of money; and, having raised it, to keep it. That’s the way to make fat management fees and fatter bonuses; generating profits is of secondary import. And that’s why most managers are only too happy to spend their days and nights fielding investor phone calls when they could be better served watching markets.
Unfortunately, Sopwith is blessed with a manager who does not feel the need to do this. Our CEO had the good sense or good luck to start a technology company which he took public just before the dotcom crash. He then founded a real estate company which he sold to a bank just before the housing crash. As a result of these two transactions, our CEO is a multibillionaire. In fact, his net worth is more than that of the fund itself, and way more than any particular individual investment in the fund. Naturally he feels disinclined to waste his time mollycoddling investors for chump change.
With the CEO not interested in marketing, the role of investor relations at Sopwith has in recent months taken on the aspect of a hot potato. Our COO would have been perfect for the job – she’s sincere, hardworking and dedicated – but unfortunately she has all the communication skills of a gnat. Our CFO is just the opposite – he’s suave, sophisticated and a slick talker – but he has the minor disadvantage that he does not understand finance. As for our traders, they have zero interest in being torn from their Bloomberg screens to meet investors, and frankly this is just as well. Our traders are a bunch of antisocial misfits united by a single characteristic, the alleged ability to make money. Finally, there’s our risk manager, an Oxbridge don, who is independently wealthy and wouldn’t be seen dead grubbing around for money like the lower classes.
The hot potato has therefore been bouncing around our offices for some time. But finally it has found a home, in the eager and slightly manic hands of the juniormost person on our desk: Jimmy the Kid.
Jimmy is keen. He is enthusiastic. He is sincere. He is motivated. He is also utterly clueless about what it is that we do. But that doesn’t matter; as long as he can keep investors off everyone else’s back we don’t give a damn. And this he proceeds to do, with almost touching enthusiasm.
Wait, I hear you say: isn’t this just the wet-behind-the-ears MBA tactic all over again? Won’t investors be peeved at being fobbed off with a nonentity like Jimmy?
Have no fear, gentle reader: the geniuses in Sopwith’s upper management have already formulated a plan to head off this possibility. The plan is either insanely brilliant, or brilliantly insane – I don’t yet know which – and it can be outlined in one sentence: if investors want to meet a senior employee, then a senior employee is what we’ll provide.
Yes. They have promoted Jimmy the Kid to upper management. This utter newbie is now our "Head of Investor Relations"; a member of the "steering committee"; a managing director and an equity-holder in the fund to boot. Of course these titles are meaningless; none of these positions have any power or any responsibility, but Jimmy doesn't know that – and neither do our investors. I wonder for whom the penny will drop first?
To be continued...
But insisting that the CEO be at your beck and call, 24 hours a day, 7 days a week, 52 weeks a year, for the entire duration of your investment? That’s not just self-centered, it’s actively perverse. Because of an unintended (but perfectly foreseeable) consequence: if every investor behaves the way you do, the star portfolio manager will end up spending all his time meeting investors, while the actual trading is done by the aforementioned wet-behind-the-ears MBA. As a rational investor, would this be your preferred outcome?
Of course most investors are not rational, and so this is precisely the outcome that eventuates in 9 out of 10 cases. Most fund principals recognize this fact and have made their peace with it, because they also know the answer to a very fundamental question: what is the role of the hedge fund manager? Is it to make money? No, absolutely not. The role of the successful hedge fund manager is to raise pots of money; and, having raised it, to keep it. That’s the way to make fat management fees and fatter bonuses; generating profits is of secondary import. And that’s why most managers are only too happy to spend their days and nights fielding investor phone calls when they could be better served watching markets.
Unfortunately, Sopwith is blessed with a manager who does not feel the need to do this. Our CEO had the good sense or good luck to start a technology company which he took public just before the dotcom crash. He then founded a real estate company which he sold to a bank just before the housing crash. As a result of these two transactions, our CEO is a multibillionaire. In fact, his net worth is more than that of the fund itself, and way more than any particular individual investment in the fund. Naturally he feels disinclined to waste his time mollycoddling investors for chump change.
With the CEO not interested in marketing, the role of investor relations at Sopwith has in recent months taken on the aspect of a hot potato. Our COO would have been perfect for the job – she’s sincere, hardworking and dedicated – but unfortunately she has all the communication skills of a gnat. Our CFO is just the opposite – he’s suave, sophisticated and a slick talker – but he has the minor disadvantage that he does not understand finance. As for our traders, they have zero interest in being torn from their Bloomberg screens to meet investors, and frankly this is just as well. Our traders are a bunch of antisocial misfits united by a single characteristic, the alleged ability to make money. Finally, there’s our risk manager, an Oxbridge don, who is independently wealthy and wouldn’t be seen dead grubbing around for money like the lower classes.
The hot potato has therefore been bouncing around our offices for some time. But finally it has found a home, in the eager and slightly manic hands of the juniormost person on our desk: Jimmy the Kid.
Jimmy is keen. He is enthusiastic. He is sincere. He is motivated. He is also utterly clueless about what it is that we do. But that doesn’t matter; as long as he can keep investors off everyone else’s back we don’t give a damn. And this he proceeds to do, with almost touching enthusiasm.
Wait, I hear you say: isn’t this just the wet-behind-the-ears MBA tactic all over again? Won’t investors be peeved at being fobbed off with a nonentity like Jimmy?
Have no fear, gentle reader: the geniuses in Sopwith’s upper management have already formulated a plan to head off this possibility. The plan is either insanely brilliant, or brilliantly insane – I don’t yet know which – and it can be outlined in one sentence: if investors want to meet a senior employee, then a senior employee is what we’ll provide.
Yes. They have promoted Jimmy the Kid to upper management. This utter newbie is now our "Head of Investor Relations"; a member of the "steering committee"; a managing director and an equity-holder in the fund to boot. Of course these titles are meaningless; none of these positions have any power or any responsibility, but Jimmy doesn't know that – and neither do our investors. I wonder for whom the penny will drop first?
To be continued...
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