Morning Coffee: Hedge fund manager’s wife files for divorce at the worst possible time. Interns say the funniest things!
To state the obvious, there’s no such thing as a good time to discover that the most important relationship in your life has irretrievably broken down. However, some times are worse than others, and it’s hard to think how it could be worse than to have to go through this calamity while simultaneously negotiating the fact that the other most important relationship in your life – with the co-founder of your $60bn asset management firm – has also broken down.
The feud between John Overdeck and David Siegel of Two Sigma has been common knowledge in the industry for a while; it’s even made it into regulatory filings as a key business risk that the two quants’ enmity is making it difficult to take business decisions. Now things have got significantly more complicated – Laura Overdeck has initiated divorce proceedings.
Apparently, there is no prenuptial agreement, so let’s take a quick look at New Jersey divorce law. It’s an “equitable distribution” state, meaning that the division of marital assets is made according to what the court considers fair, rather than a 50/50 division. The Overdecks got married in 2002, one year after Two Sigma was founded, so the overwhelming majority of the husband’s stake in the company seems likely to be considered “marital” rather than “separate” assets.
Which raises a problem. On the basis of reasonable estimates of Overdeck’s personal wealth and the value of his Two Sigma equity, it looks like it might be difficult for him to fund a multibillion dollar settlement without affecting the “operating agreement” between the two founders that they will hold roughly equal financial stakes in the company, have the only two votes and invest similar amounts in Two Sigma’s funds.
Added to which, Overdeck is the one who wants to stay actively involved in managing the firm while Siegel wants to step back into an advisory role, but Siegel has a higher estimate of the value of the firm than Overdeck does, according to various “people close to the matter”. These are all things that could be solved with a bit of goodwill and co-operation, but unfortunately that seems to be exactly what’s missing.
Ironically, this could be the exception that proves the rule when it comes to Paul Tudor Jones’ famous advice that “one of my number one rules as an investor is as soon as I find out a manager is going through a divorce, I redeem immediately”. The idea (supported by research) is that the emotional distraction tends to decimate performance. But of course, Two Sigma is a quant shop where the decisions are made by computers who don’t know how bad the office atmosphere has got.
In fact, so far this year, most of Two Sigma's funds are performing well and redemptions are not particularly high. The biggest risk to the company is that the dysfunctional relationship between the two founders will affect its ability to retain and recruit top quality engineers and quant researchers. If the financial stress of divorce has the effect of banging heads together and making them face up to their problems, the terrible news for its founder could be very good news for the company.
Elsewhere, it’s not uncommon for bored bankers who have never been trained in interviewing to waste time by throwing out silly “guesstimate” questions to candidates like “if someone says they produce enough pepperoni to cover the United States of America, what would their total revenue be?”. Unfortunately, not every intern gets the message that this is a joke. Bloomberg cites the case of a pseudonymous intern named “Calvin” at an unnamed private equity firm, who used this method to try to actually estimate the size of the total addressable pepperoni market for a takeover candidate.
"I found a claim from some executive online that the market size for pepperoni is enough that you could blanket the entire USA with a thin layer,” says Calvin. From that he calculated the amount of pepperoni required and derived its value. His boss described his approach as ridiculous.
This sort of thing is extremely common; every summer intern program tends to generate stories of kids who didn’t understand that Pierpoint & Co is fictional, or confused Deutsche Bank with the Deutsche Bundesbank. Part of the purpose of the internship system is for them to get this kind of thing out of their system, and learn how to “talk to older people that aren’t your parents or immediate family”. It can also, in cases like Insight Partners with their “daily leaderboard” ranking the interns by the number of phone calls and meetings they’ve arranged, be a good way for young people to get an idea of what they’re getting into, and if necessary run a mile.
Former Morgan Stanley banker Klaus Froelich now has a team of 50 dealmakers – a reasonable mid-sized boutique – at the “investment department” of the Abu Dhabi National Oil Company, where he also has a budget of $50bn to do deals. (Financial Times)
Mike Corbat’s post-Citi venture is apparently going to be investing in joint ownership of the Jackson Hole resort in Wyoming where the Federal Reserve has its annual conference. (Bloomberg)
More speculation about “what it all means” with the changing chief-of-staff at Goldman Sachs, including suggestions that Steven Scherr might come back to replace David Solomon, or that there could be a joint CEO arrangement with Jim Esposito on the investment banking side and Marc Nachmann running asset management. It does seem to conclude though, that there might be less than meets the eye and that it will fundamentally depend on whether the earnings improve. (The Messenger)
In a sort of term-time extra internship, students are forming “consulting clubs” to provide business advice to trusting companies (“for a fraction of the cost of hiring regular companies”). Regulation is presumably the only thing stopping them from pitching for capital markets business. (Economist)
Lessons to be learned from employment tribunals; if one of your bank’s software developers is also advertising “sensual massages” on LinkedIn, you still have to go through all the process of meetings, or it will be held to be unfair dismissal. On the other hand, there was no compensation awarded, as the judge ruled that the employee in question would still have been dismissed if the rules had been followed. (Personnel Today)
Capturing the true horror of pharmaceutical stocks, the psychological thriller “Trader” is out this week (Downright Creepy)
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