Morning Coffee: Jefferies suggests bankers are like glorified bartenders. Hedge fund clients quit because they can’t stand the drama

The latest “Leadership Letter” from Rich Handler and Brian Friedman at Jefferies is entitled “Welcome to Hotel Jefferies”.  This isn’t because you can check out any time you want - Jefferies has a notoriously horrible clawback on deferred compensation when you try to leave.

💥Follow us on WhatsApp for news alerts.💥

Instead, the letter describes how someone at a business dinner explained to Jefferies’ management that they were really “in the hospitality industry”.  The idea is that in banking, as in the hotel trade, the most important thing is to make the client feel comfortable, and to let them know that you can be trusted to deliver a consistent experience. Reputations are difficult to make but easy to lose.  And because clients value a personal connection with the staff that they meet regularly, successful businesses always need to keep their own people happy.

It’s a fair enough set of points to make, as far as it goes. It’s actually pretty good to know that at least one investment bank management team thinks this way, rather than seeing their people as an overhead to be replaced with AI as soon as possible. But is it really accurate?

Frankly, the analogy seems to describe the hospitality industry as it would like to be seen, rather than how it really is.  Most business guests (as investment bankers know well) do not actually choose their hotel on the basis of the great service they got last time.  They go where they are sent, by their employer’s travel booking service, which cares much more about the corporate rate than “word of mouth” from satisfied clients.  Even when bankers are able to book their own travel, the availability of points and reward schemes is more likely to be a consideration than memories of the warm greeting from a favourite bartender.

So in the real world of hospitality, everyone pretends that service and quality is really important, while actually trying to shave the last few cents off the price.  It’s easy to get a bad reputation with clients, but this doesn’t necessarily stop you from getting the business if you’ve got influence with the real decision makers.  The staff are the face of the brand, but they can be fired at will if business conditions change.  And everyone constantly tries to keep up the pretence that it’s not a transactional industry, but something more like a friend doing favours for a friend.  When you put it that way, investment banking actually is quite like the hospitality industry after all.

Elsewhere, while we are all waiting for the final series of “Industry”, the financial world has had to make do with the other great hedge fund soap opera, Two Sigma Investments.  With its mixture of boardroom intrigue, divorce and assorted mayhem, the surprising thing is perhaps, that so far, returns have not seemed to suffer at all.  Despite reports of internal politics and fractured communication, the quants have been able to keep things professional, and the models have continued to turn out alpha-generating signals.

So far.  But it is the sort of thing which makes investors nervous. When quant strategies break down, they don’t break down immediately; they gradually lose their alpha as signals “wash out” and fail to be replaced by new ones.  Which means that by the time you have definitive evidence that management trouble is affecting performance, it’s arguably too late. That seems to be the reasoning behind the decision of the New Mexico state pension fund to redeem its investment, saying that “organizational concerns have created uncertainty and there is no credible resolution timeline”.

The company, understandably, isn’t commenting according to Bloomberg, and the $100m investment is pretty small as a proportion of assets under management.  But nobody likes to lose investors.  Hopefully, it might provide some sense of urgency to Two Sigma’s principals that they need to put their differences to one side and settle things before they do some real damage to the business they built.

Meanwhile …

If you’re going to be considered a big wheel in British M&A, you have to do your tour of duty at the regulator.  Omar Faruqui has now come back from his secondment as director general of the Takeover Panel, and will be global chair of investment banking at Barclays. (Financial News)

A Gen Z banker might have objected to having both the terms “mid” and “basic” used to describe them in a press release.  But Ward Jones is on the cusp of Generation X and the Millennials; he’s going from Deutsche Bank to JP Morgan to be head of mid-cap investment banking in the basic materials group. (Reuters)

The Chinese IPO market remains hot, but not every deal can be a great one and Shein’s introduction to the market seems to have been a bit disappointing.  Bankers were apparently calling investors all the time to reassure them about the quality of the order book, which is almost always a sign that it isn’t great. (FT Alphaville)

Jain Capital is now beginning its single-customer era, returning other client money to concentrate on managing for Millennium.  It seems that the problems it had with generating early returns had less to do with costs and more to do with the difficulties experienced in recruiting enough staff to deploy capital quickly. (Bloomberg)

Doug Leone, managing partner at Sequoia, decided that he had always wanted to know “if I was a badass or not”, and so he told his dentist not to use any anaesthetic.  He claims to “love fear” and has confronted heights and public speaking in the past. (NY Post)

Bankers in Miami are finding super luxury condos with helipads and private marinas to help them avoid the traffic and arrive at the office in style … (WSJ)

… but similarly rich people in London can’t even get food deliveries, keep a pet or take their guests to the pool, despite paying £4,300 a month for a one-bedroom flat. (FT)

Follow me on X. Follow me on LinkedIn. 

Have a confidential story, tip, or comment you’d like to share? Contact: +44 7537 182250 (SMS, Whatsapp or voicemail). Telegram: @SarahButcher. Signal: sarahbutcher.22  Click here to fill in our anonymous form, or email editortips@efinancialcareers.com. 

Bear with us if you leave a comment at the bottom of this article: comments are moderated intermittently by human beings. Sometimes these humans might be asleep, or away from their desks, so it may take a while for your comment to appear. You must take sole responsibility for comments you post on this site. We will take reasonable steps to weed out anything that we consider to be offensive or inappropriate.