Thanksgiving Coffee: The hyper-focused trader who’s made millions this year. And the top risk manager who’s taking a rest
As everyone knows, traders thrive on volatility. It’s not surprising, then, that with political uncertainty, economic tension and trade negotiations seemingly conducted through tweets, Chinese high-yield credit has been a hot market. Kelvin Zhao of UBS has been the king of this market, with “people familiar with the matter” telling the Wall Street Journal that his P&L is as high as $30m for 2019, so far. They apparently weren’t familiar with previous years so it’s hard to tell how far he’s up, but 2018 was not a great year in credit, so he's probably up a lot.
It also seems that there’s a great lesson here in how success is achieved in sales & trading businesses. You might think that there are two basic ways to make money on a credit desk – either make a winning bets, or do a huge volume of low-risk customer flow. In fact, these are complements, not substitutes. The more flow business you do, the more information you have and the greater your feel for the market. And the way to get flow business is to use your information to make sure you’re always holding the bonds that the market wants to buy. The two sides feed off each other, which is why you tend to see “golf tournament” structures, where the top player takes the biggest pot, the next couple of runners up get a consolation prize and everyone else scrambles around for a comparative pittance.
In Mr Zhao’s case, it seems like he has a strong foundation in risk-taking; as well as being a poker player like just about every other bond trader, he’s apparently a strong hand at mah-jong. Colleagues also describe him as having “the kind of concentration that blocks your ears”. These are just the qualities you need if you’ve got a reputation for being one of the first traders to throw out a bid on a bond that’s falling fast; “catching knives” can be very profitable, but it’s not a game for people who like to keep one eye on the sports results.
However, Zhao's ability to hyper-focus and block unwanted distractions doesn't equate with rudeness. He won the “most helpful” award from Greenwich Associates and seems to have a ton of client relationships. According to the article, traders and investors talk about his “ability to identify counterparts for both sides of a trade quickly”, which isn’t something you can do just by calculating mah-jong odds in your head. A mental database of who might be interested in buying or selling a particular bond is the sort of thing that can only be the result of long hours on the telephone while the market is open, and often a few more hours in bars and restaurants after it's closed.
The article suggests that other Hong Kong traders regard “single-digit or even low double-digit” percentages of P&L as the norm for bonuses, so it looks like a solid seven digits for Mr Zhao this year (subject to meeting requirements on compliance and internal development objectives, obviously). It’s nice to see a good news story once in a while.
Separately, Mark Cooke, HSBC’s head of operational risk, has put in for a sabbatical; apparently HSBC allows employees with more than five years’ service to take between three and six months off, with the first month paid. The Bloomberg story makes the (fairly obvious) link between this and the recent “emergency” call arranged by Samir Assaf to discuss a warning from the Bank of England over non-financial risk in the investment bank. HSBC, however, aren’t commenting, and it may genuinely be a coincidence – after all, if Mr Cooke was being made a scapegoat for some major failing or other, it is not as if HSBC doesn’t know how to simply fire people.
Risk management is a stressful business. Operational risk management, which often involves telling people to their faces that they are personally acting out of order, is even more so. In an environment where there are clearly problems and regulatory pressure, it’s not hard to see how things can build up. And nothing in banking is worth damaging your health over, not even operational risk.
Happy Thanksgiving if you're in America! Happy standard-working-day if you're not!
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