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Morning Coffee: Morgan Stanley banker is dragged back for one last job. The hedge fund “mercenaries” who won’t talk to each other

“Just when I thought I was out, they pull me back in”, as the saying goes. Last October, Michele Colocci retired at the age of 60, after a successful career which ended as chairman of M&A and global co-head of healthcare investment banking at Morgan Stanley. But it seems that he’s decided that cruises and daytime television aren’t really for him, so he’s come back to be vice-chairman of investment banking for Lazard in London.

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Why do people do this? In Colocci’s case, the decision must have been taken pretty quickly – allowing for the Christmas season and the time taken for any MD-level hiring process, he must have made the decision to come back only a very short time after leaving. Presumably the money is good, but someone who’s spent twenty five years in M&A and led $32bn deals is unlikely to have miscalculated their savings plan and been left short of retirement funds.

So it’s more likely that Mr Colocci quickly realized that he loved the game. When you’ve spent a long time at the top of an advisory sector, deals become your life. Clients are your friends, and industry conferences are your recreation. Going from a position where half your calorie intake comes from expense-account lunches, to one where people don’t pick up the phone to you during business hours is always a difficult decompression process. Some people handle it better than others, but sometimes a short period without the company of investment bankers is the best way to realize that you kind of miss them.

But it’s also interesting to look at this move from the perspective of Lazard. According to Peter Orzag, the firm is “committed to continuing investment in Europe”. And well they might be – the EMEA franchise has contributed 40% of their advisory revenue so far this year. With Evercore plundering their Paris office, Lazard have to run a little bit to keep still; adding a well known healthcare sector rainmaker to their London office is a nice bit of business. Particularly since it’s quite likely that they were able to do so on a cost-efficient basis; having reached retirement age, it’s quite likely that Colocci picked up all or most of his outstanding deferred compensation and stock last year and wouldn’t need to be bought out of it. 

So it’s a win-win deal, and it might even get a little better.  A vice-chairman post like this would usually result in follow-on hiring; Colocci has been brought in to deliver deals, and those deals will need less exalted bankers to execute them.  So it’s worth remembering to remember to be nice to people at their retirement party; you never know when you might see them again.

Elsewhere, according to people familiar with the working culture at Marshall Wace, “the firm took on mercenaries, and now they are acting like mercenaries”. Because it’s grown so fast over the last few years, MW has had to recruit (and pay) like any other multi-strategy fund, changing its fee model in order to do so. There are now lots of people in its offices who have come from Citadel, Balyasny and Millennium, and brought elements of their culture with them. 

Apparently the old “collegiate” atmosphere that Marshall Wace used to pride itself on is no more. People used to talk to each other, share ideas and even look at each other’s portfolios, but the new hires are more secretive; they’re paid on an “eat what you kill” basis and prefer to keep their best trades to themselves.

Partly, this is one of the challenges of running a fast growing business. But it’s not just a management problem; it’s actually rooted in financial theory. 

Although friendly conversations about stock and macro ideas make for a stimulating and pleasant workplace atmosphere, they also create a risk that people who talk to each other enough will often come to agree with each other. And that means that the different “pods” won’t actually be running separate risks, and the diversification which allows multistrat funds to keep their overall risks down won’t work. 

Unfortunately, a grumpier and more taciturn Marshall Wace isn’t something that can be attributed to anyone’s personality problems or bad habits learned elsewhere – it’s intrinsic to the business model that the firm has adopted.

Meanwhile…

The hiring pipeline of sell side traders from the formerly sleepy yen rates market to multi-strategy hedge funds is still flowing – the latest move is Shin Kobayashi, from Citi to Verition. (Bloomberg)

Allegations that Binance, having hired teams of compliance investigators from all over the Street, fired some of them when they came too close to upsetting a whale. It would be nice to think that this was a problem you only saw in crypto, but in fact “if you come at the king, you better not miss” is unfortunately good advice when dealing with big clients in traditional banking too. (WSJ)

A specialist agency in Japan will resign for you, if you’re shy and don’t want to confront your boss in person. Interestingly, they are now getting calls in April from new graduates who have decided they want out on the first day of employment. (FT)

If you feel like you’re getting too old for loud music and your knees hurt when you dance, then maybe cultivate a reputation as an intellectual by spending the next bank holiday at a “philosophy festival” which is being marketed to bankers. (City AM)

In a series of events that might seem familiar to bankers, within the space of a 24 hour news cycle, an executive at Chinese tech firm Baidu has made unreasonable workload demands of employees, doubled down by saying “I’m not your mum”, apologized for the misunderstanding and left the company. (CNN)

Bridgewater has changed its legendary weird feedback system, and “absolute truth” is now “predominantly” flowing from junior employees to senior ones, rather than vice versa. (FT)

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AUTHORDaniel Davies Insider Comment

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