Tuesday, 17 July 2018

The squids are alright

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Anthony Peters recently fell out with Goldman Sachs – but he’s still a fan.

OVER THE PAST couple of weeks I’ve had what might be termed as a rather public spat with Goldman Sachs. In brief, the matter arose over the allocation of some new issue paper or, perhaps more accurately, the lack thereof. I raised the point in one of my daily columns on IFR’s website and messages of support came pouring in from all quarters. The tenor was generally one of “Go for it … show them your teeth!” There is no doubt that the mighty House of Goldman Sachs has few obvious friends.

I don’t hate Goldman’s. Why should I? I might be jealous of them but what’s wrong with being jealous of a company that does everything everyone else does – just better and more profitably? I might be jealous of what it pays its people but I learnt very early on in my career that I can’t buy a stick of gum out of somebody else’s pay cheque.

That said, Goldman certainly employs some individuals who seem to have forgotten that working there does not make them exceptional all on its own. What is exceptional is the way it works as a collective – what we call “the platform”.

Let me explain what I mean. In my days working for an investment bank, I would find myself in a room alone with a CIO; just him and me. That was it. But if my opposite number from Goldies was in the same room with the same CIO, there would always have been another 12,000 people in there with him – and both of them would have known it.

As a collective, Goldman is unchallenged. Forget Merrill Lynch and the myth of the thundering herd. Goldman encourages closed ranks, and fights are carried out discreetly and internally so that the glossy façade is never sullied. By and large, if you’re going to get knifed at Goldman, you’ll get knifed in the chest and not in the back. From the outside, all one sees is the phalanx of white shirts, grey suits and faultless pitch books.

Goldman encourages closed ranks, and fights are carried out discreetly so that the glossy façade is never sullied

ROLLING STONE MIGHT have coined the phrase “Vampire Squid”, a sobriquet that seems to have stuck, but with all due respect to that magazine (and to the late Hunter S Thompson), it isn’t quite the most important opinion former on Wall Street.

Might Goldman have gone under if it and AIG had been left to their own devices at the time of the latter’s near collapse in 2008? Maybe, but it didn’t and that has to be what counts. Once again it did what everyone else had done, just better.

However, I do keep on referring to the collective. The number of former Goldman people I have met who have been hired by other firms but who have proved to be not just fallible but downright useless when deprived of the platform is not insignificant. They simply didn’t know how to act when they found themselves in that room without the 12,000 others.

In one of my many guises, I once found myself with a team of ex-Goldman corporate financiers who had been hired on what was reputed to be “5 by 2” – US$5m a year for each of two years of a contract. Without the Goldman back-up, they proved to be perfectly mortal – but without the knowledge and experience of how to make a silk purse out of a sow’s ear, a skill one quickly acquires when working for second-tier firms.

It didn’t instantly make them bad people and if they could find someone who was willing to pay them that kind of money, bully to them. What hurt was that they used me to open doors they didn’t know existed and, once in, slammed them in my face.

It was not nice to sit in the quarterly management presentation listening to them brag about the business they had brought in in the knowledge that they had done little more than eat a meal that had been cooked and cut up for them by somebody else.

THE BUY-SIDE has its own story. Many individuals have an anecdote as to how they dealt with the firm and how they had been cleaned out. It seems to be something of a badge of honour to have come second in a two-horse race and yet these people all continue to deal with them.

I do, though, have one close friend in a senior position in one of the top US real-money investment houses who happily declares that over all the years he has been in the business, he never felt mistreated or taken advantage of by Goldman.

Sure they have put more than one foot wrong. Who hasn’t? If they have been treated better by the authorities than the Citigroups and the Bank of Americas of this world, then maybe the latter should be asking themselves how this might have been achieved rather than simply crying foul.

At the end of the day, and this counts for all business, not just our own, the one with most friends wins. If you can have more friends than the competitors without them knowing it, the chances to win double. Whoever dreamt up the myth that they have no friends?

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