Morning Coffee: Senior managing directors on $17m unhappy about their $15m pay cut. Jane Street & Citadel Securities probably thriving
The cost of living is rising everywhere and it's not easy when your pay is also falling - even if you do still have a salary and bonus of $2m.
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Senior managing directors (SMDs) on Blackstone's real estate team are experiencing the squeeze. The Wall Street Journal says their team was once 'marquee' and that they could earn $15m in carried interest alongside their $2m of salary and bonus. One head of business was even said to be making $30m in carried interest. Now the carried interest is no longer carrying them along.
It's a sorry tale and one that will be familiar to anyone accustomed to receiving large amounts of lightly-taxed money which stop suddenly. Many are in a similar situation. The financial services industry has become full of people living paycheck to paycheck, says Ahmed Husain, a former Goldman Sachs managing director who's spent the past 12 years working with family offices.
The problem in Blackstone's real estate team is the same as the problem in all the other private equity teams whose carried interest has disappeared: previous investments have not generated successful exits. The WSJ says Blackstone's team invested in data centres, life sciences, student accommodation and logistics hubs. Only the data centre investments are thriving. One student accommodation investment was sold for 70% below its purchase price. The WSJ notes that four out of 13 Blackstone real estate funds were below the threshold for paying carried interest in the firm's 2025 annual report.
Senior people have been leaving. The WSJ says they have done so for all sorts of reasons but that a dozen have gone. The global head of real estate left two months ago to spend more time with his family after saying he wanted to meditate and to get more sleep. Others are said to have left because they were weary of travel and being 'on call non-stop.' Others were eased out or retired.
Blackstone didn't respond to our request to comment on the WSJ article. It told the WSJ: "Our real-estate business has enormous continuity and tremendous talent, including 45 partners with an average tenure of 14 years at the firm.” It also said the number of MDs remains the same. As people used to earning $17m leave, maybe a new generation of senior people will learn to get by on $2m instead?
Separately, as hedge funds flounder, top electronic trading firms may be doing fine.
Barry Ritholtz writes that while multistrategy hedge fund pods found themselves in a 'crowded, systematic, long-leveraged growth equity trade' that was unwinding last Thursday, electronic trading firms were probably doing the unwinding.
'My bet is that Citadel Securities and Jane Street were the counterparties to a massive unwind,' says Barry. 'We will find out if that suspicion is true as soon as rumors of windfall trading profits in November for those two firms begin to circulate.'
As we wrote last week, some junior quants are already bemoaning their decisions to join hedge funds instead of market-making firms.
Meanwhile...
Citadel Securities hired 100 people in Asia this year and now has 400 people there. 200 are in Hong Kong. (Bloomberg)
UK fund manager Nick Train said his trust has delivered its best monthly performance since 2000 as AI losers Experian, software group Sage, analytics company Relx, London Stock Exchange Group and property website Rightmove are back in fashion. (Financial Times)
Sometimes it's easier to get $2m in funding than a job. 27-year-old Hugo Stack failed to get an entry level job in finance and now he's building a start-up called Mecone to bring perpetual futures trading to a wider investor base. (WSJ)
Hedge funds have been deleveraging and looking for cheap hedges. Systematic volatility dispersion baskets are the fashion. (Bloomberg)
Sequoia realised it didn't need a team in London after US partners like Alfred Lin and Andrew Reed were running the big European deals anyway. (Bloomberg)
Alice Huang, who had an affair with Jensen Huang (no relation) once worked for HSBC. (WSJ)
Jensen Huang's two children, daughter Madison Huang and son Spencer Huang, both work for Nvidia, as does Madison’s husband, Nico Caprez. (WSJ)
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