Eleven years ago, on December 11, 2008 I was having dinner with my wife and my brother-in-law in London. We were early celebrating my wife’s birthday (on the 12th) and announcing to his brother that she was pregnant with our first child.
We had just come back from three weeks travelling in Thailand and Cambodia. Six months earlier, I had just joined a Proprietary Trading Firm in London. Very Happy days!
In early 2008, after four years working for a Hedge Fund in London, I thought it was time for me to move. I started to see redemptions coming and I wanted to move into a safer place with “sticky” money for capital and I was up for a new challenge.
I was getting increasingly frustrated with my management being physically remote most of the time in Gibraltar (not only for its sun or its poor infrastructure…), with the way we were dealing with risk management, with poor liquidity, little stop-loss, too much concentration on single names or sectors, keeping 95%+ of any payout… So, you have the full picture: I was frustrated, not only because I am French and always complaining but because many things were wrong. Not frustrated with the job as I learned immensely over those four years but by the environment.
When you raise the flag several times to your management and nothing happens, you know that it is time to move on. More importantly, despite the fact that the management wanted to keep me and that the firm was still managing around 2 to 3 billions at that time, I knew things could unfold quickly. When market turns, performances are lagging, redemptions can come quickly.
In early 2008, the job market in London was already struggling. The World was slowing, and many Hedge Funds had a below average year in 2007 and very often were saved by deals like RBS-ABN Amro risk arb. I had several interviews with other Hedge Funds, but decisions were taking time.
In the meantime, I was in touch with a Proprietary Trading Firm in London that I met through a headhunter. When I first get approached, they told me that they wanted to build the Long/Short Discretionary Desk and that they were looking for New Traders. They already had one Trader who felt a bit alone on his own and wanted to grow exposure. Capital was not a problem and the Proprietary Firm was a Family Office dealing with some of the Family’s money.
Very quickly, I sensed that the management really wanted me to join and that I will be part of a growing team. As with a normal hiring process, I had several meetings/interviews with them. I really liked the atmosphere of the Trading Room and the boss in London told me that I could be a great fit to them. When I did a video interview with the New-York Management, I talked to the father and one of his sons: strategies, track-record, experience, capital, expectations… The Interview went really well and they made me an offer.
I had only two concerns: First, my book will be much smaller that the one at the Hedge Fund. It will come with a much better payout formula than at the hedge fund though and if everything was going according to the plan, they could increase it quickly. Secondly, as I knew how it works in this industry, especially in Europe, I was not sure to make the right decision when going into Prop trading: very often classic Asset Management and even Hedge Funds consider Proprietary Traders as different animals than them, some of them would say cowboys as they do not understand what we are doing. But the bottom line was I was taking a risk by going into Prop Trading as I could be labelled in the future.
After more discussion we agreed to a portfolio x2 the size vs the first one offered, a clear payout formula (in contrast with the “discretionary” payment of the Hedge Fund”) a well-defined Long/Short mandate with a roadmap. I have to say that this management really pushing for hiring me was the key. I felt desired. Moreover, the recent rise in Volatility from the summer 2007 was another incentive to get into Proprietary Trader by implementing a more active Trading.
In June 2008, I joined the Proprietary Firm in London.
I went from a Hedge Fund where I was meeting management, analysts, roadshows… to pure proprietary trading. There is no benchmark, watermark, monthly letters, investors presentations, roadshows… Suddenly I was surrounded by very successful Traders who have been trading specific strategies for years. Some of them were completely new to me. That was extremely exciting as you are learning many new skills and strategies and most of your compensation package is calculated on your performance. This is P&L based, no management fees or performance fees.
Looking backwards, the most important thing was the environment. With experience (or years), you realize how crucial that is. By experiencing it through different managements (French, American, British, European), different structures (Long Only Asset Management, Hedge-Fund, Prop Trading), different market’s and economic cycles, I have always been a big believer that environment is key in a Trading Room. If you give the same market’s conditions and the same tools to Trader A with the right environment, he will do much better than Trader B in a bad environment. To limit Portfolio Management to P&L is one of the biggest mistakes made by the industry over the last 20 years and that brings a vicious circle.
At this Proprietary Firm, my management was great and very helpful from day one. The Trading Room manager gave me all the tools to trade properly and was always listening. His ability was to have an open door and be able to adjust to each single Trader’s needs. As 2008 went on, the market started to be more volatile, offering more trading opportunities. Having said that, this market required proper risk management which I think you learn best in a Proprietary Firm. Why? Because you have strict risk management: concentration, stop-loss, limits… From day one, I sat with the management and we had clear rules.
For someone who just started, I did very well being up 10% in less than 6 months having travelled overall almost one month. The idea was to get bigger limits into new year. In September, we had another trader joining from Goldman Sachs and we were building a strong desk. Similarly, after spending days on the French Riviera, the American owner came to the London office. I sat with him for 10 minutes: he was happy about my results and assured me they will increase limits as capital was not an issue. That was a very warm, friendly, good meeting where I felt I was part of a successful team.
The management was very friendly and really took care of the well being of the Traders. For example, we had a 5gbp allowance for lunch. It was not about the money but more about showing the Traders that the management cared.
The most important thing I realized over the years is the importance of the management. I was lucky when I started to work in Paris to get a top one. When working for the Hedge Fund, it was a different story: yes I learned a lot but all by myself, with barely no support. On one hand, that was a great opportunity for someone of my age to get these responsibilities. On the other hand, that is an impossible situation in the long run.
During my almost 20 years of Trading / Portfolio Management, I can assure you there has been a strong correlation between my P&L and the quality of my management. I am convinced that this is not only relevant to me but that it can be applied to any Trading Room or any Investment Firm overall. Over the years and let me repeat myself here, I reckon that one of the biggest mistakes of the Industry has been to focus only on P&L, not understanding that the environment was key for their Traders, Portfolio Managers to perform.
So let’s come back to where we started: sitting with my wife and my brother-in-law at home when I received on my Blackberry (any picture or video with Blackberry means it is 5-10 years old) a message from one of my ex-colleagues: “Hello Greg, you should check your Bloomberg as there is a news on your Prop Trading Firm”. It was around 10 pm u.k. time.
I opened my Bloomberg and I read the headline: “Madoff Charged in $20 Billion Fraud at Advisory Firm”. At that time, in 2008, when you were reading a news on Bloomberg, you knew it was not a fake one. The company I joined earlier that year was B.M.I.S.: Bernard Madoff International Securities.
My world collapsed.
End of Part 1.
I hope it helps,