Morning Coffee: Goldman Sachs partner stands to lose six month holiday. How multistrategy hedge funds manage risk

It seems not to be easy to unplug when you're a partner at Goldman Sachs. Goldman VPs have resigned upon discovering that even making partner is not the holy grail to a vacation entirely spent chilling by the pool. For this reason, Stefan Bollinger, who has been at Goldman 20 years and was latterly co-head of private wealth management for EMEA, may have been looking forward to what remains of summer 2024. And autumn. And winter. 

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It is not to be.

As we noted last week, Bollinger is leaving Goldman for a bigger job as CEO of Julius Baer. He's supposed to be joining the Swiss bank "no later" than February 2025, but Julius Baer want him sooner. Bollinger's big holiday is at risk.

Bloomberg reports that Julius Baer is negotiating with Goldman to reduce Bollinger's notice period and subsequent gardening leave. It's not clear how soon the Swiss bank wants him to join, but sooner rather than later would probably be good - Julius Baer is making do with a temporary CEO after the previous incumbent stepped down five months ago following losses linked to the Signa real estate bankruptcy, and there are complaints of a lack of strategic direction.

This is a shame for Bollinger, who might have hoped to grasp this moment after long years of syncopated holidays at Goldman Sachs. He could snatch a month or two and use Rich Handler from Jefferies as has guide. - The Financial Times has spoken to Handler about the time he was on holiday in the Turks and Caicos Islands when his head of equity trading called to fret about Jefferies' exposure to Archegos. Handler famously said: "I’m going to get a spicy margarita and I’m going to be back in about 15 minutes...When I come back, just give me one number and it’s the amount of money we lost. I want the whole thing down by the time I come back." 

It can be easier to issue organizational edicts on holiday, says Handler. “Sometimes when you’re on vacation, there’s a clarity . . . because you’re not so close to the situation,” he told the FT. “Our team did all the hard work by correctly identifying the issue and quickly elevating it. You can just look at the big picture and make the decision.” Bollinger may want to take note, although this approach probably won't work so well when you're a new CEO who hasn't actually worked for the organization you're trying to manage.

Separately, Bloomberg's Odd Lots podcast has been scrutinizing how multistrategy hedge funds manage equity risk in a conversation with Rich Falk-Wallace. Fal-Wallace was once an analyst at JPMorgan followed by an equity long/short portfolio manager at Citadel before he founded a company to help institutional investors understand their portfolio risks. 

Falk-Wallace says it's complicated. Fundamentally, multistrategy funds need huge diversification across idiosyncratic bets. If you're a stock picker at a multimanager, he says you're essentially part of a "decomposition of betas" that compares your own portfolio's volatility to that of the market. The beta needs to be broken down into consistent parts. Instead of just looking at the overall market, it's about looking at beta to large companies, to companies with momentum and more, says Wallace. 

On top of this, Wallace says funds look at how often their book turns over. At a multimanager, he says this can be anything from 10-15 times a year. And then they look at "optimizers" or how much trading costs will impact the book, and the expected return from the book versus its volatility. 

Within this structure, Wallace says the risk division sits under the CIO and effectively work for him/her. The analysts have detailed models and views on earnings across their coverage universe, which can encompass up to 80 stocks. The portfolio managers have freedom to choose strategic direction taking risk managers' and analysts' inputs into consideration. "There's a lot of process there," he observes. 

Meanwhile...

Goldman Sachs has got a new logo. It's a plain, black-and-white text design that vertically connects the "G" in Goldman with the "S" in Sachs — a nod to a logo the investment bank used for decades and largely retired in 2020. The return to connecting letters in the logo symbolizes the bank's "heritage" and "culture of partnership." (Business Insider) 

Two years ago, finance ranked fifth behind careers in education ahd health and others among UK students' preferences. Now it's first. “If I want to have the kind of lifestyle my parents enjoyed when they were my age, the list of careers I can choose to go into is getting thinner and thinner.”  (Telegraph) 

The daughter of US private equity billionaire David Rubenstein has resigned from Alaska’s $80bn sovereign wealth fund board following accusations she sought to steer state investment assets to friends and family members. “Ellie is the exact type of person we should want on the permanent fund. She has the connections. She understands the industry. She frankly has more knowledge about the industry than the other trustees combined. I am sad to see her go.” (Financial Times) 

JPMorgan has got something called LLM suite which is a bit like ChatGPT. 50,000 employees have it. It says: “Think of LLM Suite as a research analyst that can offer information, solutions and advice on a topic." (Financial Times).

Bill Ackman pulled the Pershing Square IPO. It appeared to be related to comments made in an investor letter that exceeded the scope of information submitted to regulators in the fund’s IPO filing, potentially violating regulations governing investor communications. (Financial Times) 

David Solomon went to the Olympic games in Paris in the company jet after forbidding employees from attending on company money. (NYPost) 

Working in private equity while training for the Olympics. 40 hour weeks, followed 20 hours weeks focused only on portfolio management and not originating new business. It helps if a partner is a former Olympic rower too. (Bloomberg) 

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