Does Compensation Beat All for Wall Street Talent?

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Jan. 29 (Bloomberg) -- Ilana Weinstein, president at IDW Group and Greg Fleming, president at Morgan Stanley Wealth Management, examine how compensation relates to talent retention on Wall Street on Bloomberg Television’s “Market Makers.”

Here with eric and i and you talk about people leaving the bank and going to the buy side.

What is the trend right now?

The chasm between compensation on the sell side on the buy side -- and by that, i mean the hedge funds that control the majority of that's a very small percent of the hedge funds but 80% of assets under management in industry, it is enormous and compensation.

It has never been bigger, that divide.

If you think about all the hedge funds, horrible 2013, a huge number and those are walking home with zero.

The guys who matter, so to speak, are the guys who control most of the money in the hedge fund world, and that is the top five percent and they for the most part had a great year.

And most of the money flows to the bigger funds, so they had a lot of capital.

And when you are a hedge fund manager managing $10 billion with a 2/20 structure and there is a fundamental strategy that generated a 30% return, you are looking at a a hundred million dollar profit for the year -- $800 million profit.

The prop desks are gone and the heavy hitters have gone to these hedge funds that she is describing.

Now that wall street is not competing with those firms and funds, are we in a better place?

I don't know.

As stephanie said, the slice of the hedge fund industry you are talking about is a very small part of the financial services industry.

And the number of individuals you are talking about across the firms, even if he added up, or these are not even tens of thousands of people.

It depends on the number of hedge funds.

But it is a very small slice of the securities industry and financial services industry.

Morgan stanley has a lot of people.

We've got 55,000 employees and we've got a lot of people working with clients doing a good job for the clients and they are well compensated.

It is apples and oranges.

Let me just say, it is a small percent, but the chasm is great.

Within the sell side -- and maybe it is time to stop comparing the sell side to the buy side, but within the sell side i think the mix of businesses has really changed.

How so?

As you know, we talked about this at 9 p.m., the biggest slice of revenue on the sell side has been in decline because of automation and the new capital requirements and are firms like morgan stanley that i think have wisely chosen to deemphasize that business and instead emphasize things like equities and wealth management.

And that is kind of the thing.

If you run an investment bank these days, you need to adopt a subset strategy.

You cannot compete and all things.

You don't have the capital -- the capital requirements are too onerous.

You have to figure out what is your core dna and emphasize those businesses.

Why do you even want to be in the leveraged finance business anymore?

If the top talent and leveraged finance says i want to sit -- i don't want to sit at morgan stanley, i want to sit at millennium or go to any other fund, why do you still even want to have that business question mark just to come back to the point you are making, business mix is incredibly important in the financial services industry today.

The mix of business that morgan stanley has in place, in a world of basil three -- basel ii, we think -- basel ii, we are very comfortable with the three businesses in the way they work together.

Staying in leveraged finance -- the street and morgan stanley still employ traders that are very good in specific areas, and the reason we are in leveraged finance and the reason it remains important to conserve clients front to back.

If you are going to have first-class m&a and raise capital and fixed income for corporate clients, you are going to need to provide a market in those securities after you bring the market, so you have sales and trading around that.

You don't want to say for a client if you want to raise equity do that, but if you want to raise high-heeled bonds, you can do that.

I can guess why morgan stanley will want to be in the business, but if i've was a traitor by what i do it at morgan stanley -- if you are going to go to blue mountain to do it, you will go to blue mountain to do it.

But they need a different skill set.

It comes down to where eri once -- erik want to take conversation.

If you want more income in the next year too, you can make a decision but if you want a career at a great firm and it is not just about income but the work you are doing and the clients, and you are a key part of a financial services -- of the financial services industry, you might very well say i am going to spend 20 or 30 years doing this at morgan stanley as opposed to -- i don't buy that.

I think today hedge funds, first of all, the bigger ones like the ones you talked about, they are many institutions.

They are not a bunch of guys, cowboys -- they are also clients.

The idea that going to a hedge fund is sort of a one-year trade, it is not.

There are real cultures in these places.

Institutional clients are allocating where they want to see an entity where it is not just an individual hedge fund manager but it is about a team, a brand, infrastructure, it is about an entity that knows how to manage assets that deal with multiply -- multiple jurisdictions.

It is still and eat what you kill business.

We have seen lots of institutional hedge fund blowup in 2007, 2008, with a billion dollars in aum and have been around for some time.

And there were many funds, at least for a long.

Of time, they have not gotten back to their high water mark.

People were not getting paid.

And you were saying you would leave for more money.

I was referring to that.

There is no question that there are a lot of hedge funds -- and a lot are our clients and a run by people i have enormous respect for -- a are institutionalized in their approach it may have been around for a long time and are likely to be around so you can have a career.

But i am talking about with somebody leaves simply for more money, and i think in a lot of cases it is just not going to happen because there are a broader set of things that factor into that decision.

The fact that there is a broader set of things is one of the things that will make the financial services industry more highly regarded by americans and the general public.

Look, i think a lot of things to factor into the decision.

I think whether you sit on the sell side or a hedge fund, money is usually paramount to that decision.

And the reality is, the bigger and better hedge funds -- and that is what we're talking about, not the two big players -- those are the ones who also have a very strong culture, and they do take care of people, and they did in tough years, even though not necessarily in 2008, and they paid people.

So i don't think going to a hedge fund just means it is just about -- how does the regulatory involvement -- environment weigh in?

When you speak to people at a bank right now, height -- how concerned are they about the long-term outlook for their position as they are sitting in a bank?

I think the problem is, within a bank, you have such emerge -- enormous technology costs and look at the litigation costs that basically wiped out profitability, or at least had to big -- had a big cut in profitability.

Those things are not going away.

That is a big concern for people let banks.

Those are things they don't have control over.

Whereas, if you are sitting at a hedge fund, it is a cleaner construct in terms of your ability to get paid.

I don't know.

This text has been automatically generated. It may not be 100% accurate.

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