Bringing Banking Back to the Future
For months now, there have been rumblings from the new partnership being pieced together by former Morgan Stanley (MS) star banker Joseph Perella. On June 15 in London, Perella and his co-founding partner Peter Weinberg, former London-based CEO of Goldman Sachs International, spoke to BusinessWeek London bureau chief Stanley Reed after wrapping up a fund-raising round that took in about $1 billion from outside investors. Among Perella's 11 financial backers are Mitsubishi and Gulf Investment (GIC), a financial institution owned by several Gulf governments.
Perella Weinberg Partners and their backers are betting that CEOs want a more client-friendly alternative to the behemoth investment banks that now offer clients a slew of services ranging from M&A counsel to loans to fancy derivatives to hedge their risks. The new venture, staffed by top bankers from both the U.S. and Europe, will go back to giving old fashioned one-on-one advice on corporate transactions.
Whether it's successful, Perella said in an interview, "will be defined as whether we can build a circle of trust with clients. If we can do that, we will differentiate ourselves from a lot of Wall Street, generically speaking, and we will have a place where people want to work. And where clients will want to seek advice from."
It's pretty fuzzy sounding stuff. The company Perella, 64, and Weinberg, 48, intend to build will hark back to the old days of Wall Street before partnerships such as Morgan Stanley and Goldman Sachs (GS) went public and turned into hulking behemoths. Perella and Weinberg evidently think that such firms alienate clients because they're too big and have too many conflicts of interest.
Even more important, the bureaucratic aspects of these companies also clearly alienate many of the bankers who work in them. It isn't hard to find top investment-banking executives who say they're nostalgic for the days when Wall Street and City of London firms were clubby partnerships focused on tending to clients rather than selling financial products and proprietary trading.
Perella Weinberg will be private. According to Perella, the partners will own about 80% of the firm and the investors 20%. Most of the capital will go into building an investment-management business apparently focusing on hedge funds, private equity and the like -- not so different from larger competitors.
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Will it work? It seems certain that Perella and Weinberg, who are both highly regarded, will attract clients. Perella in particular has been a big name in the business since he founded the firm of Wasserstein Perella with Bruce Wasserstein in 1988.
There's already a buzz about the new firm, with one new partner saying clients were asking him to work for them even before the business officially got under way. "Joe is a great banker, and he has recruited some very good people," said Jonathan Chenevix-Trench, chairman of Morgan Stanley Europe. "There's room in the market for different models, from boutiques to full-service firms."
The two lead partners have attracted other stars, mainly from Morgan Stanley, including Tarek Abdel-Meguid, a former global head of investment banking at Morgan Stanley, and William Kourakos, another former big shot there. These two will build the investment-management business. Weinberg and Perella have also raided Morgan Stanley's Europe franchise for three key rainmakers -- Bernard Gault, Paulo Pereira, and Dietrich Becker -- in addition to Philip Yates, a honcho from Merrill Lynch.
The big question is how much of an impact a small firm can have in today's highly complex, globalized world. Executives at big banks say their organizations need to be large because clients want a wide range of services in a wide range of locations. Perella termed a lot of what goes on at the big banks "overhead." But banking executives say that without that overhead, senior bankers would have a lot less substance to bring to their dealings with clients.
In an interview with BusinessWeek's Reed, Perella and Weinberg explained the thinking behind their special brand of investment-banking services. Edited excerpts from that conversation follow:
Why will people go to you instead of the big Wall Street firms? Perella:
Why will people go to you instead of the big Wall Street firms?
Perella:Everyone is sort of prisoner of their own architecture and situation. We're going to be private, they're all public. When we started working, [most of the firms] on Wall Street were private. Today, corporate advisory represents a much smaller part of the business mix. Today's leaders come from the non-advisory part of the business, the sales and trading part. Anytime an industry goes through transition, that creates an opportunity for people who want to differentiate themselves either in expense profile or in their conflict-management process and so on.
Weinberg: Another take on this topic is that the devil is in the details. The CEO will form an opinion about whether he wants to enlist the support of a person on the basis of credibility and trust. It's all about people. Why we hope to be successful is because of the quality of the people we're attracting. I'm really excited about getting back to the coal face and working with clients.
So you won't sign up clients and then send junior people to deal with them later?
Perella: That isn't how we will approach business. We aren't in the league table game. We're in the client relations, trust business. We aren't leading with lending, balance sheets, etc. What else do we have but people? When a client asks us to focus on an issue, he's going to get the attention of senior partners. We have the luxury of picking the people whom we want to have as partners.
What about the capital-markets/investment-management business?
Perella: We aren't in the capital markets business. We aren't in the sales and trading and market-making business. We don't have a prop trading desk. The asset-management business is the other half of the firm. That's the focus of Terry Meguid and Bill Kourakos. We have approximately a billion to seed investment businesses, and we have commitments for that capital going out for some time at our discretion. We're at the beginning of a recruitment effort.
Do you think you can make money on corporate advisory?
Perella: Absolutely. We feel our brand is going to be led by the advisory franchise. We won't have the overhead and cost structure of big firms that suck up a big percentage of revenues.