Lost in these thoughts, I sat and pressed a thumb against my lips. The pose probably looked catatonic to Annie. “Boss, I’m going to Starbucks,” she said. “You want a cup of coffee?”
“My treat,” I answered, blinking with awareness. “Chloe, how about you?”
Chloe smiled, nodded yes at Annie, but said nothing. She was confirming a trade execution with our equity desk.
“You’re the best,” Annie said with no hint of yesterday’s moodiness.
“Hey, that’s my line.”
Snagging a twenty-dollar bill from my outstretched hand, she smirked. “Go back to Grove’s world now.”
“Aren’t you a piece of work?” I snorted.
Annie headed toward the elevators. She wore a short khaki skirt, equal parts grace and sex appeal. The smooth lines. The slinky cut. Chloe caught me looking, rolled her shoulder, and winked in an exaggerated manner that said,
Gotcha.
My face reddened. Busted. At that precise instant, Frank Kurtz called. Never in the history of mankind had anyone been so grateful for a phone call from the boss. Kurtz wrecked my relief in all of three seconds.
“Frank,” I saluted into the receiver, charming, energetic, the make-happy voice reserved for management.
Chloe giggled behind me.
“I hear you’re teaming with Patty on JJ,” Kurtz announced, his voice buoyant.
NFW
, I thought, and glanced over at Estrogen Alley. Patty was on the phone, locked in deep conversation with her latest casualty.
Kurtz encouraged partnerships. He regularly cited the need for competence in fixed income, equities, hedge funds, and estate planning. No broker could master all four categories. Coverage teams with broad expertise, he reasoned, could advise clients more capably.
I preferred a more cynical explanation—the Judas factor. Kurtz knew joint coverage made it harder for brokers to leave SKC. If I took a paycheck from another firm, Patty would fight tooth and nail to keep JJ’s assets. Why not? She would keep 100 percent of the revenues instead of 60 percent. It wasn’t partnership. It was betrayal on the come.
“Nothing’s certain,” I replied.
“What’s the problem?”
“Economics for one.” Gershon’s math sucked. Not including shares in Jack Oil, I managed $200 million for JJ. He was only one client among my sixty-five families. But his portfolio generated $1 million in annual fees, of which I kept $350,000. If JJ sold his company, that total could easily double to $700,000. Except for one thing. Lady Goldfish was demanding $420,000. From me. That’s big money in anybody’s book.
“What about the banking deal?” Frank asked. From experience he knew better than to negotiate splits between advisers.
“JJ’s a prickly guy, Frank. He prefers to keep his personal business separate from his investment bank.”
“Says who?”
“JJ.”
Frank thought a moment. “We want a twenty-million-dollar banking fee more than a money management relationship,” he said finally. “You know it. I know it.”
“I’ll pretend you never said that, Frank.”
He ignored my words, the obvious hostility in my voice. “Banking will be all over my ass if this deal slips away.” Frank sounded apprehensive. He needed a Cohiba. Cigars were to Frank what spinach was to Popeye.
“That’s crazy, Frank. I’ll talk to Sutherling. Gershon may be wrong for all we know.”
“Don’t let this fee get away, Grove.”
He hung up before I could ask, “Is the pope askew?” The exchange left me exhausted. I needed a new axiom to complement the preceding four.
Five: Top producers avoid management in order to conserve energy and make money.
Sutherling, investment banker and work dog, had been in Wichita yesterday. I dialed again, anxious to touch base, anxious to learn what he knew. Lady Goldfish, out of earshot, waved at me from her cubicle. I smiled back.
“I bet you’re calling about Brisbane and Jack,” Sutherling answered.
“That almost sounds like a cocktail.”
“One we both can drink,” he agreed.
“How well do you know JJ?”
“We’ve met. I’ve never gotten anywhere with him.”
“How can I help?”
“Get us in a room together. The sooner, the better.”
“That’s why I’m calling. I’m boxed out until Monday.”
“What do you mean?”
“JJ and I spoke yesterday. He wants to speak on Monday but not before. He’s busy as shit.”
“If there’s a deal percolating, we need to speak now.”
Sutherling was right. But JJ was the client. I needed to satisfy both. “Here’s what we do,” I said, taking command. “Wait fifteen minutes. I’ll call JJ’s assistant and explain why he needs to speak with you. Then you call. He might take your call. If he doesn’t, I’ll speak with him on Monday. One thing’s for sure.”
“What’s that?”
“He’ll meet with you, if I ask him. Timing is the only issue.”
Confession time.
“What about Patty?” Sutherling asked.
“You tell me.”
“You guys are covering JJ jointly?” he asked.
“Nothing’s certain yet,” I said. There was that foul taste again, spoiled milk.
“Look,” he said brusquely. “I don’t want broker bullshit getting in the way of a big M and A win. Her Polish may be just the edge we need to oust Goldman. She’s on the team, like it or not.”
I had just managed to piss off my best source of referrals from Banking. Not a good thing. “Whatever it takes,” I conceded.
She leaves bodies in her wake
.
After we hung up, I called JJ’s assistant as planned. He was in a meeting, but she promised to get him a message. The phone traffic, so frenzied earlier, had died down for the moment. I called Crain and Cravath, annoyed they had not returned any of my calls dating back to Friday.
“Is Crain there?”
“May I take a message?” the receptionist asked.
“Yeah, if I thought it would do any good. Is Cravath there?” I continued.
“Your message?” she yawned. I could almost hear the receptionist give me the finger. Auditors would never make it as brokers.
No service ethic
.
“Tell both of them that I’ll camp outside their door if they don’t call back by tomorrow.”
It was a good opportunity to review the information on MRI Capital, Romanov’s hedge fund. I reached inside my briefcase and pulled out the red folder. It was one of the last items Charlie had touched while living.
Maybe I should give the file to Fitzsimmons and Mummert.
CHAPTER TWENTY-NINE
Bullshit.
No way I was giving the red folder to Boston’s police department. Their priority was to find Charlie’s killer. Mine was to find Sam and Betty’s lost money, something of a tangent to Fitzsimmons and Mummert. Pregnant mother or single mom in need of cash—they didn’t care. The homicide investigation came first as far as the officers were concerned.
Never thought I’d be protecting anyone from the police.
The file bulged with MRI offering memorandums. There were also clippings from every major business publication,
Business Week, Forbes
, and
The Wall Street Journal
to name a few. I was still wrestling with yesterday’s question to Crunch.
Did the Kelemen Group invest in MRI Capital?
Charlie had been a great salesman. And from personal experience I knew the one factor that united all salespeople. We’re suckers for great pitches. My fat friend with the humongous head was no different. He could have worn crosshairs on his back.
Maybe he did.
Alex Romanov knew how to sell. He told
Forbes
magazine, “Some say
luck is what separates smart money from dumb. I don’t buy it. We do our homework. We don’t look for great companies. We look for great value.” Sitting at my desk, I could almost hear the Mad Russian pounding the table.
Charlie ate this stuff up.
Romanov possessed the kind of conviction that turned ordinary stockbrokers into top producers. In one article after another, there in bold print, I found axiom number one in action. Investors hire advisers with strong points of view. The more impassioned our convictions, the better. Apparently, the same energy worked for hedgies promoting their funds.
Several years ago
Barron’s
invited Romanov to join a panel discussion of small-cap money managers. The magazine described the feature as a variation of its Roundtable stock picks, must reading for investors. By declining, Romanov surprised everyone.
Some hedgies reacted like Marlon Brando had just refused an Oscar for
The Godfather.
Others charged that Romanov was unwilling to share center stage. True to form, he got the last word. “Groupthink,” he explained to
Fortune
in an article profiling MRI Capital. “Nobody makes money from
Barron’s
tripe.”
It was an incendiary remark for a guy with $800 million under management. But Charlie Kelemen savored every word. He highlighted “group-think” with a yellow fluorescent marker. In the margin he penned two asterisks. Or perhaps they were line drawings of assholes.
He’s intense, Charlie. I’ll give you that.
In other articles Romanov harangued with the certitude of the insane. He always presented his stock picks with the same signature line: “We are
maniacally
obsessed with value.” He never failed to emphasize the word “maniacally.”
Romanov really is a mad Russian.
He claimed to own “fallen angels.” In classic Wall Street vernacular, “fallen angels” were bonds that had lost their investment-grade credit ratings from the usual suspects among paid professionals. Moody’s, Standard & Poor’s, and Fitch no longer considered the bonds rock solid, because profits and cash flow had faded at the issuing companies. They now rated the bonds BB or worse—junk.
I took issue with Romanov’s use of “fallen angels.” MRI Capital owned
stocks, not bonds. Romanov invested in small businesses with total market values of $300 million or less. Wall Street called them “micro caps.” Sometimes, he even invested in “nano caps.” These firms were worth less than $50 million. No one ever challenged Romanov’s use of the slang, though.
Tough to argue with triple-digit returns.
In some ways I wished SKC’s analysts were like Romanov. We boasted our share of
Institutional Investor
All-Stars. But I feared the best minds had bolted to a land of milk and honey prophesied by the Old Testament—hedge funds.
The draw was simple. Hedge funds paid better. Partners sometimes gorged on Croesus-sized comp because of the fees charged by their funds. Hedgies kept 20 percent of all investment profits, the “carry,” with no commensurate obligation to share risk.
Danger, Will Robinson.
The carry rewarded hedge funds for winning bets. It did not punish them, however, for excessive or ill-advised investments. Investors ate the losses, not the managers. As a consequence, hedgies wagered big, the better to goose returns and maximize incentive fees. One hundred million in trading profits, for example, meant the hedgies earned $20 million in their personal accounts.
It’s not “the carry.” It’s hara-kiri.
No matter the divergent interests, investors agreed to the fee structure. The best and the brightest minds of Wall Street mesmerized them, seduced them with the heady allure of better returns. By agreeing to the carry, investors financed the migration of top talent from investment banks to hedge funds.
Nobody gives a shit about 20 percent when you’re making money.
Quite by accident, the czars of oversight fed a growing indifference to risk. The SEC, NASD, and other regulatory bodies ruled unevenly. They came down hard on brokerage houses, less so on hedge funds. Prosecution and the specter of jail cast a fearsome shadow over Wall Street’s brokerages. Naturally, top talent sought refuge in more benign settings with better comp.
Somebody should keep tabs on the bureaucrats.
SKC employed legions of lawyers just to comply with all the statutes. In
more cynical moments, I told clients, “We’re really a law firm with a large finance subsidiary.”
With less oversight, the hedge funds dealt themselves extraordinary investment powers. They borrowed to the gunwales. They cut side deals and catered to the well-heeled investors with more market savvy. Some offering documents even allowed them to value private securities like motion picture partnerships.
Sure makes the 20 percent calculations more subjective.
For all my cynicism surrounding the industry, I respected Romanov. He had grossed 129 percent last year. He was up 75 percent through July.
Hard to argue with the results.
Forbes
estimated Romanov had taken home $30 million through the years. It was no surprise that Charlie befriended him. As a fund of funds the Kelemen Group actively searched for outstanding investment managers, for guys like the next Warren Buffett.
Inside the red folder I found an offering prospectus. The subscription agreements had not been filled out, nothing to indicate whether Charlie had invested in MRI Capital. There was plenty of the legalese, the ponderous and mind-numbing language that dampened the soles of my feet with perspiration. A dozen dog-eared letters added heft to the file. No way would I read them, either. They were yesterday’s news, dated market commentaries Romanov had mailed to investors months ago.
