My father used to tell us that the military draft is a great melting pot, not that it would have any impact on my own life, but it was always good to know. I was raised in France when we had both the draft and much social class divides. And so, my father used point out: where else can you meet people from other social upbringings? Where else can a young man learn how to make his own bed and drive a car?
You donâ€™t learn how to make your bed or drive on Wall Street although sometimes I wonder if it wouldnâ€™t be a good place to start learning what you think you already know. And to be sure, you donâ€™t meet people outside of your own league in Wall Street.
Bankers meet bankers. Prime brokers talk to hedge fund managers. Fund marketers play golf with the same pension board members sometimes for nine, twelve months in a row. Regulators say: â€śCome on you here, have some quality time with us.â€ť The love oftentimes is not mutual. But when and where do all those different breeds of people meet? At the Ulysses bar on Stone Street in downtown Manhattan? Too crowded. On social networking websites such as Linkln and Facebook? Too distracting. So where?
Try going to school. Avoid the university where people begin their careers. Just go to a school for bankers taught by bankers. I tried Fitch Training recently. To my surprise, I was able to observe how the various Wall Street species interact with one another. More about the class itself later. It was simply exceptional. But the social interaction was the most peculiar experience for me despite the fact that my profession already allows me to talk to a broad range of people. Never before did I get a chance to be “drafted” in this way on Wall Street, as my father understood it. Luckily for my fellow students, I was the only journo there. But we had quite a rich mix. There were several bankers, mostly from the credit side; one regulator from a top Federal agency in Washington; and one big institutional investor. There were no hedge fund managers but the class was about hedge funds, or to be precise hedge funds from a credit perspective. How timely!
Our Fitch Training teacher Carol Simon, is also the owner of Carol Simon Consulting, LLC, a Roseland, N.J.-based firm that specializes in the assessment and management of counterparty risk with financial institutions. In other words, Ms. Simon advises hedge funds on their relationships with banks and helps banks with the management of their risk to hedge funds. Before launching her consulting firm, she was global head of hedge fund credit at Deutsche Bank, covering the bankâ€™s exposure to 2,000 hedge funds worldwide. Ms. Simon co-wrote the two-day course, Hedge Fund Workshop-A Credit Perspective, and teaches it quite well because she knows the dirty little plumbing of credit in various financial institutions for having been in charge of assessing risk at top investment banks.
Prior to Deutsche Bank, Carol was head of the counterparty risk and financial institutions group at BNP Paribas, covering banks, funds and other financial institutions in North and South America. She began her banking career at Chase Manhattan Bank where she received what was at the time the best credit training on the Street. Ms. Simon is a graduate of the University of Pennsylvania and earned an MBA in Finance from NYUâ€™s Stern School of Business.
So back to the class. We learned a lot about hedge funds. We looked at the different strategies and at their histograms in relation to the S&P500 index. We looked at the fundsâ€™ different legal structures onshore and offshore, distinguishing between master funds and feeder funds. We learned the basis of financial analysis and got acquainted with the most standards measures of risk. Ms. Simon had a huge white binder for all of us, with very informative PowerPoint slides and exercises. The exercices were fun. Ms. Simon broke our small group in two teams. She found all sorts of clever ways to designate a spokesperson for each group whose name changed from one exercice to the next. Ms. Simon got everyone so involved that it was a challenge for her to answer everyoneâ€™s questions while keeping the pace that she had in mind in order to cover all topics. Hands were up every thirty seconds with questions or remarks. Ms. Simon answered questions with a smile, then encouraged us to concentrate and move on. She stroke the right balance. So there is nothing to say about Ms. Simon except that she was a very stimulating and knowledgeable teacher.
And yet, there was something else, something quite unique that made this two-day class such an interesting experience. And that was: The draft. Personally, Iâ€™ve never been in a position of interacting in the same room with a bunch of bankers, lawyers and investors who donâ€™t know each others. Everyone had a different take on life. Our regulator student could not handle some graphs showing high volatility strategies. It was too much of a roller coaster for her to bear. The pension investor was pretty clear that despite the ups and downs, global macro was still performing better than the market. She knew that hedge funds are a risk reducer, not the Armageddon. Our bankers were used to evaluating the creditworthiness of various lenders but not hedge funds. They had to learn everything. They were particularly interested in finding out about leverage, asset quality, performance and liquidity of hedge funds.
It was such an interesting mix of people. You could really tell that everyone had its own agenda. Regulators donâ€™t seem to appreciate or understand investing. It became painfully obvious to me. They get fearful and reactive as soon as they see what appears to them as a risk. Their primal instinct is to say: â€śNo, no! This is bad! This should not be allowed.â€ť
Wall Street is nothing but the New Jersey of the Sopranos for them.
On the other hand, bankers, especially commercial bankers do what they can to learn. They are used to assessing risk with retail clients or corporate entities. Hedge funds are new to them. But they have to learn and fast because there is no off-balance sheet magic here. Credit officers at banks really want to know their customers and they care not to lend money to a loser.
Institutional investors are not as ignorant as most hedge funds would have it. It seems to be a myth. They have a lot to learn, but they seem eager to overcome their own shortcomings. Rather than being ignorant, investment professionals at top public pensions appear to be simply understaffed. One can only appreciate that trustes would take the time out of their busy schedule to take those classes and learn.
There should be a blog for people from different walks of life on Wall Street. Of course, no one would want to talk to the reporter or the regulator. But still: How interesting it would be to see all those species swimming together in the same aquarium without the urge to kill each other.