banks suffer what is called an “endogeneity problem” (read the excellent analysis Regulation of European Banks and Business Models published by the Centre for European Policy Studies). It is precisely this excessive intervention which prevents a quick and surgical solution to the financial sector's difficulties. Regulation must be effective and simple. In Europe, it is not.
Banks play an essential role in a market driven by the perception of growth and prosperity.
The market simply reflects that human nature of which we spoke earlier, regardless of whether we see things from the point of view of the sellers or intermediaries. So I find it hilarious when people speak of “attacks” by the market. More than 67 % of the funds under management are exclusively “long-only”, so they only enter the market as buyers. And in hedge funds, which we will analyse later, the average net long exposure (bullish) rarely goes below 30 % of total funds.
Just as governments, companies and investment banks play the role of sellers and intermediaries, so do investors play the role of customers. And as such, they can make a mistake when choosing a product. So they also take on certain levels of risk. And as clients, they have every right to expect a lot from what they buy. When we forget that the market is a triangular seller–product–client relationship, and assume that we are within our rights to expect to find a seller for poor-quality products, the chain of value and confidence begins to break.
Understanding that the seller–client relationship in the financial markets is identical to that of any other business activity has been invaluable for me to carrying out the transition from the business world to banking and investment management. Be your product a sovereign bond or a company share, it's absolutely imperative to understand and evaluate the needs of your clients and to strive to offer competitive, quality goods and then attract clients and capital, and not wait for it to rain down from heaven.
What was it that fascinated me about those investors who came to see our company? In the meetings with the senior management, they were not afraid to pose awkward questions and to turn balance sheets, ideas, forecasts, past performances and the like on their heads. At first I wondered: “How dare they speak so frankly and so directly to our chairman, CEO, CFO, who within the company and the country are treated almost like royalty?” But these were our clients, current or prospective. They had every right to do so, and were only expressing their concerns. They wanted to analyse and understand what could happen, not what had already happened.
An investor is your client. He is not doing you a favour or making a donation. He is taking a risk: investing his money and seeking to maximise the possibilities of obtaining a profit with respect to the risk he takes. And our product is one of thousands from which he can choose on the world market. Not only must we outshine the others in image and in current figures; we must lend credibility to our “proud father” expectations that our product will grow into something strong and healthy.
I remember a meeting with a leading international investor. His biggest worry was not “How much will I make?” but “How much do I stand to lose?”
It was during this learning curve that I realised that in continental Europe the concept of open and transparent communication was still rather rudimentary. This was perhaps due to the existence of majority shareholders and the generalised absence of mutual interests between actors on the buy-side (above all, companies) and clients (minority shareholders). The protectionist environment had not changed.
This experience led me to seek an opportunity to change my career and attempt to go over to the investor side: to become a client, a risk-taker. I also considered my career and my professional profile. I had spent the last 12 years at two companies and felt the need to branch out, add experiences and gain knowledge that could lead me to positions where I might improve my independence and, naturally, earn more money.
The opportunity to put this decision into action came from the market.
After three months of fruitless searches, I was contacted by a head-hunter to discuss the possibility of leaving Spain in order to work as an analyst in a London investment bank, in the City.
It was an opportunity worth considering. To gain a foothold in the financial markets, in particular in the City, is incredibly difficult. If you're given the possibility to get into that environment, you should think seriously about the answer you will give. To let that train pass by could have closed up a direct avenue to securing my long-term goal.
During the interview with the head-hunter, he asked me where I saw myself five years from now, and I replied, “Working in a hedge fund.” The head-hunter looked at me in amazement. He told me it was a very ambitious and terribly difficult goal. Not only that, he warned me that more than half the hedge fund managers are fired every two years. “Be careful what you wish for”, he said.
The decision was not easy. From my secure position as a director at a good company, with little risk and a stable environment, I was to become an analyst, which meant taking a step down the hierarchical ladder and moving into an extremely competitive sector, fraught with risk and with much of my salary dependent on bonuses for meeting targets.
I would be taking one step back in order to take three steps forward in the medium term. It was a risky decision, but one that would allow me to be what I wanted to be: an investor (and, of course, enjoy the remuneration that came with it). My decision process was undeniably influenced by this over-arching personal ambition.
If you want to get into the financial world, you have to like money and you have to want to earn lots of it. If your aims are to “broaden my experience”, “meet people” and “study other sectors in detail”, there are thousands of jobs out there. You must know why you are there and what other people are there for. All of them. I was not going to work for an NGO or for an engineering firm. I was about to enter the “money-making market”.
I recall the conversation with my family when I announced that, at my age (late thirties), with three newborn babies (triplets), I was renouncing a cushy, secure, well-paid executive position in the corporate world, the dream of any son's mother, in order to try my luck in London. Of course, everyone I knew told me it was a mistake, that it was risky, that I should not give up a certain quantity for the great unknown… the usual clichés.
In the book The New Market Wizards: Conversations with America's Top Traders, by Jack D. Schwager, all the participants agree that to be successful one needs to have a magnificent relationship with, and the support of, one's partner. My own experience supported this finding. My wife and I had to have a common goal and a clear objective and to be willing to take risks, even be separated for a time, if I was to be ultimately successful with my career change.
At that time everyone told us it was crazy, but I had made up my mind.
I flew to London, leaving my family in Spain. At the weekends, whenever I could, I would get up at four in the morning and fly back to see them for a few hours, then return to London on the Sunday at midnight. After two years of weekly commuting, my wife gave up her job as a manager at an investment firm to look after the children and come to London, where it's almost impossible to combine work and family life on account of the timetables, holidays and demands of the British private school system. We went from having two sizeable steady incomes to the uncertainty of the City and the gamble of annual bonuses and variable remuneration.
You may have read the sad story of a bank intern in the City of London who died in 2013 after allegedly working 72 hours straight. If you read about it in the papers, you will probably have been horrified by the description of “inhuman hours”, deaths and suicide in the financial sector. Nothing could be further from the truth.
Life in the City is tough, and employers demand results, as it should be. Imagine for a second that the person who manages your savings or your pension fund was remunerated by any other
