Morning Coffee: How Goldman Sachs' London millionaire minting machine ground to a halt. HSBC's quantum computer replaces 16 people
Not so long ago, if you worked for Goldman Sachs in London and you wanted to make a lot of money, there was one place to be: Petershill Partners in the asset management division. Petershill Partners helped Julian Salisbury, the perky and youthful ex-head of Goldman's London asset management business, to earn $35m in 2022. In the 12 months ending June 2021, Petershill made $310m in profits to be distributed among its partners, who at that time were also working for Goldman Sachs, of which Petershill was a part.
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Fast-forward four years and things are different. Julian Salisbury has left Goldman Sachs for Sixth Street, and Petershill has spent the past few years as a listed entity on the London Stock Exchange. But now it's being delisted and folded back into Goldman Sachs after things didn't work out as planned.
What was that plan? When Petershill IPO'd in 2021 there was talk of how it would give investors access to its $187bn of minority investments in a "diverse group of well established, high quality, independent alternative asset managers." As Bloomberg observes, the intention was for its investors - who at that time really, really loved private equity firms - to gain exposure to Petershill's stable of private capital investments and to ride off into a halcyon sunset like the spritely Salisbury.
That did not occur. As investors' enthusiasm for private equity investments waned, so did their enthusiasm for Petershill. Its shares sank and have been trading at a 36% discount to net asset value. As Naguib Kheraj, the ex-Barclays banker and Petershill chairman, observes: “All the noise around the difficulty of realising positions has made investors cautious." No one knows how much Petershill's illiquid and opaque minority investments are really worth; and so no one wants to buy it. The multimillionaire minting days are over.
Or are they? Goldman has decided to take Petershill private and to restore it to the bosom of its asset management arm. Investors (who own less than 25% of its shares anyway) have an incentive to sell: Goldman is buying their stock at a 41% premium to its average price over the past six months and at the merest 11% discount to net asset value.
In the process, Goldman is returning $900m to Petershill shareholders. There are advantages in doing so: Bloomberg says Peterhill has cash from selling some of its assets and that as a fully private company, it can raise more debt instead.
The episode does, however, cast a pall over Petershill's reputation as having some of Goldman's most lucrative seats in London. It might be that the Petershill funds - which have existed since 2007, are still a source of hidden value, but investors clearly don't think so. Working for Petershill has become an act of faith. Petershill's delisting is a reminder of that. Private equity employees everywhere should take note.
Separately, credit traders have already been complaining about electronic trading systems consuming their jobs. Now they also have quantum computers to contend with.
HSBC has let it be known that it's used a quantum computer to achieve a 34% increase in the accuracy of its predictions that bonds will be traded at a particular price. This is a big deal because even a single digit increase in the accuracy of predictions has previously been a cause for celebration.
In the words of Josh Freeland, HSBC's global head of algo trading: “We spend all day looking for single-digit improvements, because when you repeat that thousands of times a day, it can really make a difference.” Freeland also said that the bank had 'a team of 16 physicists, machine learning and artificial intelligence experts were “working around the clock,” trying to replicate what the quantum computer had been able to do.'
First, the physicists and software engineers came for traders' jobs. Now the quantum computers are coming for the physicists and software engineers. Evolution.
Meanwhile...
Adam Bothamley, global head of HSBC’s DCM unit, says he's hired 27 new bankers in DCM team this year, with 11 coming in Europe, 10 in the Americas, four in Asia and three in Saudi Arabia and that he wants to hire more. (Financial News)
Mako is winding down its cash equities business and pivoting to derivatives after years of losses. (Financial News)
Citi is cutting 3,500 technology jobs in China and moving 1,000 technology jobs to India. (Bloomberg)
As Citi sharpens its electronic execution business it's now hired Jason Woods from Morgan Stanley as head of futures execution for Europe, the Middle East and Africa. (Financial News)
Citi’s stock has more than doubled in value since the start of 2024 to trade at a 17-year high. However, the bank trades just below book value (up from 0.4 times in 2023). Bank of America trades at 1.4 times book. JPMorgan at 2.6 times. (Financial Times)
Marketwide sales of euro, sterling and dollar reg S debt has reached €208.9b ($244 billion) this month, topping a previous record of €200.78b set in 2021. (Bloomberg)
Thomas Peterffy is the 23rd richest person in the world after designing and automated trading system. In 1971 he said: "As soon as the electronic brain is hooked up to its voice box so it can answer the phone, staff will be able to go on permanent vacation.” (Colossus)
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