Morning Coffee: Hedge fund bonus clawbacks are a thing. The M&A banker who wasn't paid

Hedge funds are a bit like Jefferies: if you leave before they want you to, they will make you pay your bonus back. 

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The practice is relatively wide-ranging at all the big multistrategy hedge funds and has been becoming "a lot more aggressive" in the words of one hedge fund headhunter. As at Jefferies, it seems that you will usually have to pay back your hedge fund bonus pre-tax, which will mean negotiating with the revenue office of your relevant government to receive a rebate.

Such clawbacks are common for portfolio managers and analysts, and they're spreading. Bloomberg reports that ExodusPoint has expanded its bonus clawbacks to non-investment staff, who will now have to repay up to 40% of their bonuses for 2024 if they leave within a year. The fund isn't commenting. 

Headhunters tell us bonus clawbacks have become a point of hot contention in the industry. When it comes to valuable portfolio managers, one says, "Nowhere has standard terms. There are lawyers involved on both sides and it's all part of the negotiation."  Another says that clawbacks usually apply for up to a year and are imposed both if someone leaves or if they're ejected "for cause."

While clawing back bonuses will always be painful, the big question is whether upfront payments to star portfolio managers who've moved from other funds are clawed back too. These payments usually include a signing bonus and an amount to compensate for money left on the table at a previous employer. Millennium, for example, hired John Curtice from ExodusPoint in 2023 on a package rumoured to be worth $50m. But Curtice left again in November after allegedly exceeding guidance on his risk limits. Will he have to pay back the $50m? Millennium isn't commenting. One former portfolio manager there says they will probably attempt to clawback "everything," describing clawback clauses as "devil's pacts."

Separately, at least hedge fund employees are being paid. Ian Hannam, the rugged former JPMorgan natural resources banker who ran his own boutique which recently merged with another boutique, says he did a lot of work but wasn't paid at all. 

The Financial Times reports that Hannam thinks he's owed up to $18m for working on a merger between Canada’s Barrick Gold and London-listed Randgold six years ago. He claims to have orchestrated the merger and to have shaken hands on an agreement that he'd be paid $10m. Instead, Michael Klein of Credit Suisse fame was listed as the main advisor and presumably took all the fees. Hannam says this isn't fair: “We had done much more than he had to put the deal together.” He is seeking restitution in London's High Court. Barrick Gold denies his claims.

Meanwhile...

Meta increased its UK workforce from 2,700 to just over 7,000 between 2019 and 2022. Last year it cut it back to 6,300 people. (The Times) 

Dame Amanda Blanc at Aviva likes to do deals quickly. Aided by Goldman Sachs, she bought Direct Line in eight days. "That’s classic Amanda. She’s sold eight businesses in 18 months; she doesn’t mess around.” Now Goldman just needs to wrap up the deal before Christmas. (Financial Times) 

Credit risk transfers are supposed to get risk off banks' balance sheets to allow for more loans to be made. But what if it just transfers the risk to non bank institutions less capable of managing it? And what if buyers of the transfers are leveraging themselves up with money borrowed from the banks? (Financial Times) 

Macro portfolio managers Gugesh Guganeswaran, Kurt Lichtman, and Matthew Potts have mysteriously left Balyasny after a turbulent November. (Business Insider) 

Deloitte is suing three of its Asian partners, including one of its most senior Chinese executives for attempting to move to an unnamed competitor with secret information. (The Times) 

Alex Gerko of XTX has donated a lot of money to an AI for Math Fund which will build a digital assistant, or copilot, to help mathematicians. (Bloomberg) 

Jane Street and Millennium agreed to settle their case ahead of a trial process that threatened to make public information both firms might prefer to keep to themselves. (Bloomberg) 

What if banks were required to report a "class ceiling" to encourage socioeconomic diversity? (Financial Times) 

St James' Place will no longer be parading is top-performing advisors onstage to huge cheers from their colleagues, followed by speeches by Bill Clinton and David Beckham and a 'glitzy dinner.' (Financial Times) 

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