Morning Coffee: Kindly trading firm that loves technologists generates $8m per head. Goldman Sachs' big M&A dreams

We have written about Hudson River Trading (HRT) on these pages before. It's the "truly kind" technology firm that operates in financial markets and that allegedly gives employees frozen yoghurt to celebrate fine quarters, while simultaneously paying engineers with only two years' experience up to $750k.

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Rupak Ghose, a former Credit Suisse banking analyst, has been looking at how it is that HRT can do these kinds of things on his Substack. It turns out that HRT is phenomenally profitable. After the first six months of this year, Ghose says it's on track to generate annual revenues of $8m-$10m per head. This compares to $1m at Goldman Sachs and $2.5m at Blackstone.

Of course, we already know that electronic trading firms are more revenue generative and profitable than the rest of the industry. 1,800 people at Citadel Securities are on track to generate around $6m each this year. 3,200 people at Jane Street are on track to generate around $11m each. HRT holds its own and ranks second among the top three. It has a profit margin of around 50%.

How does HRT do it? Ghose claims the firm's model is "100% technology driven and systematic and doesn't involve any human traders." He also says the firm has moved into mid-frequency macro trading and has expanded significantly in systematic credit. HRT is privately owned and notoriously secretive, but one of its most popular people is understood to be Jesse Cohen, a Goldman Sachs strat who joined in 2018 and whose star has risen after Oaz Nir, one of the firm's three original partners, quietly disappeared earlier this year. Cohen runs the team that writes the algorithms.

If you want a job in the kindly, avuncular, hyper-efficient world of HRT, Cohen might therefore be a person to ask. Someone at the firm has been doing some big hiring. Ghose notes that HRT only employed 400-500 people in 2021 but says it now has around 1,100. Many are thought to be the new mid-frequency traders. Some have joined from Two Sigma, prompting complaints that the culture is changing. Maybe that doesn't matter when you're generating $8m per head.

Separately, Goldman Sachs' CEO David Solomon has seen the future, and it involves the sort of flood of M&A deals that makes him feel "excited." Financial News says Solomon told a Barclays conference that clients are starting to “dream big and do things that are significant.” The pipeline is shifting. When the investment banking machine is turned back on, it "spills over into our firm in a very pronounced way," says Solomon. Such spillage has not occurred since 2021.

Meanwhile...

Bank of America's CFO sounds more circumspect: "We’re not finished yet with September, but I would think we’re going to have a good investment-banking quarter. It may take a while, but there is an awful lot of firepower out there to transact.” (Bloomberg) 

An investigation says JPMorgan processed more than $1bn for Jeffrey Epstein over 15 years even as Epstein pulled tens of thousands in cash each month and internal watchdogs said it was suspicious. (New York Times) 

RBC wants to expand in Europe. “RBC has a target of growing our market share to 2.75% globally, which would position us firmly inside the top 10 investment banks. About 20% of the global wallet sits in Europe, so for us to meaningfully contribute to that global ambition, we need to grow here. The UK, France, Germany and Spain are all key markets for us.” (Financial News)  

Tomohiro Yamaguchi, a portfolio manager from Point72, is founding Invictus Investment Partners in Hong Kong. He'll focus on the 300 largest, most liquid Japanese stocks. (Bloomberg) 

Senior Millennium portfolio managers Nicolas Caron and Pierre Negre are merging their trading books after the hedge fund convinced the two to stay on when they considered departing in recent months. They'll get more capital and trade European equities. (Bloomberg) 

Ramez Halazun, head of ECM at HSBC in Saudi Arabia, has resigned. He's going to PJT deNovo instead. (Bloomberg) 

Houlihan Lokey hired Martin Rezaie from GP Bullhound for its financial sponsors team. He's in Frankfurt. (FT) 

"In response to complaints against Andy Sieg and allegations of serious workplace abuse, Citi hired the prominent law firm Paul Weiss to investigate the allegations. But Paul Weiss is no more capable of conducting an independent investigation into Sieg’s behavior than Fraser is herself. In fact, the law firm is the very same law firm currently defending Citi in my lawsuit against the bank, which centers around many of the same workplace abuse allegations that it is purportedly “independently” investigating against Citi in the Sieg matter." (Stargazette) 

Private equity's apparent outperformance is largely a result of leverage, valuation smoothing, and selective reporting practices. Once adjusted for these factors, private equity returns converge to public equity benchmarks, while volatility and correlations rise significantly. (SSRN) 

Robert Lewin, KKR's CFO, says private equity firms with high costs are going to start disappearing. (Bloomberg) 

How Steve Cohen makes friends: Early in 2021, Cohen wrote Grech a cheque for $15m, instructing him to hand out money to hundreds of business owners with no strings attached. (Financial Times) 

I keep meeting people who describe their jobs using words they'd never use in normal conversation. They attend meetings about meetings. They create PowerPoints that no one reads, which get shared in emails no one opens, which generate tasks that don't need doing. (The Still Wandering) 

"I manage twelve people. Four do actual work. The other eight... I don't know. But if I fire them, I lose headcount and budget. So we all pretend." (The Still Wandering) 

It's a fine time to be autistic. If a PC is a bicycle for the autistic mind, the Internet is a hypersonic jetpack. (The diff) 

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