December 6, 2023

Investment Banking

Let Your Investment Banking Do The Walking

Why has Goldman Sachs made so many partners?

In even-numbered years, it’s the next big milestone in the festive season after Mariah Carey Day; the annual announcement of the Goldman Sachs partner promotions. These are very important to those who get them (and indeed, those who narrowly miss out).  As well as a $950k basic salary, access to a special bonus pot and opportunities to co-invest in Goldman’s private equity funds, there is a considerable cachet attached the p-word – it’s the LinkedIn equivalent of a blue tick on Twitter.

Like any other status symbols, there’s always a tension between wanting to award them, and keeping them special.  Since rising to become CEO, David Solomon has consistently said he wants to keep the club small and profitable.  This meant only 69 promotions in 2018, and an even smaller class of 2020 with only 60 new partners.  But this year, there are eighty of them. 

What’s up? A number of competing theories are worth considering.

One that can be ruled out quite quickly is that “it’s cheaper to promote people than pay them”.  This can sometimes be true for smaller banks where title inflation can compensate for a bad bonus year.  But making someone a Partner at GS has financial implications which stretch out for years, and which are partly borne by the existing partners.

A more likely explanation might be that this is a consequence of the diversity push.  As with 2018 and 2020, this class of partners has set a new record for “most diverse ever”.  But if you want to both improve representation and shrink the total numbers, things become very tough for white men in that year; they have to carry the cost of past biases.  That could have created a number of hard-luck cases over the last four years, some of which might have needed to be resolved.

A similar effect works if you want to give more recognition to divisions and geographies that have been historically light on partners.  This year’s list seems to have quite a few more GS Asset Management names on it than usual, but it might have been hard to cite that in the “cross-ruffing” process as a reason not to promote a really good FICC sales MD.

But it’s also worth considering … perhaps we’re just over-analysing. The difference between the size of 2022 class and the 2018 one is precisely eleven names.  And it’s the net increase which determines the overall number of Goldman partners, not the gross.  That large basic salary comes with an expectation of serious continued performance, and every year some partners are selected to be consciously uncoupled and they ‘retire’ to hedge funds or private equity

With partners leaving as well as being made, the real message of this year’s big partnership class might simply be that more of the existing partners are expected to retire.  So it’s quite possible that the answer to the question of why Solomon changed his mind on the size of the partnership pool is simple: he hasn’t.

Separately, if you participated in a deal that turned out to be disastrous, there are two ways you can go. Either get really embarrassed and forbid anyone to mention it in your presence, or put the tombstone prominently on your desk as a memento mori and reminder that you’re not infallible.

Some people working at Sequoia, Temasek, BlackRock or Tiger Global might learn a bit about the psychology of their colleagues on this basis.  These firms, and the Ontario Teachers pension fund, not only invested in FTX, but did so in the “meme round” a Series B funding in which the troubled crypto group raised the (in retrospect excruciatingly embarrassing) sum of $420.69m. 

It will be difficult for Sequoia to do anything but lean into it – they put a long article on their website about how proud they were of having done so.  With the benefit of hindsight, it reads almost like a handbook of “Massive Red Flags And How To Miss Them” – at one point, one of the Sequoia team actually says how impressed they all were that Sam Bankman-Fried was able to multitask by playing League of Legends while taking a conference call with them.  This was held to be a sign of the same intellect and multitasking ability he’d shown as a trader at Jane Street, where he was apparently “so fluent with transactions that others would come watch him work, like an esports athlete”.  It looks like the next series of “Industry” won’t be short of raw material.

Meanwhile …

Like an ambitious Harvard graduate on the analyst program, the SEC investigation into WhatsApp use has spent a couple years in investment banking and now moved on to private equity.  Apollo, Carlyle and KKR have all been asked to respond. (Bloomberg)

Bobby Jain, famously one of the most popular men in banking, will be leaving Millennium Management next year.  He’ll be replaced by an “office of the CIO”, which will include Paul Russo plus some further names to be announced. (FT)

A profile of the Credit Suisse Structured Products Group, suggesting that it really was one of the “crown jewels” and is unlikely to be cherry-picked or run down by its new owners (Global Capital)

Demonstrating that the grass is always greener on the other side; most banks would love to be in the tech industry, but according to Elon Musk on a conference call, Twitter might become a fintech (FT)

The cryptocurrency investigators who made their names tracking down international crooks through the traces they left on the blockchain are now moving to the private sector.  Binance and Coinbase have both staffed up their internal teams from the CIA, FBI and the Lithuanian police force. (WIRED)

Having to write a filing talking about “the final chapter” of your bank is bad enough but Philip Dayer, the chairman of VTB UK, also has to endure the indignity of being called “a loyal servant” and having “a script seemingly vetted by the Kremlin” in the news writeup.  (Intellinews)

Rich Handler is following his own “when life hands you lemons” advice – Jefferies has recruited Glen Cronin from Rothschild and David Burlison from Lazard, to build up a restructuring practice in Europe. (Bloomberg)

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