Morgan Stanley may try to offload Hedge Fund stake - a warning

Rumors about Morgan Stanley's efforts to offload its stake in the hedge fund firm Frontpoint should be seen as a warning for potential investors in hedge fund businesses. Often these firms are dependent on one or a small handful of managers. If any troublesome news hits the business the value of the firm may evaporate very quickly. Potential acquisitions in the field should only be undertaken in an extremely cautious way and structured so that it is not just a win-win proposition for the selling insiders.

Who is Steven Maijoor?

The regulatory vampire squid that is being created by an EU officialdom that is several stages removed from any democratic control is likely to nominate a professor with only the scantiest first-hand experience in the financial markets to be the head of the European Securities and Markets Authority. Bureaucracies such as the one created to 'regulate' the financial system in the EU have as their primary aim the expansion of their own powers and the creation of jobs for those working for them. If the EU and its member governments would really have wanted to improve the functioning of the financial system they would have had ample time to design a better legal framework during the past two years. Are we on an inevitable path towards a situation where there will be more regulators and compliance officers working in finance than wealth-producing professionals? In that case, we should have a good look at the banking and insurance system as it was during the good old days of the Soviet Union in order to prepare ourselves.

Credit Suisse Compensation Plan - Incentive or Disincentive?

While the new compensation structure that has just been announced may at first sight appear to be a step in the right direction it raises a number of questions: relying on the return on equity may be an incentive to increase leverage (and risk) in order to achieve a superior ROE. Making payouts over a number of years could lead to employees just marking time in order to cash in the awards. Depressed share prices and/or a low return on equity may punish hard-working employees that have no influence over either of these two yardsticks. At the same time top management is free to award itself levels of compensation that are high enough to shelter them from the negative fall-out from these two factors, thus creating an unhealthy 'them and us' atmosphere that is not conducive of good team-work.
One unintended effect of complicated and onerous compensation structures dreamt up by the big investment banks may well be that smaller competitors will become a more attractive employer. Younger employees in particular will not be able to spend these 'awards' to support a young and growing family when you need cash for housing, education and other pressing needs.