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Morning Coffee: The booming job that’s like boring banking, but better paid. The $800k coders who fired their boss, twice

It’s hard to escape noticing that in an overall pretty depressing job market, private credit is booming.  Having started the year as the hot sector in alternative investment, it’s only got hotter with new fund launches practically every week.  Banks are also getting in on the action, with Nomura and Citi both announcing substantial new allocations of capital this week alone.

What makes private credit so popular? Investors have noticed that it’s no longer a low interest rate environment, and to the chagrin of other alternative asset managers, they’re thinking “why bother owning anything else when the debt is paying 12%”?

If you were lucky enough to have been in or around the private credit business a few years ago, you are in incredibly strong demand now – according to a recent report by headhunters Pearse Partners, private credit now accounts for at least 30% of all fixed income recruitment, with alumni of Goldman Sachs’ leveraged finance team particularly prized.

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Which is pretty strange, because as JPMorgan Private Bank puts it (in a favourable research note), “Direct lending isn’t new. It’s traditional bank lending, but now taken up by asset managers”.  And “traditional bank lending” really isn’t all that new or sexy an activity.  In fact, as FT Alphaville observed, firms like JPMorgan have been doing “private credit investing” for over 150 years without feeling the need to make a big deal of it.

In fact, the direction that private credit investment appears to be headed in is even less glamorous – a fintech startup called Fundflow set up by two former Goldman bankers is aiming to be a platform to match “alternative credit” investors to borrowers seeking as little as $1m, and who aren’t owned by private equity funds.  That sounds like not just banking, but small business lending, an activity more usually carried out by somebody’s uncle in Cincinnati who’s in the Rotary Club, rather than a 25-year-old who sweated blood to get recruited to Apollo from the Morgan Stanley analyst program.

So is this, as the old joke about hedge funds has it, “a compensation strategy dressed up as an asset class”? Quite possibly yes.  The big difference between “private credit investors" and “corporate bankers” in many cases is that the private credit guy will actually be making the decision about the loan, rather than delegating it to a big centralized credit scoring system.  It’s the comparative scarcity of this kind of talent that’s driving the hiring boom.

The time to watch out, therefore, will be when we see the launch of the first big “quantitative private credit” funds, boasting to investors that they can make thousands of “investments” every day, probably using artificial intelligence.   The Thanksgiving holiday might provide a good opportunity for ambitious young private credit guys to ask their uncles what happened to pay and conditions when this happened in the banking industry.

Elsewhere, while private credit bankers are difficult to recruit, people who can write code for artificial intelligence are genuinely rare.  Engineering roles at OpenAI are usually advertised at between $200k and $370k, with bonuses and stock options worth as much as another half-million dollars on top of that.

That’s proper front-office money – it’s in line with some quite specialised Goldman Sachs strat roles.  The glamour factor is probably favourable too – although Alex Gerko of XTX teased that finance quants have “a zero risk of accidentally killing all humanity”, there’s a palpable feeling of creating the future and changing the world that shouldn’t be underestimated.

On top of which, it seems that the OpenAI coders are aware of their value and prepared to throw their weight around.  Since late last week, the company has appointed two CEOs, neither of whom was apparently acceptable to the workforce, and now it’s back with the original choice, Sam Altman.  The Morgan Stanley bankers who took nearly eight years to get John Mack back to replace Phil Purcell look comparatively docile.

There’s a solid career lesson to be learned here. One big advantage that makes the OpenAI staff hard to replace is that they are familiar with the OpenAI codebase – according to one person working there, “an AI engineer inside the company is worth three AI engineers from outside the company”.  This kind of internal firm-specific human capital is extremely common in banking too.  Unfortunately, bankers tend to learn the lesson the wrong way round – by leaving their franchise and contacts, and being surprised that their value has suddenly halved.

Meanwhile…

A longread on the downfall of Leon Black and the succession at Apollo.  It includes an interesting vignette about how investment banking recruitment still worked in the 00s (things have been substantially tightened since then as a result of various scandals).  Black was able to get a personal interview for his mistress, bypassing the HR system, but he couldn’t actually get her a job. (FT)

Jefferies has launched “Tradu”, a cross asset trading platform built “by traders for traders”.  Unusually for the industry, they appear to have achieved this without giving dozens of interviews about how many coders they have hired from Amazon or saying that they’re going to be the Netflix of trading or such like. (The Trade)

UBS CEO Sergio Ermotti is in favour of the Swiss regulator FINMA being able to place harsh sanctions on negligent bankers.  This is pretty sporting of him, since his bank is pretty much the only major player left that the sanctions could be levelled on; perhaps he wants to instil a bit of compliance fear in his employees. (FT)

Although Nomura has cut back in some other geographies, it’s still hiring in Europe, bringing Ruhir Sharma across from Deutsche to its London FX desk. (Financial News)

At least someone got a good bonus out of the Goldman Sachs retail banking adventure – the golfer Patrick Cantlay was on a $1m+/year brand ambassadorship deal, which has now come to an end as GS scales back. (CNBC)

Some of the staff at McKinsey are apparently ever so slightly, ever so tactfully irritated that the partners’ offsite meeting was a big blowout in Seoul with entertainment by KPop stars, at a time when revenue pressure is acute. (Bloomberg)

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AUTHORDaniel Davies Insider Comment

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