Investment bankers move to Mayfair
Industry stars are setting up boutique firms
London’s Mayfair, previously the stomping ground of hedge fund managers, is witnessing a new wave of savvy former investment bankers. The number of independent boutique investment banks, brokers, corporate advisory and specialist investment firms has ballooned in the past year as some of the industry’s stars seize the opportunity to strike out on their own.
Neal Neilinger, chief investment officer of Aladdin Capital, a boutique investment bank, said: “There has never been an opportunity like this to build a business.” Aladdin shifted its focus from asset management to establish an investment banking and advisory business last year.
Due to the credit crisis, the swelling tide in favour of the bulge-bracket investment bank is turning back to the traditional merchant banking model where small is beautiful.
Joseph Dryer, joint chief executive of Heritage Capital, a Mayfair-based investment banking subsidiary of Swiss private bank Banque Heritage, said it was offering its corporate and institutional investor clients a “return to the type of business and relationship investment banking that was practised back in the 1980s”.
Chronologically, the new firms fit into three categories: those established before the credit crisis in 2007, such as Aladdin Capital and Heritage Capital, but that have changed strategy because of it; those formed between August 2007 and Lehman Brothers’ fall last September; and those firms founded in the wake of that seismic event.
In the past 10 months, several firms have been founded, each with their curious name and raison d’être. One such is JRJ Ventures, a boutique set up by Jeremy Isaacs, the former chief executive of Lehman Brothers in Europe, and Roger Nagioff, Lehman’s former global head of fixed income. Another is Ondra Partners, a corporate finance advisory firm founded by Michael Tory, Lehman’s former head of UK investment banking.
The list of start-ups is long. Amias, Berman & Co is an agency broker founded by former heads of fixed income at Citigroup while Bell Capital Partners is a real estate finance firm founded by former Barclays Capital structured finance and securitisation bankers. IlliquidX is a specialist advisory firm, Orchard Global Asset Management is a specialist credit manager, Versatus is a specialist debt advisory firm, StormHarbour is a boutique financial services firm and Serone Capital was founded by Morgan Stanley alumni.
The areas of coverage for these companies may differ, but they all want to do the same thing – fill the void in service provision to corporate and institutional investors left by bulge-bracket banks.
Dryer said: “Many of the big investment banks have lost sight of their clients, particularly in the mid-cap arena, where they have been pushed towards ‘light-touch’ and even ‘no-touch’ coverage and execution via electronic platforms, which provides little value.”
The boutiques argue that these clients have been neglected for some time, but the situation has got worse in the past two years as big US and European banks have prioritised balance-sheet repair. The independence of a boutique can be an attractive proposition for corporate clients and institutional investors because they are not compromised by lending relationships.
Paul Delaney, group treasurer at FTSE-100 listed advertising group WPP, said: “In today’s environment where bank capital is constrained or limited, the bank may have one eye on its loan book and thus not be totally independent.”
While many of the new boutiques are offering independent corporate finance advice, a clutch of dedicated fixed-income firms offer counterparties capabilities beyond pure advisory work, such as Amias, Berman & Co and StormHarbour.
Others include Heritage Capital, Aladdin Capital and Method Investments & Advisory, the boutique investment bank that Matteo Mazzocchi, former head of structured credit derivatives and alternatives at Royal Bank of Scotland, is building to offer fixed-income brokerage, proprietary trading, asset management and advisory services.
Amias, Berman was founded last year by Jeremy Amias, former head of fixed income, currencies and commodities for Asia-Pacific at Citigroup, and Charles Berman, who was co-head of fixed-income capital markets at the bank. It is an agency broker business, which also offers clients – investors and issuers – advice and origination expertise.
Antonio Cacorino, former global head of Citigroup’s investor client group, and Fredrick Chapey, former head of global structured credit derivatives at Citigroup, co-founded StormHarbour last year, and launched the business last month.
Cacorino said StormHarbour has invested heavily in technology, analytics and in-house proprietary systems, infrastructure which enables it to carry out rigorous valuation and pricing analysis of complex structures for clients across credit, emerging markets, securitised products, convertible and alternative asset securities. StormHarbour has also invested heavily in people. Since the beginning of this year it has hired 50 staff, including about 20 from Citigroup with others coming from JP Morgan, Goldman Sachs, Bank of America Merrill Lynch and Carlyle Capital.
For all the hype surrounding the launch of boutiques in the past year, however, some practitioners believe the window of opportunity open at the beginning of the year is closing.
Paul Morgan, chief executive of London-based Conduit Capital Markets, an independent institutional securities dealer founded in 2006, said: “The market is moving on. There may have been a case to launch a venture back in December and January but the argument for a new business based on the premise of reduced marketmaker capital commitment is out of date.”
Building and running a boutique is not plain sailing, and questions about the sustainability of the independent model are beginning to emerge.
Morgan said: “A number of these start-ups do not have the systems, capital or skill-set to create a strong, bottom line business as the fixed-income market normalises. So they will come under pressure, to the point where their business model will not be able to compete with banks as they come back and incrementally put more capital on the table.”
Another problem facing the boutiques is hiring quality staff. Neilinger at Aladdin said: “In the past couple of years, it has become so difficult for those who are entrepreneurial, client-focused and enjoy executing trades to work in some of the big investment and commercial banks. For us, these are just the kind of salesmen and traders we have been looking to bring in.”
However, he added: “Six months ago, hiring staff was a lot easier than it is today. Competition from other boutiques is fierce, and as some of the big investment banks start to offer guarantees again, hiring has become a lot tougher.”
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