14 November 2018

Morning Coffee: The new most pretentious place to work. The fintech document that’s got everyone cringing with embarrassment

Once upon a time, before the “new humility” of the post-crisis era, the financial sector had a reputation for being a bit arrogant.  But at least during the period when finance professionals swaggering round like the kings of the world, they were for the most part making money.  These days among the tech unicorns, it’s possible to have a degree of self-importance that even the biggest financial titans might have thought a little excessive, while losing billions of dollars and without ever having made a profit.

The Wall Street Journal’s profile of Palantir, the data science company popular with data types who might otherwise work for a hedge fund, is full of jaw dropping moments.  Palantir’s perks are legendary – bankers with long memories might feel a shot of nostalgia at stories of booking last minute business-class flights, perhaps less so at the “Bacongate” episode when the employees revolted over an attempt to switch from their favourite artisanal provider of pork products in the snack kitchen.  But “Palantir Entitlement Syndrome” seems to stretch way beyond this.

The CEO, Alex Karp, although unable to program a computer himself, seems to think that the merits of Palantir’s approach to software engineering ought to be obvious to everyone, and the only reason that a client might not want to hand over large sums of money and proprietary data to them is because they’re being difficult.  Or perhaps, because the client needs a shove in the chest as per one of Mr Karp’s martial arts moves, or maybe a series of punches “rapid-fire in the solar plexus” – as he apparently often demonstrates on employees.

Karp reportedly strolled around in sportswear for years whilst intoning the mantra “we’re not going to have any f—ing salespeople”.  That has now mellowed, as some of the “forward deployed engineers” have shed the euphemism, but investors are still being disconcerted by statements like, “We are a colony of artists. You cannot go to Basquiat and Monet and say that picture didn’t capture the time”

This lackadaisical attitude is beginning to cause problems with investors.  The last venture capital round valued Palantir at $20bn, but founding investor Peter Thiel has apparently sold shares at significantly lower than this amount.  Morgan Stanley is in the uncomfortable position of advising Palantir on what it has to do in order to IPO at the top end of an indicative range of $36-41bn, while mutual funds run by MS currently carry their Palantir investment at an implied market cap of only $5bn.

The trouble is the old gap between ambition and reality. Palantir thought its technology would make it the most important company in the world – Karp says that “the unintended consequence of the numbers we are likely to post is profitability”.  As things have turned out, it is growing up into another provider of enterprise software, and the numbers it has posted so far have had the (presumably unintended consequences) of continued losses on $600m of revenue.  At some point, the pretensions stop coming over as arrogant and just begin to look silly…

Palantir may, however, not look quite as silly as the FinTech Delivery Panel, a British government thinktank whose latest report appears to have been received by the industry it was meant to be helping like “a cup of cold sick”, to use the local phrase.  The idea was not wholly bad – the Panel was meant to be working with large banks like Santander and HSBC to create “groundbreaking guidelines” for fintechs that wanted to do business with established firms.  Unfortunately, the suggestions that everyone came up with were absurdly bland and unspecific – useful advice like “seek legal advice before entering into an agreement” and “ensure that data are adequately protected”.

The reaction from fintech entrepreneurs, many of whom have lengthy backgrounds in banking themselves, has been scathing.  “If this is helpful to you, then you might be in the wrong business”, was typical.  The guidelines advised fintechs to “avoid generic marketing speak” when dealing with big financial institutions; perhaps they should have taken their own recommendations.

Meanwhile …

The Amazon global headquarters competition is at an end, with new locations in New York City and in Northern Virginia.  There are already concerns over what the impact will be of adding another large commuter population to New York’s creaking transport infrastructure (WSJ)

… while Citigroup have taken one for the team by agreeing to move 1,100 employees from Long Island to Queens in order to free up space for Amazon in a tower block. (Marketwatch)

And an early investor in Palantir – the CIA’s investment fund InQTel – has hired Peter Tague, who resigned as Citigroup’s global head of M&A in February. (Financial News)

A speech by the ECB’s Luis de Guindos seems to have set a new benchmark for adequate capital levels in Europe, and it’s a benchmark which Deutsche, SocGen and other big wholesale banks don’t seem to meet.  (City AM)

“The age of men in their 50s managing money according to their whims is at an end”, according to Ambrosia Capital’s Torbjorn Olofsson (formerly of Brummer and Nektar), who is now 53 and will be closing his hedge fund down to launch a new product, not based on his whims. His new product will be a low-fee quant operation aimed at reproducing a traditional 60/40 insurance office portfolio. (Bloomberg)

Sergio Ermotti of UBS thinks that consolidation is “inevitable” (CNBC)

Big banks and law firms are paying to install employees in co-working spaces and WeWork sites.  This trend is partly motivated by a desire for flexibility in real estate planning, but some of the employees claim that the change of location is good for creative thinking.  Particularly if the new place serves free beer. (Financial News)

Julius Baer is consolidating its two bonus schemes (discretionary and production-based) for wealth managers, and reducing the element of guaranteed payout.  The message is apparently quite simple – “work harder” (Finews)

Ken Griffin of Citadel is the latest major financial figure to speak out politically, criticising Donald Trump for undermining the Fed (FT)

University admissions tutors give advice on how to make a personal statement that really stands out, rather than compiling a list of expensive volunteering holidays and extracurricular activities. (Guardian)

The man who bid $57,500 for an hour’s lunch with Bill Ackman was a tech entrepreneur called Andrew Wilkinson. (Barrons)

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