When Stars implode [your business] Thursday, May 08, 2008
The ramifications of Greg Coffey's departure from GLG will be reflected upon by many other CEOs in the hedge fund and fund management arena. At minimum, it should have forced a review of key personnel risk within their own organisations, if only because they are likely to be asked about it by their own company investors.
Greg, who managed $7bn out of GLG's $24bn of funds under management announced last month that he was leaving the firm to set up his own firm. This initially caused a sharp fall in GLGs share price, which then recovered most of those losses. In leaving, Greg is foregoing $250m of stock options and $300m ish of annual compensation.
Today was GLG's results briefing at which, according to the FT, GLG boss Noam Gottesman spent most of his time fending off questions about the impact on the firm.
Mr Gottesman said in the worst case scenario, he expected about $4bn of the $6bn Mr Coffey managed would leave GLG when he exited in October, adding that he wouldn't be surprised to lose most of Mr Coffey's team also.
Mr Gottesman, who had "spent the last month dealing with the ramifications of Greg's departure", said he "would never have imagined that a few $100m was an insufficient amount to retain somebody".
Asked how much each of GLG's remaining portfolio managers individually controlled, Mr Gottesman acknowledged that in hindsight it was a "risk to the business" for one person to manage as much as Mr Coffey did.The star culture that permeates through the hedge fund and fund management sectors is actually one encouraged by the employers, who seek to crow about how fantastic their latest hire is or the performance record of particular managers. Intended to encourage new business it specifically sets the firm up to fail when that Star a) under-performs or b) demands higher pay/equity and/or c) elects to leave. Obviously the employees are more than happy to play along since its ups their bargaining power in negotiating for higher compensation.
Having worked with many fund management companies in my career, I've seen instances when it has also created an undercurrent of resentment and bitterness amongst colleagues/teams, which is another key reason why some firms insist on downplaying the importance of any one individual.