The business world can sometimes be a cutthroat environment. When companies aren’t producing profits, drastic measures are often made. And when these measures are made, job security becomes a little less stable.
This is exactly what happened when the massive hedge fund known as Citadel, which fired 45 people from its Aptigon Capital stock unit. The failure from Aptigon to make enough money has led to one of the biggest restructurings of a hedge fund in recent years and kicked a third of its staff to the curb. Founder and Chief Executive Ken Griffin, started the 27 billion dollar company (almost $300 Billion in regulatory assets) in 1990 and has continued to keep his reputation as a ruthless boss. Richard Schimel, who headed the Aptigon unit and Chief Operating Officer, David Bonfili were the first to be let go when the madness started, along with several analysts, associates and support staff.
The firings didn’t stop. Starting the year with about 22 portfolio managers, Aptigon now only has roughly a dozen managers. After Ken Griffin picked Schimel to head Aptigon in 2016, Schimel hired many people from different hedge funds. 20 of those new hires were portfolio managers that Citadel poached from Visium Asset Management. All of them being hired with the promise from Citadel they’d soon be running $1 billion or more. In the recent aftermath, only two Visium portfolio managers now remain. Meanwhile, Visium traders manage over $1 billion in equity capital at AllianceBernstein Holding LP, which made a bid for the teams at the same time as Citadel. While Citadel is cleaning house, almost all of the Visium hires remain at AllianceBernstein in a unit called AB Arya Partners.
So after witnessing the outcome of Citadel’s failure with Aptigon and Visium’s success , what was the defining factor? Why did the Visium Portfolio managers succeed? It all comes down to management and culture within the company. Citadel has shown a harsh “sink or swim” environment for their portfolio managers and other staff.
Jacob Gottlieb and his Method
Visium has a more hands-on approach by bringing on young talent and then nurturing them and supporting them to success. Portfolio managers are participated in meetings with Jacob Gottlieb, the CIO of Visium, idea templates, sizing guidance, fundamental analysis, and multiple weekly strategy meetings.
Visium has also innovated with lower fees in a multi-manager model with ‘regular’ fees of 2/20 rather than that of Citadel which is estimated at 4/40. These higher fees and costs require higher gross returns by managers, thereby creating more pressure on the managers and a higher fail rate.
More examples of the work culture that Jacob Gottlieb has established at Visium can be found in a template for the mentors who are coaching a Portfolio Manager. It states that a mentor’s first responsibility and top priority is to support the Portfolio Manager and emphasizes their continued success is the foundation for the path into the future. The objectives for the mentor are to support the Portfolio Manager along the learning curve, teach how to prevent typical mistakes and how to diagnose/deconstruct outcomes as a platform for improvement.
Further objectives of the mentor is to help the Portfolio Manager develop a culture of disciplined methodologies – from both the coaching side and from the PM/COA side. Visium expects accountability on both sides of the relationship. This includes helping set goals as a tool for discussion and learning. At Visium, a Research Director shares a similar role in the relationship with a Portfolio Manager. Guidelines for a Research Director include developing, mentoring and integrating Portfolio Managers into the firm’s platform, provide guidance in building their own businesses and appropriately managing their teams, working with a PM to improve their investment process and learning from best practices, and identifying under-penetrated or under-performing investment opportunities and working with Portfolio Managers to pursue such areas of potential.
By further exploring the methods used at Visium, you can see how Jacob Gottlieb has created a positive culture within the company by using an affable management style. The resources and support provided to Visium managers have contributed greatly to the success of the team. “The best talent is talent you go out and find. The talent you want to hire is the talent you want to pull from someone else.” These are the words of Citadel’s Founder and Chief Executive, Ken Griffin at a conference in May 2016 before taking on the Visium group. This statement clearly reveals the attitude towards their managers and staff and their expendability.
Given what we know now with the Citadel layoffs, just because you’re persuaded with false promises to join a massive hedge fund, doesn’t necessarily mean you’ll receive any job security. The work environment that Jacob Gottlieb constructed at Visium is quite different. By showing continuous support, managers are able to have a more focused and positive outlook; unlike the constant fear of being fired from Citadel. For those who keep track of this type of hedge fund drama, you can learn something and understand why things didn’t work out. Focusing on a company’s culture and creating a healthy environment isn’t a bad place to start.